The Los Angeles City Council last week finalized a deal that removes a measure from the March 2024 ballot that would have required hotels across the city to offer vacant rooms to unhoused Angelenos and replaces it with a series of new regulations to the approval process for new hotels.

Hotel trade groups embraced the new regulations as a favorable alternative to what had been proposed. But others in the industry expressed concern over the implications of these new regulations, in addition to preexisting macroeconomic conditions, on new hotel development.

A release from the Hotel Association of Los Angeles called the removal of the original measure and the concurrent approval of the replacement regulations a victory for Los Angeles and its hospitality community. The initial measure would have thrust hotel employees onto the front lines of a citywide crisis in asking hotels to provide shelter to unhoused populations, the organization said.

“This solution ensures that our hotel community is thriving and able to continue providing excellent careers and economic benefits to our iconic neighborhoods throughout Los Angeles,” Hotel Association of Los Angeles President and CEO Heather Rozman said in a statement.

New regulations would require new hotel developments to replace any housing units that are demolished to make way for new projects. Housing the homeless in vacant rooms would be voluntary instead of required, as the ballot measure put forth by hotel worker union Unite Here Local 11 proposed.

Under the new rules, hotel developers and Airbnb operators would be required to obtain police permits to operate. Doing so not only creates another box for hotel owners to tick but also allows city leaders and even neighborhood councils the opportunity to challenge the issuance of the permits, the Los Angeles Times reported.

The rule gave industry professionals pause.

“It's another piece of red tape that the city is implementing here,” Atlas Hospitality Group President Alan Reay said.

He expressed concern about a “fundamental shift” away from an environment in which hotels were seen as desirable and were given tax incentives. Rules like this new set, as well broader ones like Measure ULA, send the opposite message, Reay said.

The average daily rate for hotels in LA and “the profitability of the existing hotels is going to have to get to such a much, much, much higher level in order for developers to want to come into the market to overcome high construction cost, as well as, again, the mansion tax and all of the other things that the city is going to impose,” Reay said.

That high barrier to entry could be a boon for existing hotels and their owners and operators, who would likely face weak competition from new entrants.

“I think you're not going to see new hotels built in Downtown Los Angeles for a long time,” Reay said.