Skyscrapers and the economic crises

China and India to soon have some of the world’s tallest buildings.

Skyscrapers are perhaps the best testimony of a nation’s economic ambition. Given that there seems to be some connect between these structures and economic growth, analysts have started tracking the boom in skyscrapers and their impact. Barclays Capital, for instance, has a Skyscraper Index, which shows an unhealthy correlation between construction of the next tallest building in the world and an impending economic crisis. Building booms, it appears, can be a result of misallocation of capital.

Analysts at Barclays have gone back 140 years to arrive at the correlation between economic crisis and construction of the world’s tallest structures. The Barclays report says: “Skyscraper construction has been characterised by long periods of inactivity, intersected by short periods of erratically-timed, intense activity, coinciding with excessive monetary expansion in the global economy. Skyscrapers are perhaps the ultimate architecture of capitalism.”

Few would know that the Long Depression, which started in 1873 and continued for five years, coincides with the completion of the world’s first skyscraper — the Equitable Life Building in New York. The building was completed in 1873 at a height to its roof of 142 ft, which was demolished in 1912. The Skyscraper Index uses several such instances to drive home its point. For instance, the completion of One World Trade Centre, New York, in 1972, Two World Trade Centre, New York in 1973 and the Sears Tower, Chicago, in 1974, marked a period of US currency speculation, the collapse of the Bretton Woods system and the Opec price rises which caused an economic crisis across the world. In more recent times, completion of the Petronas Towers in Kuala Lumpur in 1997 was closely followed by the Asian economic crisis. The correlation continues even in the current economic crisis that actually started in 2008. In 2010, Emaar completed construction of the current tallest building in the world — the Burj Khalifa. The building’s height overtook that of Taipei 101’s on July 21, 2007.

What is next? Analysts say China is the next “bubble builder”, with nearly 53 per cent of the world’s skyscrapers under construction. The Skyscraper Index warns India also has 14 such tall buildings under construction and has just completed two. India is currently home to two of the world’s 276 skyscrapers (over 240m) in height. Yet, analysts are already worrying about the world’s second tallest building – Tower of India – slated for completion in 2016.