Why did the immigration crisis skyrocket the prices of hotel rooms in New York City?

Are you thinking about traveling to New York? If so, keep this in mind: hotel room prices are through the roof.

A spokesperson for Mayor Eric Adams said the reason for the price explosion is increased tourism, which is returning to pre-COVID-19 levels. However, beyond the fact that the reason has to do with supply and demand, a report from The New York Times shed light on the situation: the immigration crisis generated a significant shortage of rooms for tourists.

In 2020, when the pandemic hit the hospitality industry hard, New York hotels were on the brink of bankruptcy due to the decline in tourism.

A year and a half later, with President Joe Biden in the White House, a lifeline was unexpectedly refloated: the immigration crisis.

As the migration crisis collapsed border states and illegal immigrants were moved to large non-border national cities, local governments were forced to look for a quick solution to find shelter for migrants.

The hotels, according to the NYT, were the first to raise their hands to become temporary shelters and sign juicy contracts with local governments while a solution was crafted to the immigration crisis, which is still in force.

"Dozens of hotels, from once-grand facilities to more modest establishments, closed to tourists and began exclusively sheltering migrants, striking multimillion-dollar deals with the city," the NYT report reads. "The humanitarian crisis became the hotel industry's unexpected lifeline in New York; the hotels became a safe haven for tens of thousands of asylum seekers."

City officials explained to the NYT that, in general, hotels receive between $139 and $185 per night per room regardless of whether the room is occupied or not, an agreement that guarantees a fixed flow of income to these businesses.

Furthermore, these rates do not even include the money the city spends on food and other services for immigrants. Likewise, some hotels have managed to make better deals than $185 per night.

The problem is that now, two years after tourism is finally returning to normal in "The city that never sleeps," the migration crisis continues, leaving more than 16,000 rooms occupied.

The logical result is that there is now much less supply than at pre-pandemic levels, and demand has already balanced out, generating a notable shortage of rooms and an exorbitant price increase.

"There's no question that taking a massive supply of hotel rooms off the market is increasing prices at the hotel," Nicole Gelinas, a senior fellow at the Manhattan Institute, a conservative think tank, told the New York Post.

In addition to hotels becoming reception centers for migrants, the NYT cites three more factors that explain the increase in hotel room prices: rampant inflation, the loss of short-term Airbnb rentals due to local bans driven by hotel unions and an expected decline in new hotel construction due to New York regulations.

If you put all these factors together, a record average rate for a hotel stay in New York City was $301.61 per night in 2023, which represents 8.5% more than $277.92 in 2022, according to real estate data provider CoStar.

CoStar couldn't yet determine what the average rate will be during peak season, but in the first three months of 2024, when prices are low, stays were already 6.7% higher than during the same period in 2023: $230.79 per night vs. $216.38 last year.

With more than 16,000 rooms already reserved for migrants, the rooms available for tourists remained at 121,677.

According to the NYT, thanks to hotels, tents and other types of shelters, some 65,000 immigrants are being cared for by the city of New York, allocating a large part of the annual budget to the immigration crisis.

In fact, New York City projects it will spend $10 billion over three fiscal years on the immigration crisis.