This seems like a regulatory arbitrage that shouldn't exist to begin with. Why should the fire safety regulations for a hotel be dramatically different in expense than the ones for the equivalent apartment complex?
> They are increasing demand in the same way more and bigger roads do not reduce but instead increase traffic.
People consistently get this wrong. Bigger roads don't increase traffic. Congestion suppresses traffic. If there is a congested two lane road because it's carrying traffic that would require a four lane road, so then you build a four lane road, you then discover that the four lane road is still congested. Because once you remove some of the congestion, the demand it had been suppressing comes back and you still don't have enough capacity.
The distinction is important because there is a point at which you actually have enough road capacity to satisfy the demand that exists when it isn't being suppressed by traffic congestion. It's just more than you might have expected based on the amount of traffic observed when the road was congested.
> In addition to that they can ignore zoning laws and therefore move rent prices up in areas where hotels are not allowed to be.
The solution to which is to eliminate restrictive zoning like that, so that supply can respond to demand.
The primary reason that short-term rentals are zoned differently is local regulatory capture by hotels to limit competition and keep prices high. Without restrictive zoning, short-term rentals don't have to come at the expense of long-term housing because you can build more housing and have both.
Current knowledge says that "on average, a 10 percent increase in lane miles induces an immediate 4 percent increase in vehicle miles traveled, which climbs to 10 percent – the entire new capacity – in a few years." https://en.wikipedia.org/wiki/Induced_demand
There is an obvious confounder here, which is that anywhere they add lane capacity is going to be a place undergoing growth, which is why they felt the need to add lane capacity. But if the growth the continues, the new lane capacity once again becomes insufficient at some future point.
I would expect to see the same pattern with electrical transmission capacity. Where they add more capacity, you then see an increase in consumption. Which is to be expected, because why else would they add the capacity?
The difference with roads is that they don't catch fire if you want until after you're over-capacity before expanding them, which makes it more likely that the demand will consume all of the new capacity, since you're starting off from the point of already being underwater.
That said, I think the source of this paradox is ultimately not in the road one is thinking of expanding, but in all the connections between it and other roads. It buys you little to turn one lane into five if all the exits are still the same capacity.
This paper explains this quite well: https://link.springer.com/article/10.1007/BF00166218 - I've heard it is available on sci-hub.
Your second point is very important though, and IIRC is the main reason why so many city planners are so critical of the boring company idea of underground car tunnels: It tries to solve an aspect of traffic that isn't the problem.
You're really just saying the same thing as I did -- congestion suppresses demand.
Suppose you have an uncongested two lane road. Making that a four lane road is not going to induce anything, because the widened road has more capacity than the original one, but you weren't even using the full capacity of the original one. It doesn't encourage anyone to do anything they hadn't already been able to.
The reason it "enables sprawl" is that if the original road was congested, people wouldn't want to travel it to commute, so buying a house in the suburbs and commuting via that road is suppressed. Congestion suppresses demand. If you reduce the congestion by widening the road, some of the demand comes back. And notice that the same thing happens if you alleviate congestion in some other way -- if you somehow make it more attractive to take the subway and then more people do, there is less traffic on the roads and it becomes more attractive to drive.
But you don't actually want the congestion. Traffic congestion sucks. You want to get rid of it somehow.
Part of the solution could be expanding the road, but you could have to expand the road a lot to satisfy all of the demand that would exist with uncongested roads, if you want to use that as the only solution. Which is why you shouldn't. There are other things that reduce congestion.
Like building higher density housing, so that more people can live closer to where they work and have a shorter commute, which in turn makes mass transit more viable. Then that in combination with widening some roads relieves the congestion.
The real problem here is the politics of it. Increasing the housing stock sufficiently to satisfy the demand would tend to reduce housing costs, which existing property owners don't want. So they fight high density construction with restrictive zoning rules and then the high cost and low supply of housing in the city pushes people into the suburbs, which increases the demand for roads.
They are increasing demand in the same way more and bigger roads do not reduce but instead increase traffic. This paradox is well-known among city planners (but often ignored by those who make the decisions because it is counterintuitive).
In addition to that they can ignore zoning laws and therefore move rent prices up in areas where hotels are not allowed to be.