Presenting the skyscraper index of stock market crashes

I haven’t posted much about what I teach on this blog, but I figure I should as teaching is what I do practically every day. This semester I’m teaching several exciting courses, one of which is Economic Geography. This junior-level course gives me the opportunity to delve into urban geography issues–material very dear to me though Al Akhawayn University does not offer a course in that subject.

Stock market panics, can you see one coming?

Stock market crashes. Can you see the next panic coming?

This week, while covering  the cyclical and boom-and-bust nature of capitalism (principally Kuznets and Kondratieff cycles) I presented students with the “skyscraper index.” The skyscraper index correlates the construction of “the world’s tallest building” with significant stock market crashes or major economic recessions. Simply put, any time someone builds the world’s tallest building (this is always a much publicized event), the economy heads south in a hurry. As a “pop economics” indicator, this theory has been  around for almost as long as skyscrapers have. It was first seriously investigated though by Andrew Laurence, a British financial researcher working in Hong Kong who was able to observe close up the simultaneous crash of Asia-Pacific stock markets (triggered when a real-estate bubble in Bangkok burst) and the completion of the Petronas Towers in Kuala Lumpur.

Skyscrapers take at least a year or two to build. Between the time the intention to put one up is announced and financing is secured and the time it opens for occupancy and rent can start to be collected the economic situation may have changed–and the profitability of the venture with it. Construction of skyscrapers, whatever the era, will require major financing. The decision to build the world’s tallest building will always be taken in “good times,” when financing is relatively easily obtained and prospects for profit look terrific. Though the investors and property developers don’t know it yet (or don’t want to know it), the construction of such a building always seems to signal that the good times are effectively coming to an end.

The skyscraper index has been empirically tested. This is what it looks like when I plotted the construction of the world’s tallest building against stock market crashes and major recessions:

The construction of the world's tallest building plotted against major stock market crashes.

The construction of the world’s tallest building plotted against major stock market crashes. Note: monumentally tall structures such as the Eiffel and CN towers are included in the graph for reference sake but are not part of the data analysis or theorization as they are not rent-producing developments reflecting conditions in the real-estate market.

While it is quite amusing to observe how the repeated instances of corporate architectural hubris coincide with repeated excesses of capitalist booms and bubbles, there is a deeper economic explanation of the phenomenon. The construction of these financial and steel-and-concrete-and-glass behemoths is a good indication that there is in fact too much cheap money sloshing about with nowhere better to go, and that the particular economy involved, whether local, national or global, is really already in trouble, even when all “serious” indicators (GDP, trade balances, FDI) still look good. This becomes even clearer when not just the singular “tallest building ever” is plotted but when the cluster of other super-tall buildings built around the same time are also included.

Construction of extraordinarily tall buildings tends to cluster around stock market panics and crashes.

Construction of extraordinarily tall buildings tends to cluster around stock market panics and crashes.

The world’s tallest building rarely rises alone. There are often several comparable structures being put up nearly simultaneously, sometimes in the same city. When factored into the regular boom-and-bust cycles of the real-estate and construction markets, these periods of excessive-compulsive building can be read as signifying that a given cycle has truly run its course, and that whichever “bubble” is responsible is about ready to burst.

This is what the skyscraper index looks like on the skyline. The photos below, which I projected in class as part of the presentation, were gratuitously downloaded from websites (mainly from Wikipedia commons). While skyscrapers and the technologies that enable their construction were first developed in Chicago in the 1880s, most of the “tallest building ever” story unfolds in New York City. Newspapers began the race to the top because “the tallest building ever” was great publicity, but insurance firms and banks soon followed. Nowadays though, these projects are usually put up by a consortium of civic boosterists. The more “serious” financial institutions have apparently learned their lesson.

Corporate architecture before the skyscraper. New York City's Tribune Building was completed in 1874, just after the stock market "panic" of 1873.

Corporate architecture before the skyscraper age. New York City’s 9-story Tribune Building was completed in 1874, just after the stock market “panic” of 1873. A twenty-year depression ensued.

The Manhattan Life Insurance Building opened for buisness in 1894, right after the 1893 Panic

Twenty years later (1894), the 17-story Manhattan Life Insurance Building opened for business right after the Panic of 1893.

The 30-story Park Row Building, across from New York City Hall, opened in 1899, in time for the Panic of 1901.

