Petaluma City Council Plans New Airbnb Regulations, Taxes

Published April 13, 2015

Prompted by a group of residents opposed to the popular sharing-economy website Airbnb, the Petaluma, California City Council is finalizing new housing restrictions targeted at making it harder for individuals to host travelers in their homes on a short-term basis.

The proposed regulations would limit the number of guests and the number of days an entire house can be rented. The new rules would also raise additional tax revenue for the city. The city council projects the city will receive $85,000 in additional annual revenue collected from permit fees and hotel tax revenue.

Consumer Benefits Cited

Independent Institute Senior Fellow Lawrence J. McQuillan says services like Airbnb benefit consumers in many ways.

“Residence-sharing apps provide many benefits to consumers, including greater affordability, flexibility to schedule last-minute stays, screening and reviews of hosts, convenience, and the potential of meeting new friends that share similar interests, especially a love of travel,” McQuillan said.

Fearing ‘Imagined Problems’

McQuillan says some community members’ complaints about Airbnb’s negative externalities are overblown.

“It is important to separate real from imagined problems,” McQuillan said. “Every neighborhood has busybodies that are overly concerned with other people’s business and cry ‘foul’ whenever somebody does something in the neighborhood that they think is wrong, whether it affects them or not.

“As for traffic congestion, it is unlikely that Airbnb would swamp a neighborhood with tourists,” McQuillan said. “Congestion should never be used as an excuse to prevent progress or development.”

‘If There Is No Problem …’

Duke University political science professor Michael C. Munger says local governments should stay out of the business of regulating exchanges between private individuals.

“Many people think that the role of the state is to reduce the transaction costs of legitimate, voluntary exchanges,” said Munger. “So, if there is a market failure, then there may be a role for government … but in this case[,] Airbnb has outsourced trust in a way that is very efficient.”

Munger says Airbnb is not a problem to be solved but a solution to a problem experienced by consumers.

“Market failures are not generic, but specific,” said Munger. “If there are no institutions for insuring safety, then perhaps regulation is a last resort, but if the industry or firm can solve the problem the state should use a light touch. If there is no problem, then regulation cannot be a solution.” 

Ex Post and Ex Ante Regulations

Munger says Airbnb’s rules and process help protect hosts and consumers alike, giving both parties information needed to make decisions.

“Airbnb has a name, address, and financial info on the specific person named in the contract,” said Munger. “That is more information than we have on literally any employee in the ‘regulated’ hotel sector. All the hotel regulations are ex post, a threat to prosecute if someone does something wrong, but Airbnb info is ex ante for a prospective renter. I can judge the reputation of the seller and make informed judgments.

“If anything, you are safer in an Airbnb rental than in many hotels,” Munger said.

Kelsey Hackem ([email protected]) writes from Columbus, Ohio.

Internet Info:

Georgios Zervas, John W. Byer, and Davide Proserpio, “The Rise of the Sharing Economy: Estimating the Impact of Airbnb on the Hotel Industry,” Boston University: