Analysis: NYC Hotel Room Rates Reach $300 Per Night – Uncovering the Reasons

It’s the law of supply and demand: When supply falls, prices rise. When demand rises, prices also rise.

That’s the perfect storm New York City finds itself in after paying hotels millions of dollars over the past couple of years to close themselves off to tourists and house illegal immigrants instead.

According to The New York Times, one in every five New York City hotels is now an immigrant shelter — so there are fewer rooms to offer tourists. That’s a reduction in supply.

At the same time, demand is on the rise, according to the Times.

“Two years in, as the city’s peak tourism season is about to begin, the migrant crisis has helped dramatically shift the hotel landscape in New York,” the paper reported. “The conversion of hotels to shelters has sharply decreased the supply of rooms just as tourist demand has risen, nearly to prepandemic levels, and is projected to match a record high.”

As any economist — or first-year economics student, for that matter — can tell you, those two factors combined can only mean one thing: rising prices.

And that is in fact what’s happened, according to the Times: The average cost to stay overnight in a New York City hotel was up 8.5 percent last year over 2022, and hit $301.61, which the Times said set a record.

This year, rates are set to go even higher — in the first quarter of this year, they were already up 6.7 percent over the same period last year.

The outlet cited an analysis by Costar last November that showed 16,000 rooms made unavailable for tourists, offset by about 4,000 new rooms that were available at the time of the study, with another 8,000-plus under construction, in round figures.

The Times said that the 2,812 rooms no longer open for tourists amounted to “a shortage that is being acutely felt.”

“During peak periods, try getting a hotel on a Tuesday, Wednesday or Thursday night in midtown Manhattan, and, if you can, you could end up paying dearly,” Daniel H. Lesser, a co-founder of LW Hospitality Advisors, told the Times.

“It’s all supply-and-demand related, and the migrant rooms have reduced the amount of supply,” he added.

The current and former mayors haven’t helped, either, according to the Times.

A new law made most Airbnb and similar short-term accommodations unavailable — taking 83 percent of them off the market. And most of those remaining available for rent on Airbnb require a minimum stay of longer than 30 days.

The Times reported that the short-term Airbnb rentals used to provide rooms for more than one-in-10 tourist stays.

The law, which the hotel industry lobbied heavily for, according to the Times, may actually be having more of an impact than the immigrant housing crisis has had.

Mayor Eric Adams unsurprisingly acknowledged one half of the equation — the half that makes him look good — while ignoring the issue of reduced supply.

“The return of tourists to New York City is reflected at hotels as well, where demand is up,” a spokeswoman for Adams said in a statement. “New York City is safer, cleaner and, as the numbers show, continues to be one of the most popular destinations in the United States.”

Demand is up; that’s true. Adams might even deserve some of the credit for that.

But supply is down, too — way down. That’s also having a significant impact on hotel room rates.

And Adams definitely deserves much of the credit for that.