AirBnB and Externalities in New Orleans

     In the past couple of weeks, the city of New Orleans has continued the debate over the benefits and problems of short term rental services such as AirBnB. In fact, on August 9th, the New Orleans City Planning Commission voted to recommend the outlawing, officially, of whole home rentals. Whole home, or whole apartment, rentals were illegal before this vote, but it allowed city officials to make clear delineations in the laws concerning short-term rentals. Now, whole home rentals are recommended to be legal if the entire home or apartment is rented for 30 days or less out of the year and one-room rentals are recommended to be legal full time, as long as there is a limited number of one-room rental per block. The city officials hope this will be a compromise that everyone involved in the situation can live with and that will benefit the city financially, enabling them to track and fine AirBnb and other short term rentals not in compliance in New Orleans.
     A classic example of a negative externality is a sewage plant located near a neighborhood or plot of land that reduces the value of that plot of land or land in the neighborhood due to its location near the sewage plant (most likely cause: the smell). AirBnb and other short term rental companies in New Orleans have had an opposite effect for landowners. In neighborhoods where AirBnbs have become quite popular, including the Marigny and Bywater districts in particular, land values have increased significantly. This is a positive externality of neighbors using AirBnB for the land owners currently living in those neighborhoods.
     However, this has been a significant problem for the full time renters in the area, thus the spirited debates that have been taking place during open meetings of the New Orleans City Council and Planning Commission over the course of the recent rise of short term rentals.  Long term renters in the areas have seen their rent increase significantly as the land values have increased significantly, which is resulting in difficulties for the renting residents of these neighborhoods. In addition, long term renters and residents of the areas have been complaining about the lack of maintenance of short term rentals leading to a more negative living experience in neighborhoods with large numbers of short term rentals. While a Coasian solution would involve a case by case deliberation consisting of those individuals affected by each short term rental, the New Orleans Planning Commission has taken matters into their own hands and hope that their solution will balance the negative externalities experienced by the long term renters and residents and the positive externalities to landowners, groups which can and do overlap with each other, to create what they believe to be the best solution for their constituents and the city coffers.