There seems to be some confusion about the term "externality" in this thread that I want to clarify. Not every effect that a person has on someone else is an e

There seems to be some confusion about the term "externality" in this thread that I want to clarify. Not every effect that a person has on someone else is an externality. In general, externalities are direct physical impacts you have on others. In this case, noise is a good example, though the general "vibe" of having strangers moving in and out, and the risk of violence from these people, assuming it is higher, is also an externality. On the other hand, anything that operates via prices is never an externality. If AirBnB increased demand for rental housing and therefore raises prices, this wouldn't constitute an externality. The ethics of free market economics basically states that the government should regulate externalities, but if someone is only effecting you via market prices, that's your own problem. Another kind of externaility is network externalities. Even though pricing residential housing out of the market isn't itself an externality, there may be a network externality associated with residential housing which means that the market wouldn't provide the optimal balance of residential housing and hotels (even if there was no noise issue). Because of this, the government may also want to intervene by restricting the total amount of hotels. However, I doubt this is a big factor in real life since the demand for hotels is clearly much smaller than the demand for residential housing (who spends more than a tiny fraction of their life in a hotel?)