The city is considering plugging a loophole in the law that has seen about 200 guest houses licensed by the government, even though they are in buildings that do not allow temporary accommodation or commercial activities.
Authorities are also seeking a crackdown on illegal guest houses through granting the government more power, making it easier to haul offenders to court.
The proposals were made in a public consultation launched by the Home Affairs Bureau yesterday to amend the 23-year-old Hotel and Guesthouse Accommodation Ordinance, after a fire in a North Point building - home to a number of guest houses - injured 25 people in December.
Residents should have more say over the licensing of such facilities located in the buildings in which they live, according to the consultation document.
On catching violators of the law, home affairs director Pamela Tan Kam Mi-wah said: "If there is enough circumstantial evidence, such as advertisements on a guest house or the presence of a lot of towels or bedlinen, we should be able to establish that the place is a guest house."
This would rectify situations in which certain flats were clearly used to accommodate travellers, but where the owners or tenants could not be prosecuted because government officers had not witnessed travellers making payment, Tan said.
In many cases, the transactions were effected on accommodation-booking websites, and the tourists were unwilling to return to Hong Kong as prosecution witnesses, she said.
The December 29 blaze at Continental Mansion sparked an outcry from residents of tourist districts such as Tsim Sha Tsui and Mong Kok, who said the abundance of guest houses in residential buildings was compromising their safety and convenience.
The law currently allows the Office of the Licensing Authority to grant a guest-house licence as long as the applicant meets building structure and fire safety standards.
The office does not need to look into the building's deed of mutual covenant - which may ban guest houses or commercial activities - or consult local residents in the licensing process. Such a deed is an agreement containing what amounts to a set of local laws to run the building.
If the public supports the idea, in future, the office will consider the deeds before renewing or granting licences. Where a building does not explicitly ban guest houses, the office will consult residents before making a decision, the proposed revisions state.
The office may apply for a court warrant to break into suspected unlicensed premises. The bureau also suggests raising the maximum fine from HK$200,000 to HK$500,000, and jail from two years to three.
Both Federation of Hong Kong Hotel Owners executive director Michael Li Hon-shing and Chiu Kin-san, chairwoman of the Continental Mansion owners' corporation, welcomed the proposed changes.
Chiu said: "They have taken into account our two major suggestions," which are to take into consideration the buildings' deeds and the tenants' wishes.
Seventy-year-old Leung Sang, who has lived in the mansion for 47 years, said: "The hostels have created great inconvenience for us residents. It is hard to get into the lifts or for cleaners to clean the public areas.
"We just want the government to get to work faster."
The consultation will end on August 28.