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Striking a Blow Against Economic Recovery

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Striking a Blow Against Economic Recovery

Mayor de Blasio plans a ban on new hotels. January 12, 2021
New York
Economy, finance, and budgets

Late in December 2020, New York City’s Department of City Planning quietly released notice of a public hearing on a proposed zoning amendment that would require a special permit for any new hotel in New York City. This will induce a rush by hotel developers to secure building permits and vest their development rights before the window to do so closes. And then—at the end of 2021, in a city still reeling from recession—tourist accommodation, a major local industry, will be capped in size and permitted to grow only through the illegal conversion of housing units to hotel rooms.

At a moment when the city has many issues, like the recovery of its Central Business Districts (CBDs), and is devastated by the absence of commuters and tourists in the Covid-19 pandemic, it seems crazy to impose a new barrier against commerce. There is surely a vast backlog of travel demand from people who have been stuck at home for a year and are shortly to be vaccinated against the virus. Why wouldn’t the city want to bring in as many tourists as possible?

The mayor is repaying a political debt to a union, the Hotel Trades Council (HTC), at the expense of a city whose future he seems to care little about. The city council will cooperate because it, too, is in the pocket of this politically powerful labor group. The origins of this sad pass in the city’s political history go back to the mid-2000s, when New York City had limited hotel inventory, most of it under union contract. Developer Sam Chang and architect Gene Kaufman noted that the city has a nearly unlimited demand for limited-service hotel rooms. By offering fewer amenities and requiring less staff, limited-service hotel rooms could be offered at a lower price point and vastly expand the New York city tourist market. However, the limited-service model could not be reconciled with the union contract and therefore, new limited-service hotels would of necessity be non-union.

Chang and Kaufman took advantage of Manhattan’s large supply of “leftover” development sites, generally small, early twentieth-century commercial buildings wedged between larger buildings. These sites, which might have as little as 20 feet of street frontage, could be profitably developed as limited-service hotels. Soon, with other developers imitating Chang and Kaufman’s model, such hotels proliferated in Manhattan, and the limited-service model also spread to other boroughs where rooms could be offered at even lower price points.

By the time of Michael Bloomberg’s third-term reelection campaign in 2009, the union had identified the proliferation of limited-service hotels as a major threat to its membership and a special zoning permit as the solution. The special permit would let the union exercise its leverage at the city council to ensure that no non-union hotel could be constructed. Since limited-service hotels could not economically accede to the union contract, there would be no applications for a special permit, and that would achieve the union’s objective of protecting its market share.

In Bloomberg’s third term, the city began making small-scale concessions to restrict hotel development but dragged its feet on the larger-scale union demands. The same was true in de Blasio’s first term. In his second term, capping the growth of the hotel industry has become a major priority, while critically needed updates to the city’s obsolete zoning resolution have been largely ignored.

In 2018, the de Blasio administration enacted a special permit for new hotels in light manufacturing districts, prompting a rush to vest development rights, aided by generous provisions allowing projects that had obtained full or partial building permits to complete construction. The result was that vast new hotel room supply came into the market just in time for the pandemic to crush demand.

Since 2007, New York City has added 54,000 hotel rooms—a 73 percent increase in inventory. The current proposal is likely to touch off another rush to build. From the union’s protectionist perspective, the city is locking the barn door after the horses have fled. However, it’s not the job of the City Planning Commission and the city council to meter precisely the supply of hotel rooms to support a desired level of room rates—nor is it even legal to do so.

The city needs a fig leaf for its actions, and its Public Scoping Document weakly claims that “a more uniform zoning framework for all new hotels citywide can support more predictable development and limit the extent to which a hotel use may impair the future use or development of the surrounding area.” The document gives the game away in many ways: it cites no examples of a hotel that creates land-use impacts that a special-permit review might prevent; it identifies no location where a hotel might be an appropriate land use; and it provides no illustrative example of a review of a special-permit application under existing provisions—because there aren’t any.

The city is effectively proposing a ban on new hotels after this year. Because it starts out with a depressed industry and a large room supply, the effects will be long-term. In the end, the victims of this political horse trade are low-skilled workers—people who have little hope of getting a union hotel job but would gladly work in new non-union hotels. The big winners will be operators of illegal hotel rooms in converted apartments and homes, advertised on online services. They’ll meet the market demand while in many cases evading zoning, other applicable laws, taxes, and labor protections. The union, already hit hard by the recession, probably won’t benefit much.

Photo by Spencer Platt/Getty Images

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