Abstract
New business models, such as that of Airbnb, have led to a rise in the use of residential properties as short-term lets. In this paper, the writer considers the social efficiency of the use of the public town planning system and alternative private law systems, to regulate the activity. Specifically, the paper considers the use of these in order to tackle spill-over amenity effects upon neighbouring properties. The writer applies the general framework of Ellickson (1973) in performing a comparative economic analysis of the systems. This includes an analysis of the “90-nights” rule of UK planning law, which applies to London. The writer argues that in the specific case of short-term lets, the private law systems disclose relatively low transaction costs. This, in conjunction with their allocative efficiencies, makes them preferred to town planning. Taking into account the problem of nonconvexities, it is concluded that the “90-nights” rule, and the requirement for planning permission for short-term lets, should be repealed. This conclusion encloses an understanding that the amenity effects considered here involve little uncertainty. The courts, if equipped with private information from litigants and public information from development plans, are well placed to regulate this activity.
Highlights
AND OVERVIEWThe rise of online platforms, such as Airbnb, has increased the number of residential properties switched to part-time use as peer-to-peer short-term rentals (“short-term lets”) in the UK and Ireland
The writer considers the social efficiency of the use of the public town planning system and alternative private law systems, to regulate the activity
The most interesting comparisons, are to be drawn between the use of town planning and private law systems. In his 1973 paper, “Alternatives to Zoning: Covenants, Nuisance Rules, and Fines as Land Use Controls”,22 Ellickson considered the regulation of land use generally. He undertook a comparative analysis between the social efficiency of the use of town planning[23] and private law bargaining in the form of, 12 Albeit that there would be distributive consequences to this: ie the owner of the affected property would end up worse-off
Summary
The rise of online platforms, such as Airbnb, has increased the number of residential properties switched to part-time use as peer-to-peer short-term rentals (“short-term lets”) in the UK and Ireland. Whilst Ellickson believed that the transaction costs associated with private bargaining[5] were high, I argue in this paper that in the specific case of short-term lets they are likely to be low. This is primarily because amenity effects are likely most often to arise in cases where covenants can be used at low transaction cost. To explain this further: it is argued that these effects are more likely to arise in cases where the let property is a part of a multi-unit apartment block, or a building scheme This conclusion is based, below, on a review of the publicly reported planning decisions which have been issued in the UK and Ireland.
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