The world's tallest buildings as harbingers of economic doom
The Guinness Book of Records keeps track of ‘the tallest building in the world’ as each candidate for the honour replaces the last. There is a comprehensive international database of skyscrapers called Emporis. Researchers studying these data have noticed a strange historical regularity. While a country’s tallest skyscraper is under construction, the economy falls into recession.
The 102-storey Empire State Building was completed in 1931 at the depth of the Great Depression. Three-quarters of the office space remained unoccupied for the next decade. New Yorkers called it ‘The Empty State Building’. The building only began to turn a profit in 1940. The 95-storey Shard in London was finished in 2009 immediately following the banking crash of 2008. Ken Livingstone, then London’s Mayor, had boasted that ‘the Shard would be to London what the Empire State is to New York’. Rumour has it that many of the penthouses in the Shard are still unlet ten years later.
Might there be a causal connection? Property developers and economists have become intrigued and have searched for more examples. The 88-storey Petronas Twin Towers in Kuala Lumpur, then the world’s highest, opened in 1998 just in time for the Asian financial crisis. The 163-storey Burj Khalifa in Dubai was finished - like the Shard - in 2009, by which time funds had run out, and Dubai had to borrow $10 billion from Abu Dhabi to pay for the project. Nine months after the building opened, only 75 of the 900 apartments had tenants, and rents were slashed. There are several other cases in skyscraper history since 1900.
In 1999 Andrew Lawrence, a property analyst who worked at Barclays Capital wrote an internal paper for the bank entitled ‘The Skyscraper Index: Faulty Towers’. The report was not published but apparently argued for a ‘general economic principle’ that very tall buildings appear at the peaks of economic cycles. They are glass and steel symbols of what the economist Alan Greenspan has called ‘irrational exuberance’. In 2005 Mark Thornton published an article in The Quarterly Journal of Austrian Economics on ‘Skyscrapers and business cycles’, in which he identified three so-called ‘Cantillon effects’ that might explain the relationship. When interest rates are low at the start of a boom, these result in rising land prices, a greater demand for office space, and investment in new construction techniques – all encouragements to build taller.
In 2015 however three more economists, Jason Barr, Bruce Mizrach and Kusum Mundra, brought their dismal science to bear on ‘Skyscraper height and the business cycle: separating myth from reality’, in a paper for Applied Economics. They compared the completion dates of the world’s tallest buildings statistically against the ups and downs of the business cycle in the USA and found ‘virtually no relationship’. (Perhaps they would have done better with the construction start dates.) They then made comparisons with Gross Domestic Product per person, and found that GDP was related with height. They concluded that “extreme height is driven by rapid economic growth”, nevertheless “height cannot be used as an indicator of recessions.” But does this make sense, if booms are regularly followed by busts?
Mark Thornton, ‘Skyscrapers and business cycles’, Quarterly Journal of Austrian Economics, Vol.8 2005, pp.51-74
Jason Barr, Bruce Mizrach and Kusum Mundra, ‘Skyscraper height and the business cycle: separating myth from reality’, Applied Economics Vol.47, 2015, pp.148-160