Friday, July 11, 2008

Heating Motel Rooms

One of the most worrisome things about recessions is that the loss of economic initiative takes away some of our ability to solve problems and adapt to changes. This can lead to more problems (and if too many pile up at once, that’s what causes a depression). Case in point: will rising energy costs and a lack of real estate lending liquidity create a shortage of hotel rooms?

The issue here is not the big blocky downtown hotels, which are not so hard to heat because they don’t have a lot of surface area. It’s the smaller buildings that are at issue, so it makes sense to think of motel rooms.

Most motels and many small hotels are cement-box buildings with the exterior walls of the rooms more or less pasted on. In most cases, these exterior walls aren’t effectively insulated; some of them are little more than glass. With rising energy costs, the leakiest of these exterior walls have to be rebuilt so that the hotel operators, and the traveling public who are their customers, will not be spending a fortune heating and cooling the rooms.

Most hotels and motels are small operations that will need to borrow money to build these insulated walls. Yet this problem arises at the same time that the real estate lending system is barely functioning.

A hotel operator who saw this problem coming, got a loan two years ago, and is now wrapping up the construction work, has avoided this whole problem. But one who just notices the insulation issue after seeing next winter’s energy bills may not immediately be able to get the same kind of loan. The loan, and the work, may have to wait until the recession is over.

When that happens, it’s a loss to the economy. The money, if the hotel owner can get it, goes mainly to hire local workers who, in the meantime, are unemployed. The project is a good investment that, in principle, ought to be done immediately. It’s an adjustment that allows a business to adapt to changing economic circumstances. And while we are waiting for the hotel rooms to be insulated in the way that current energy prices demand, we will have to deal with higher prices for lodging, colder rooms to sleep in, and shortages of hotel rooms as hotel operators shut down floors and whole buildings for the winter. Compromises such as these get in the way of a whole range of other economic activities, forcing people to make other adjustments in other areas.

It often happens that the same stresses and collapses that cause a recession also cause various delays in efforts to remedy the resulting problems. Our challenge in navigating a recession is to keep these to a minimum by finding whatever solutions can be found. I don’t have any simple solution to offer to the hotel heating problem that is on its way. But whatever solutions can be found to this problem and others like it are the key to minimizing the hardship caused by the recession, and keeping it from turning into a depression.