Could record-setting skyscrapers signal economic over-expansion and a misallocation of capital?
Andrew Lawrence, a British economist developed something called the Skyscraper Index in 1999, which states that the construction of the world’s tallest skyscraper tends not only to coincide with economic booms but also to be a predictor of subsequent economic crises.
Fast forward to today and we can see skylines are dotted with impressive and record-breaking skyscrapers. Many nearing completion, as the global economy sputters. Some economists insist the timing of these skyscraper booms and economic downturns is more than just a coincidence.
Some have called it. The skyscraper curse.
Let’s look from the beginning with the Singer Building in New York City which correlated with the Panic of 1907, and then you go to the late 1920s so on across the 1900s. And then you fast forward until you get to 1970 when World Trade Towers set new records. And then, we had the long stagflation of the 1970s.
Fast forward from that you get new skyscrapers in the early 2000s, right in the middle of that was the tech stock bubble burst.
Also, considering the construction of the world’s tallest building, the Burj Khalifa in Dubai, coinciding with a global financial crisis.
On the contrary, others say that skyscraper construction waves typically rise when economic conditions are favorable, sometimes to the point of a bubble, and then slow is the project’s make less financial sense and funding dries up.
It’s kind of a herding mentality. When the getting’s good, everybody, all these developers rush to get their buildings online as soon as possible, and then you have a glut. You can conceive of a project based on economics today and then when it comes online, four or five years from now, anything could happen.
In other words, skyscrapers simply take a long time to build, and some end up being completed after the next downturn has already begun.
The correlations are holding up very well. And some see those warning signs on the rise again.
But this might not be valid going forward as remote work calls into question the demand for dense urban life, skyscrapers may be taking on an entirely new meaning.