Monday, April 13, 2009

When Construction Just Stops

A 32-story office tower planned for downtown Portland, Oregon, never got off the ground. The foundation and three-story underground parking garage are likely to be basically finished today, and construction is stopping right there, at ground level. The stoppage is blamed on difficulties in getting financing for the project, but the reason banks are reluctant to lend is the real reason projects like this are coming to a stop: no one is entirely sure that the city, or the country, needs another huge building right now. In normal times, it is safe to assume that a building that is 50 percent rented when construction starts would be 90 percent rented in the year it opens. In a recession, it could be the reverse — as the prospective tenants’ plans run into problems, the building could be just 10 percent rented by the time it opens, leaving the builder with no income to make payments on the loans.

It is that kind of doubt and uncertainty that feeds a recession. In boom times, people know what they want, and the biggest worry is that they will go too slow and a competitor will get a head start on them. In a recession, it is the opposite. One’s own poorly chosen objective or strategy is the most likely cause of failure. The large businesses that worry too much about the competition during a recession are the ones that create the most spectacular collapses.

In principle, it’s good that people are willing to stop and think to make sure they’re doing the right thing before they commit large amounts of money or energy to something. But it is a problem for the construction workers who head home unemployed at the end of the day, many to remain out of work for the rest of the year. We want to keep the economy going steadily because we need to eat every year, not just in boom times. In a recession, it can appear that the economy is wracked with indecision, and the more hungry you get, the more dysfunctional this behavior appears.