The 30-story (counting the turrets) Park Row Building, next to New York City Hall, opened in 1899, in time for the Panic of 1901.

The Panic of 1901 was also marked by the erection of the Fuller Building (or popularly known as the Flatiron Building.

The Panic of 1901 was also marked by the erection of the Fuller Building (more popularly known as the Flatiron Building) on Madison Square, opened 1902). Though not the tallest in the city (only 21 floors), let alone the world, the Flatiron Building capture the zeitgeist of the burgeoning skyscraper age, and of the new century.

The cluster of New York skyscrapers below accompanied the Panic of 1907.

The original Times Building, on Times Square, opened in 1905.

The original Times Building, uptown on Times Square, opened in 1905. It was 25 meters higher than downtown’s Park Row Building.

1908 Singer_Building_New_York_City

Soaring to  the dizzying height of 187 meters, the 45-story Singer Building opened in 1908. It was the tallest building in the world for less than a year.

1909 MetLife_1910

213 meters tall, the 51-story Metropolitan Life Insurance Company Tower surpassed the Singer Building in 1909. Rising on Madison Square across from the Flatiron Building, the Metropolitan Life Tower became an American pop culture icon a generation before the Empire State Building did.

No sooner had the New York City stock market recovered from the 1907 panic than it crashed again with the outbreak of World War I in Europe. Nonetheless, F. W. Woolworth had time to put up his flagship skyscraper, dubbed “the cathedral of commerce.”.

57 stories and 241 meters in height, the Woolworth Building, completed in 1913, remained the tallest in the world until 1930.

The toast of the town when it opened in 1913, and for nearly two decades thereafter, the Woolworth Building rose 57 stories and 241 meters above the street. It would not be surpassed until 1930.

As roaring as the 1920s may have been, corporations spent most of the decade moving into the glut of pre-war office space. It is only in 1929, just before the crash, that ground was broken for a cluster of new “tallest buildings ever.”

72-story Bank of Manhattan Building opened on Wall Street in May 1930. It was the tallest building in the world for all of X months.

72-story Bank of Manhattan Trust Building opened on Wall Street in May 1930. It was the tallest building in the world for about a month.

At 77 stories and 319 meters, Henry Chrysler's Building in Midtown Manhattan surpassed the Bank of Manhattan Building.

At 77 stories and 319 meters, Walter Chrysler’s building (completed May 1930) in Midtown Manhattan surpassed the Bank of Manhattan Building. It was the tallest building in the world for less than a year.

Mother of all skyscrapers, the Empire State Building opened in May 1930. With 82 rentable floors, its 381 meters almost dwarfed the Chrysler Building (visible to the left).

Mother of all skyscrapers, the Empire State Building opened in May 1931. It had 82 rentable floors but was crowned by a mast for the mooring of dirigibles (a boosterist gimmick, no dirigible ever moored there) which produced a hypothetical 102nd floor. At 381 meters it almost dwarfed the Chrysler Building (visible to the left) completed only a year earlier. The Empire State kept the title of tallest building in the world for nearly 40 years, until 1970, though it didn’t turn a profit until 1950.

Other Manhattan skyscrapers of the Crash of ’29 era include:

The Chanin Building, probably the most finely crafted skyscraper of the art-deco era, opened in 1929.

56 stories high, the Chanin Building, arguably the most finely crafted skyscraper of the art-deco era, opened in 1929.

#1 Rockefeller Center opened in 1933. It was the first of a massive complex of 14 buildings entirely financed by John D. Rockefeller Jr.

70 stories high, #30 Rockefeller Center (formerly the RCA Building, now the General Electric Building) opened in 1933. It was the first of a massive complex of, eventually, 14 buildings on eight city blocks, entirely financed by John D. Rockefeller Jr. Planning for construction of the complex began in 1928 and building proceeded despite the Great Depression which gripped the country in the years that followed.

In fact, between 1928 and 1933 a huge amount of new office space went up in state-of-the-art skyscrapers in cities across North America (Chicago, Montreal…). All of it had been financed before the crash and most of it arrived on the rental market after demand for office space had plummeted.

