Building Booms and Busts

There certainly has been a building boom lately. In just the last year, construction has roared back in New York City, particularly around Central Park. They’ve capitalized on the global boom in wealth creation that’s resulted after a decade of economic growth. The two-bedroom apartments in the new Central Park Tower start at $7 million, in case you’re interested.

Two decades ago, an analyst proposed the Skyscraper Index, noting that when a country build’s the world’s tallest building, an economic crisis often follows. At the beginning of the 20th century, the Singer Building went up in New York City. Shortly after came the Panic of 1907, leading the US Government to establish the Federal Reserve. In 1930, the Chrysler and Empire State buildings were finished, right on the eve of the Great Depression. The World Trade Center and Sears Tower were built in 1973—right around the time of the Arab oil embargo and Great Inflation – a decade of economic stagnation and double-digit inflation. The tallest building in the world – the Burj Khalifa in Dubai – was finished in 2010, just around the Global Financial Crisis.

World’s tallest buildings, 2020. Source: Wikipedia.

Is it true that tall buildings can predict economic crashes? That the taller they come, the harder the economy will fall?

Some academic researchers looked at this concept, asking if there really is any connection between building height and economic growth. They examined economic data and building height in countries around the world, and fund that while growth in the economy can predict the growth of skyscrapers, skyscraper construction doesn’t predict anything. It may be true – as a British naval historian noted – that poorly-run organizations tend to have elaborate headquarters. But the height of a building doesn’t predict anything other than the number of floors.

It’s true that skyscrapers tend to be built at the tail-end of economic booms, as expensive land and cheap credit make concentrated office space more and more attractive. Architectural and nationalistic hubris may also play a role. But the index has failed to predict many downturns: the post World War 1 recession, the early-‘80s recession, Japan’s crash. And the most recent buildings haven’t presaged a bust. The Taipei Financial Center, competed in 2004, is another counter-example.

A growing economy generates a need for tall buildings. Sometimes those buildings will be the tallest. When that growth slows, the building stops. There’s nothing magical about it.