Towers of Babel
We are always looking for leading indicators. How do we know if we’re in a bubble? Is it too late to get in on it? Is it too late to get out? Can we engage in some smart-alecky Schadenfreude, or the timeless satisfaction of a well-timed I-told-you-so?
To this effect, Barclays Capital has just released its latest Skyscraper Index. Published since 1999, the hypothesis that has emerged from the Index is simple: The sexiest, most iconic bits of our built environment – skyscrapers – also may be our best leading indicator of economic hubris. First, Barclays gives us a little history:
The world’s first skyscraper, The Equitable Life Building in New York was completed in 1873 at a height to its roof of 142ft. Later demolished in 1912, this first skyscraper coincided with a five-year recession in the US and Europe that started in 1873 and is now known as the Long Depression.
The authors then catalogue a litany of vertical strivers and their links to some imminent economic debacle or other. However, just as I was beginning to wonder about the temptations of conflating correlation with causation (ie, “Isn’t someone somewhere always planning or building the tallest building in the world?”), I reached the following:
Thankfully for the world economy, there is not currently a skyscraper under construction that is planned to overtake the height of the Burj Khalifa [which presaged Dubai’s own bust]. This is perhaps unsurprising given the significant increase in building height of the Burj Khalifa over the previous world’s tallest building, an increase in height comparable to that created by the 1930s skyscrapers over their predecessors. All of which suggests that not only may completion of the world’s tallest building be a good indicator of economic excess, but the rate of increase in height may also reflect the extent of that economic excess.
It’s true that the Burj Khalifa is going to be tough to beat, but what is perhaps more important for the present moment is the expansion of the base of what one might call the “skyscraper pyramid”:
Today over 70% of China’s skyscrapers are unsurprisingly clustered in the more economically advanced coastal areas of the Pearl River Delta and the Yangtze River Delta. Yet between now and 2017 over 50% of China’s skyscrapers will be built inland as China’s building boom moves from first-tier cities to second- and third-tier cities. Over 50% of China’s skyscrapers are today in tier 1 cities, and based upon current completion plans about 80% of China’s new skyscrapers will be built in tier 2 and 3 cities over the next six years…
China will complete 53% of the 124 skyscrapers under construction over the next six years, expanding the number of skyscrapers in Chinese cities by a staggering 87%. China’s skyscrapers are not only increasing in number — it now has 75 completed skyscrapers above 240m in height – but the average height of the skyscrapers that it is building is also increasing as past liquidity fuels the construction boom.
I have written elsewhere about China’s “ghost cities” and the implications for that country’s economic health. The idea of building for the sake of goosing one’s GDP has been perfected by the Chinese to the point that construction is a significant pillar of the country’s economic product. But while the evidence of a hard landing just keeps coming, one wonders just how much of this matters to the participants. As an example, consider this time-lapse footage, which shows the construction of a 30-story hotel, albeit prefab, completed in a mere 360 hours.
It’s true that the Chinese have a fondness for this sort of thing, and I should add that the hotel is only a demonstration project (whatever that means). But this illustrates how enamored we are of new construction – I dare you to find me a time lapse video of an energy efficiency retrofit. Furthermore, it says nothing of how safe, useful, or long-lived these buildings are supposed to be.
Like much else in how we observe, measure and value our world, we are not called upon to count the cost of the value that we purportedly create. The cost of a building’s demolition is just as accretive to GDP as the cost of its construction. However, the cost of having lost so many tons of concrete or steel is not subtracted from GDP. Since China consumes around 40% of the world’s supply of these resources to feed its new construction habit, such metrics might be worth considering. Barclays would do well to create a follow-on index that would essay to understand the opportunity cost of coming to terms with our aspirations. Perhaps then we would be less incited to blow bubbles, and more leery of their aftermaths.