The long post-WWII boom–almost consistent GDP growth from the late 40s through to the early 70s–did not immediately produce a crop of super-tall buildings. There was still lots of space to be had in the skyscrapers of the previous era. As with the “roaring 20s” it was only at the end of the “swinging 60s” that we encounter new adventures in record-breaking heights. These buildings were completed in time for the oil embargo-induced recession of 1973-75 and the stagflation which followed.

Chicago's John Hancock Center opened to tenants in 1969.

Chicago’s John Hancock Center opened to tenants in 1969. Though its 344 meters failed to top New York City’s Empire State Building (artificially heightened by its dirigible mast), this office tower had 100 rentable floors, more than the Empire State.

Lower Manhattan's World Trade Center twin towers opened for occupancy in 1970 and 1971.

The Twin Towers of Lower Manhattan’s World Trade Center opened for occupancy in 1970 and 1971. Each topped the Empire State Building and had 110 floors of rented office space. They were the tallest buildings in the world for only a few years. By then the Singer Building (1908) had already been torn down (in 1967) and replaced with something more profitable–the tallest building to ever have been demolished at that time. Other Lower Manhattan icons, the Woolworth Building (1913, center) and Bank of Manhattan Building (1930, now known as the Trump Building, far right), are also visible in this photo.

Like the WTC Twin Towers in New York City, the Sears Tower (now the Willis Building) in Chicago has 110 floors but is 35 meters higher than they were.

Like the WTC Twin Towers in New York City, the Sears Tower (now the Willis Tower) in Chicago has 110 floors, but at 443 meters, it stands 30 meters higher than they did. Completed in 1973, in time to inaugurate the 1973-74 economic “slump,” it was the tallest skyscraper in the world for 25 years.

At the end of the 20th century “the world’s tallest building” action moved from the USA to Asia-Pacific and then on to the oil-drenched Middle East. Meanwhile, stock market crashes were coming more frequently and more furiously than at anytime since the early decades of the century. Take a look:

80-story high CITIC Plaza opened in Guangzhou in 1997. While not a contender for the "tallest building in the world," it announcing the shape of things to come.

80-story high CITIC Plaza opened in Guangzhou in 1997. While not a contender for the “tallest building in the world,” it announced the shape of things to come.

Kuala Lumpur's Petronas Towers opened in 1998, in the midst of the meltdown of Asian & Emerging Economies markets.

Kuala Lumpur’s Petronas Towers opened in 1998, in the midst of the meltdown of Asian & Emerging markets. Though each had only 88 floors of rentable space, at 452 meters they were physically taller than Chicago’s Sears Tower. They remained the tallest in the world for 6 years.

The 88-story Jin Mao Building opened in Shanghai in 1999.

The 88-story Jin Mao Building opened in Shanghai’s Pudong District in 1999. It was the first of three super-tall skyscrapers to be built cheek-by-jowl in  Pudong in the space of 15 years, though none has ever been “the tallest in the world.”

90-story Two International Financial Center opened in Hong Kong in 2003.

90-story Two International Financial Center opened in Hong Kong in 2003. Not the “tallest in the world” either, it confirmed Asia-Pacific as the new home of the super-tall trend in skyscrapers.

2004 Taipei 101

The Taipei 101 Building was completed in 2004. Its construction, decided in 1997, was delayed due to the Asian markets crisis and subsequent market turmoil (the dot.com bubble burst of 2000, the 9/11 crash of 2001). Its 101 floors rose 508 meters above ground, almost 50 meters higher than the Petronas Towers, making it the tallest in the world for all of 5 years.

Shanghai's World Financial Center opened in 2007. Like Taipei 101 it has 101 floors, but it is

Shanghai’s World Financial Center opened in 2007. Like Taipei 101 it has 101 floors, but it is 16 meters shorter than its rival in Taipei.

A skyscraper to top all skyscrapers... or is it? Borj Dubai

A skyscraper to top all skyscrapers… or will it? Burj Dubai: 160 floors and 830 meters, surpassed Taipei 101 by a whopping 320 meters. Construction of the building was completed in 2009, just after the 2008 sub-prime meltdown, and it opened for occupancy in 2010, just after Dubai’s debt crisis (Nov. 2009). As a result of this crisis, the project’s developer, Emaar Properties, had to appeal to neighboring Abu Dhabi for a bail-out. The tower was then renamed Burj Khalifa.

