The average price of a hotel room in New York City rose in just a year and a half, from an average $225 a night to $290 a night, a 65% increase. In other U.S. cities over those same months, the average price increased by less than 8%, from $162 to $170.
The result was windfall profits for NYC hotels. Revenues went up by more than $2 billion in 18 months.
What could explain this extraordinary performance by New York’s hotels? What did they have going for them?
New York’s hotels got together and made a joint investment that paid dividends: They lobbied the government to ban their competition.
The story of New York hotels’ war against Airbnb and other short-term rentals sounds wild, but it is a typical story — in fact, it may be the typical story of regulation. Entrenched special interests use their clout and market concentration to push for new rules, supposedly passed in the name of protecting the consumer or the community, that mostly protect the big guys from competition.
What sets this story of regulatory robbery apart is how well it’s been documented.
The last issue of the European Journal of Political Economy includes a paper studying the 2022 “Local Law 18,” which nearly bans short-term rentals like those found on Airbnb. The law allows a New Yorker to rent out rooms in their apartment, but they cannot rent out the whole apartment, and they have to live there.
In other words, a tourist family or a group coming to New York for a bachelor party needs to either rent a block of hotel rooms or stay in New Jersey.
Mayor Eric Adams says the law’s purpose is “to protect local renters” (because banning short-term rentals could increase the number of apartments available to residents). The city also claimed the law enhanced “tourist safety” by curtailing “deceptive listings.”
But when you want to understand the real purpose of a law, you should always look at who supported it. Also, every time you see a new regulation, you should ask which special interest will profit from it.
The answer here is obvious: The hotels.
In 2015, the Hotel Association of New York City released a study finding that competition from Airbnb and other short-term rentals reduced hotel revenues by $2 billion over the past year or so.
“With those figures projected to grow over time, the hotel industry began to mobilize politically,” the study found.
Hotels contributed more than $600,000 to city politicians in the same period, when the Airbnb network contributed $18,000. The result of the contributions and the hotel industry’s lobbying was Local Law 18. The hotel lobby brags about its central role in passing this bill: “As a result of HANYC’s efforts with its lobbying team, its coordinated push with an affordable housing coalition and former Council Member Ben Kallos and the City Council’s legislative team, Local Law 18 of 2022 was passed.”
(Kallos, you will not be surprised to learn, is now a lobbyist, whose practice areas include zoning and housing, according to his website.)
Why did hotels win the lobbying war? The scholars writing in the Political Economy journal concluded that it had to do with the relative concentration of hotel owners as opposed to short-term-rental operators.
“Relative to the short-term rental industry, the hotel industry is far more compact,” the researchers reported. “As of September 2023, there were 1,339 hotels in New York City. Most hotels in NYC (about 62 percent) are affiliated with national brands. By contrast…. before the ban went into effect, there were roughly 22,000 short-term rental listings on Airbnb.”
The larger group didn’t win the lobbying war. The more concentrated one did.
Also important: Airbnb operators likely have less interest in their rental properties than hotel owners do in theirs. That is, an Airbnb operator might be doing it as a side gig, while the owner of the Hilton Garden Inn in Chelsea has all his eggs in that basket.
Also — and this is important for understanding the nature of regulation — the hoteliers have been around longer, and so they have had more entanglements with the city government.
THE LONG BIPARTISAN HISTORY OF GERRYMANDERING
The broader lesson here is one that cuts against the standard understanding of regulators-vs-big business, but it is one we are taught again and again:
Every time the government gets bigger, somebody’s getting richer. The beneficiary is going to be whoever has the best lobbying game—and that’s not going to be Mom and Pop.
