That might be true if your worldview started and ended at the edge of NYC. For the rest of us, AirBnB is used across the country in suburbs and less populous cities.
If you have a two family house and "air out" the second apartment, how exactly is that converting externalities into profit?
I'm not sure a densely populated city should really make any objections to externalities.
There are still a lot of externalities that people are cutting corners on, even in the suburbs: proper insurance (by not declaring that you're acting as a hotel), tax (by not declaring airbnb income on your income tax), safety regulations (fire extinguishers, smoke alarms, floor plans etc).
Not that all these laws make sense for airbnb, but by not respecting them you're "unfairly" undercutting hotels.
If you have a two family house and "air out" the second apartment, how exactly is that converting externalities into profit?
I'm not sure a densely populated city should really make any objections to externalities.