One might be permitted to hope that, following the sub-prime real-estate debacle of 2008 (the devastating effects of which have yet to fully play out), and given the astounding height of this latest “tallest building in the world,” we all might be spared addition expressions in the genre for at least a few decades. Remember, the Woolworth Building held on to its title for 17 years, the Empire State for 39 and the Sears Tower for 25. The developer of Burj Dubai/Khalifa certainly hoped that the leap to over 800 meters would assure the title for the long-term. Alas! this is not to be. The taste for building super-tall skyscrapers has not soured and real-estate developers and civic boosters from China to Arabia are already competing to top Burj Khalifa in the near future.

Second tallest building in the world since it opened last year (2012), Abraj al-Bait Tower literally towers of the Holy Ka'ba in Mecca.

Second tallest building in the world since it opened last year (2012), Abraj al-Bait literally towers over the Holy Ka’ba in Mecca (minarets of the Haram in the foreground). It is 601 meters high and has 120 floors. It and the other towers in the complex sit on a plinth (where a hill used to be) containing 20 floors of shopping and parking.

Currently being built, Shanghai Tower in Pudong will have 121 floors when completed in 2014.

Currently being built, Shanghai Tower in Pudong will have 121 floors when completed in 2014. Next to it are the Jin Mao and World Financial Center towers. At 632 meters, Shanghai Tower will surpass them by 210 and 140 meters respectively, though it will be a full 200 meters shorted than Burj Khalifa.

2015 Sky_City_Changsha

Municipal authorities in the city of Changsha, China, and developer Broad Sustainable Building (the name probably sounds way better in Chinese), are seriously pursuing a plan to build the next “tallest building in the world:” a 838-meter high tower called “Sky City.” This would make it just 8 meters taller than Burj Khalifa. Construction is supposed to be getting under way about now (January 2013) and the developer says that, due to revolutionary new construction methods, already field-tested, the tower can be built in a record 90 days. While I do not underestimate the Chinese economy–it has surprised and confounded observes many times in the recent past–the plethora of super-tall skyscrapers across the country scheduled for completion in 2014-2016 augurs ill when viewed through the prism of the skyscraper index.

In August 2011

In August 2011 Saudi prince Al-Waleed b. Talal announced a plan to build 1000-meter high (yes, that’s a whole kilometer) Kingdom Tower in Kingdom City, a new satellite city being built north of Jidda. At this point (January 2013) I am not sure if construction has begun, but estimates of the time it will take to erect it vary from 6 to 8 years. If construction proceeds, might there be a major Arabian/Persian Gulf economic crisis sometime before 2020?

A theory is only as good as its ability to explain phenomena (i.e: reality), and no theory should ever be used to foretell future events. That said, since the emergence of corporate architecture in the late 19th century the skyscraper index seems to hold, empirically. The only significant exception was the crash of 1987. No “tallest building ever” was put up around that time. The same cannot be said, really, of that other pop economics index, the hemline index. According to the hemline index, which reflects consumer attitudes rather than investment cycles, the rise and fall of women’s hemlines follows the rise and fall of stock markets (at least in countries where women’s hemlines are allowed to rise at all). Compare the flapper fashions of the 1920s with the gowns of the 1930s, or the miniskirts of the late 1960s with the maxi-skirts of the mid 1970s. Since the deregulation of the financial sector in the 1980s however, the stock markets have been all over the place and women have learned to base their fashion choices on other variables.

Skyscraper index meets hemline index: Flappers Charleston amidst Manhattan towers. Could times get any better?

Skyscraper index meets hemline index: Flappers Charleston amidst Manhattan towers. Could times get any better?

