Restrictions on short-term rentals and new hotel development may support room rates. Higher operating costs and acquisition prices make the effect on investment returns less certain.
New York’s short-term rental rules appear to have strengthened hotel pricing power. A 2025 study estimates that enforcement increased hotel average daily rates (ADR) by $14–$19 a night and hotel revenue by $2.1bn–$2.9bn over the first 18 months studied.
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Its estimate of additional room nights was small and statistically imprecise, suggesting that most of the estimated revenue gain came through higher rates rather than substantially more rooms sold.
For an existing hotel owner, that is potentially significant. It is not a measure of investment return. Investors need to know how much additional revenue becomes sustainable operating income—and whether that benefit is already reflected in the price paid for a property.
New York raises a second question. A special permit is required for many new hotel projects, potentially making competing rooms harder to deliver. The city therefore offers a test of a wider investment proposition: can rules that raise barriers for new competitors strengthen the position of hotels already operating?
Two restrictions, two different effects
New York regulates both short-term rentals and hotel development, but the two systems affect accommodation supply in different ways.
Local Law 18 created a registration system for short-term rental hosts and requires booking platforms to verify registrations before processing transactions. Enforcement of the platform requirements began in September 2023.
The city’s underlying restrictions on unhosted residential stays of fewer than 30 days predate Local Law 18. The rules generally prohibit renting an entire apartment or home to visitors for fewer than 30 days.
Legal short stays in a home generally require the host to remain in the same unit with no more than two guests. Registration made these restrictions more enforceable, narrowing the legal supply of whole-home accommodation that some visitors might otherwise choose instead of a hotel.
The 2025 study provides evidence of an effect on hotel room rates. Its findings are estimates for New York over a particular period, rather than a direct count of short-term rental guests who switched to hotels.
Hotel development faces a separate hurdle. Under New York’s Citywide Hotels zoning amendment, adopted in 2021, a City Planning Commission special permit is required for many new transient hotels and certain conversions.
Existing hotels covered by the amendment are generally treated as conforming uses, subject to the applicable rules on alterations and enlargements.
A permit process can add time, expense and uncertainty to a development project. It could also slow the arrival of competing rooms. That potential supply effect is distinct from the evidence on short-term rentals: the hotel-pricing study does not establish that zoning rules have increased room rates, asset values or investment returns.
What the room-rate evidence tells investors
The short-term rental finding matters because it separates price from volume. If a hotel sells roughly the same number of rooms at higher rates, room revenue can rise without a large increase in occupancy or additional physical capacity.
New York’s wider hotel performance helps explain why pricing matters. Hotels recorded 84.1% occupancy in 2025, according to the New York State Comptroller. ADR reached $333.71, up 4.7% from 2024.
These figures describe the overall market; they do not isolate the effect of short-term rental enforcement. Visitor demand, hotel supply, the mix of properties and wider economic conditions also influence performance.
For an individual owner, higher ADR can be particularly valuable when occupancy is already strong and there are few additional rooms to sell. The effect will vary by property.
A hotel competing directly with short-stay apartments may experience a different impact from one serving corporate travellers, luxury guests or visitors seeking facilities that residential accommodation does not offer.
The study’s estimated $2.1bn–$2.9bn increase in hotel revenue should therefore be viewed as evidence of a market-level pricing effect. It is not a forecast for every hotel, a measure of industry profit or a valuation of existing assets.
Does the permit requirement protect existing hotels?
The investment case for a hotel-development barrier is plausible but harder to quantify.
If adding rooms requires discretionary approval, developers must allow for that process before responding to strong demand. Existing hotels may face less immediate competition than they would if suitable sites could proceed without a special permit.
But a permit is a hurdle, not a ban. New York continues to add hotel rooms. The city’s tourism agency reported approximately 124,000 hotel rooms in 2025, up 2% from 2024. Six hotels opened during the year, adding 992 rooms. It also reported 24 projects in active development through 2028, representing 5,778 rooms.
A pipeline does not guarantee that every project will open on schedule. It does show that new supply remains possible.
For an investor evaluating an existing property, the more useful questions concern that hotel’s competitive set: Which nearby projects have approval? Which are under construction? When might they open, and will they pursue the same guests?
Citywide supply figures cannot answer those questions. Nor can the existence of a special-permit requirement alone establish that existing hotels have become more valuable.
That would require evidence of its effect on completed supply and the future income buyers expect individual properties to generate.
From revenue to operating income
Hotel investment returns depend on what remains after the costs of running and owning a property.
New York hotels face staffing, safety, cleaning, licensing and other compliance requirements. The city’s Hotel Licensing Law includes requirements affecting hotel workers and operations, with some provisions varying by property size.
Hotels with fewer than 100 rooms, for example, are exempt from the law’s direct-employment requirement for core staff. New York City’s general minimum wage is $17 an hour in 2026, subject to specific rules for eligible tipped workers.
These obligations belong in a property’s operating budget alongside insurance, utilities, maintenance, property taxes and future capital expenditure. A rise in room revenue improves the investment case only to the extent that it produces sustainable income after costs.
Development regulation has a different financial effect. A longer or less certain approval process can increase pre-opening expenditure, financing costs and the time before a new hotel earns revenue.
That may make an existing hotel harder to replicate, but it can also complicate a future expansion or redevelopment for its owner.
Taxes also require careful treatment. New York City’s hotel room occupancy tax is collected from guests alongside other applicable taxes and charges. Its headline rate should not simply be deducted from an owner’s operating margin.
Its commercial effect depends partly on how the total guest price influences demand and the room rate a hotel can charge.
The purchase price can absorb the advantage
Even a durable increase in operating income does not guarantee an attractive return for a new buyer. If investors expect existing hotels to benefit from limited competition, they may pay more for those assets. The acquisition price can absorb some or all of the expected future income advantage.
New York continues to attract hotel capital. JLL reported $3.7bn across 29 New York City hotel trades in 2025, while Ariel Property Advisors reported $867m across 10 hotel deals in the first half of 2026.
These figures show transaction activity. They do not show that regulation caused the purchases or that buyers achieved superior returns.
The demand outlook matters as well. New York welcomed about 65 million visitors in 2025, including 52.4 million domestic visitors. International visitation remained below its pre-pandemic level.
Strong tourism supports hotel performance, but a change in travel demand can matter more to an individual asset than any competitive protection created by regulation.
For investors, the underwriting questions are:
- Revenue: Is the hotel likely to sustain stronger room rates or occupancy?
- Operating income: How much remains after staffing, compliance, maintenance and other costs?
- Investment return: Is that income sufficient for the purchase price, future capital spending and risks involved?
Answering the first question does not answer the other two.
When can regulation become an advantage?
New York provides evidence that restricting a form of competing accommodation can support hotel pricing. Its special-permit system may also make some new hotel projects slower or more difficult to deliver. The first proposition has an estimated market effect behind it; the second needs to be tested against approvals, construction activity, openings and the competing development pipeline.
For an existing hotel, the potential benefit is greatest when visitor demand is durable, relevant competing accommodation is constrained and higher rates become sustainable operating income. For a prospective buyer, that benefit must also exceed any premium already reflected in the asset’s price and the costs of complying with the rules.
Regulation can affect both sides of a hotel’s economics: the competition it faces and the costs it bears. Whether it becomes an investment advantage depends on the property, the market, the durability of demand and what an investor must pay to own the asset.
