The Economics Of Hotel Rooms

November 28, 2012 in Daily Bulletin

The cheapest apartments will cost you about $30 a night. The cheapest hotels cost about $90 a night. Why are hotel rooms so expensive? Matthew Yglesias explained:

  • The American tax code treats homeowners favourably; the rationale is that they invest in the community and this should be encouraged.
  • Hotel guests, in contrast, do no such thing, and thus hotels are charged sales taxes and hotel occupancy taxes.
  • Hotels are generally located on prime real estate and this raises prices.
  • When you pay for a hotel you also pay for daily maid service, telephone operators, and concierges.
  • Business travelers have expense accounts that they use to pass on the costs to their clients. They don’t really care about costs and this creates demand which drives prices up.
  • Finally the headline price that the hotels advertize isn’t necessarily the lowest price available. Instead the same rooms are marketed to lower-income, cost conscious people at bargain rates. Thus hotels only charge high prices to those who are willing to pay.

Read about other quirks of the tax code that make it preferable for business travelers to get higher priced hotels, the money value of time, why Airbnbn might change things, and how hotels sell their unused rooms at low prices over here.

Source: Slate