Related links

Further reading

  • Abramson, Daniel & Carol Willis (2000). Skyscraper Rivals: The AIG Building and the Architecture of Wall Street. Princeton Architectural Press.
  • Barras, Richard (2009). Building Cycles: Growth and Instability. Wiley-Blackwell.
  • Bascomb, Neal (2003). Higher: A Historic Race to the Sky and the Making of a City. New York: Doubleday.
  • Dickinson Long (1936). “Seventy Years of Building Cycles in Manhattan,” in The Review of Economics and Statistics. vol. 18, #4, pp. 183-193.
  • Fenske, Gail (2008). The Skyscraper and the City: The Woolworth Building and the Making of Modern New York. University of Chicago Press.
  • Hirshler, Erica E. (1989). “The ‘New New York’ and the Park Row Building: American Artists View an Icon of the Modern Age,” in American Art Journal. vol. 21, #4, pp. 26-45.
  • Hoxie, George L. (1915). “City Taxation and Skyscraper Control,” in The Journal of Political Economy, vol. 23, #2, pp. 166-176.
  • Irish, Sharon (1989). “A ‘Machine That Makes the Land Pay’: The West Street Building in New York,” in Technology and Culture, Special Issue: Essays in Honor of Carl W. Condit. vol. 30, #2, pp. 376-397.
  • Kitt Chappell, Sally A. (1990). “A Reconsideration of the Equitable Building in New York,” in Journal of the Society of Architectural Historians. vol. 49, #1, pp. 90- 95.
  • Knight, Cyril R. (1924). “The Effect of Zoning on New York Architecture,” in The Town Planning Review. vol. 11, #1, pp. 3-12.
  • Lawrence, Andrew (1999). “The Skyscraper Index: Faulty Towers!,” in Property Report, Dresdner Kleinwort Benson Research.
    Kleinwort Benson Research (January 15, 1999a
  • Lehman, Arnold (1971). “New York Skyscrapers: The Jazz Modern Neo-American Beautilitarian Style,” in The Metropolitan Museum of Art Bulletin, New Series. vol. 29, #8, pp. 363-370.
  • Leslie, Thomas (2013). Chicago Skyscrapers: 1871-1934. University of Illinois Press.
  • MacDonald, Gordon D. & Rosalind Tough (1963). “New York City: Changing Social Values and the New Housing,” in Land Economics. vol. 39, #2, pp. 157-165.
  • Merwood-Salisbury, Joanna (2009). Chicago 1890: The Skyscraper and the Modern City. University of Chicago Press.
  • Oldfield, Philip & Antony Wood (2009). “Tall Buildings in the Global Recession: 2008, 2020 and Beyond, ” in CTBUH: Council on Tall Buildings and Urban Habitat Technical Paper. #1, pp. 19-26.
  • Sachtman, Tom (2001). Skyscraper dreams: The Great Real Estate Dynasties of New York. iUniversity.
  • Sussna, Stephen (1967). “Bulk Control and Zoning: The New York City Experience,” in Land Economics. vol. 43, #2, pp. 158-171.
  • Tauranac, John (1995). The Empire State Building: The Making of a Landmark. New York: Scribner.
  • Tough, Rosalind & Gordon D. MacDonald (1965). “The New Zoning and New York City’s New Look,” in Land Economics. vol. 41, #1, pp. 41-48.
  • Watts, Steve, Neal Kalita & Michael Maclean (2007). “The Economics of Super Tall Towers,” in Structural Design of Tall Specialized Buildings. vol. 16, pp. 457-470.
  • Weisman, Winston (1953). “New York and the Problem of the First Skyscraper,” in Journal of the Society of Architectural Historians. vol. 12, #1, pp. 13- 21.
  • Wigoder, Meir (2002). “The ‘Solar Eye’ of Vision: Emergence of the Skyscraper-Viewer in the Discourse on Heights in New York City, 1890-1920,” in Journal of the Society of Architectural Historians. vol. 61, #2, pp. 152 -169.
  • Willis, Carol (1986). “Zoning and ‘Zeitgeist’: The Skyscraper City in the 1920s,” in Journal of the Society of Architectural Historians. vol. 45, #1, pp. 47- 59.
  • Willis, Carol (1995). Form Follows Finance: Skyscrapers and Skylines in New York and Chicago. Princeton Architectural Press.
  • Yablon, Nick (2004). “The Metropolitan Life in Ruins: Architectural and Fictional Speculations in New York, 1909-19,” in American Quarterly. vol. 56, #2, pp. 308-347.
Advertisements

About ericrossacademic

Professor of Geography at Al Akhawayn University in Ifrane, Morocco
This entry was posted in architecture, teaching and tagged , , , , , , , . Bookmark the permalink.

3 Responses to Presenting the skyscraper index of stock market crashes

  1. Francine says:

    Fabulous post!

  2. peter rowe says:

    Brilliant information. So few are aware of the tall building/Economy cycle connection that has been proven over numerous decades. Hats off to you my good man.

  3. Pingback: Skyscrapers and Stock Markets Are Telling Us Something - It’s Not Good

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s