allright, I wrote a law class final paper on love hotels, so here's a few answers to the questions before.
The Public Morals Law
Love hotels used to be a gray area of business until 1985. In legislative terms there was no distinction between love hotels and ordinary hotels, though it was obvious to everyone these were two very different breeds of hotels. Love hotels were seen as seedy and potentially dangerous places with possible connections to the organized crime and an ambiguous legal status. Some people also held worries about love hotels established near public institutions such as primary schools.
To address these issues, the 1985 legislation classified love hotels as sex industry. Sex industry is regulated under the Public Morals Law. As a result, love hotels would be subject to various restrictions such as zoning (only allowed in designated areas) and collaboration with the officials.
Outcomes of the 1985 Law
What initially seemed like a victory for love hotel opponents, turned out to be the exact opposite. It has been argued that the love hotel industry hit a new high as a direct result of the new legislation. Two outcomes were especially notable:
1) Extralegal Love Hotels
In order to apply the law, an official definition for love hotel had to be set. This was done by applying a (highly insufficient) set of conditions, such "there are oversized mirrors in the ceiling" or "there is no front desk". This turned out to be a grave mistake. The love hotel industry now knew what does not constitute as love hotel (in legal terms), which allowed them to escape the harmful "love hotel classification" by making small concrete changes to the premises, such as removing oversized mirrors. These hotels became known as extralegal love hotels - they are every bit love hotels, but they operate free from the restrictions posed on love hotels because the law fails to identify them as such.
2) Industry Reputation
What used to be a sleazy and legally ambiguous industry, now had the official government approval. People were no longer afraid to enter love hotels, especially female customers. As an unintended result of the law, the industry's reputation was greatly polished, boosting its popularity among normal couples.
2011 Legal Revision
In 2011 the Public Morals law was revised in order to address the loop holes mentioned before. A new, two part definition process for love hotels was established. It now included both hotel structural (e.g. insufficiently small lobby, possibility to enter and pay without facing the staff etc.) and room (oversized mirrors, rotating beds, payment machine etc.) features. Certain conditions from both categories must come true before the hotel can be legally declared as love hotel.
Outcomes of the 2011 Law
The purpose of the 2011 revision was expose extralegal love hotels to the law. Some people estimated this might close half of Japan love hotels. These estimations appear to have been grossly exaggerated. Some hotels have been forced to accept love hotel classification, however, these hotels appear to have stayed in business at least so far. It may be that the 1985 principle of love hotels already in operation being excluded from the zoning restrictions (even if next to elementary school) is still applied. Furthermore, most of the news originate from Osaka area, which is where the national Fake Love Hotel Removal Group is based. However, it is up to the local governments to decide on whether or not, and how harshly, to pursue the zoning principle.
There has been a lot of criticism on the law. Some scholars see it old fashioned to distinct between normal hotels and love hotels. Love hotels are such a huge industry that it makes more money than anime. More than half of all sex in Japan is estimated to take place in love hotels. The industry has been strictly mainstream since the 1990's, when love hotels became a trendy phenomena among young couples, and many magazines ran popular articles on love hotels.
One of the motivations for the law was preventing under age sex -prostitution, adult video shootings, casual relationships - from taking place in love hotels. Anonymity is one of the principles of love hotels - you don't see the staff, you pay by the machine, and even the entrance is often a bit hidden - making love hotels potential scenes for under-age sex. However, were love hotels targeted, the crimes might just move to ordinary small hotels who don't usually confirm the customer's identity. It would be easy to check in as "father and daughter" with fake name in many of the places.
Fears on Extinction of Love Hotels
This refers strictly to old school love hotels - not to extralegal love hotels. The fears are justified - between 1985 and 2005 there was apparently not a single new love hotel registered - all new entrants were extralegal love hotels. This means the new hotels were toned down in terms of interior, however, they have also made love hotels a booming mainstream business. Many ordinary Japanese people don't even know about the classification struggle.
Another reason for the toning down has nothing to do with legislation, but the fact that love hotels have become a major hit among female customers. It is up to 80% of the time that women choose which hotel to use. This is why the industry is now catering for female customers, emphasizing the romantic aspects and offering luxury and "fun" (karaoke, Playstation, hair and skin products, wines, sushi, 50 inch TV, etc.) that ordinary hotels could only dream of.
This being said, the old school love hotels are becoming rare in Japan. This could, however, change in the future. With many love hotels (at least in Osaka) being forced to accept the love hotel classification, new entrants could just as well go all the way and become genuine love hotels if they expect they have to carry the stamp anyway. For old hotels it’s more complicated. At least in 1985 they applied the principle that existing love hotels were exempt from the zoning rule, however, rebuilding / redesigning would subject them to reclassification. This is why many old love hotels have been dying as the law "prevented" renewals.
And finally, a bit more empirical research
This one is certainly a real, registered love hotel, not an extralegal one.
Something in the ceiling
Big-ass TV with very impressive free VoD selection. For size comparison 1 litre of orange juice
Tons of anime, Hollywood movies, Asian movies, JP movies (including half of Takeshi Kitano's filmography) and of course AV.
+ Entrance to another love hotel