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Skyscraper Boom May Predict Economic Crisis to Come

January 13, 2016

business, news

Most people would agree that lots of new construction in a city is a positive sign. The appearance of new structures seems to indicate that investors and builders have enough confidence in the market to pour in the time, capital and effort needed for such endeavours. However, a recent report by Barclays Capital makes the rather surprising suggestion that certain types of construction may in fact be a sign of hard times to come.

Burj Khalifa, Dubai - Image by thetravelguru

Burj Khalifa, Dubai - Image by thetravelguru

The report argues that a penchant for building skyscrapers commonly precedes an economic crash in an area. Skyscrapers are generally defined as buildings that measure over 240m (or 787ft), and by many are considered the ultimate structural symbol of capitalism.

To support its argument, the report’s authors cite a number of historical examples, including the 1920s construction boom in the U.S. that produced the Chrysler and Empire State buildings immediately before the Great Depression, as well as the more recent flurry of skyscraper building in Dubai (including the colossal Burj Khalifa, currently the world’s tallest building) that ended when the country drifted into economic difficulty and required bailing out by neighbouring Abu Dhabi in 2013.

According to Barclays’ annual Skyscraper Index, China is the next country set for a financial crash. Over half of the 124 skyscrapers currently under construction in the world are located here, with another 66 planned in the next six years. In second place is India, which, although home to only two skyscrapers at the moment, has another 14 under construction – including the Tower of India in Mumbai, which will soon be the world’s second tallest building.

The study suggests that the building of distinctive, towering skyscrapers – and in particular, those that aspire to the title of world’s tallest building – is often symptomatic of sporadic boom periods when credit is readily available and optimism is high. Unfortunately, Barclays notes that such projects often represent a poor allocation of resources, and that by the time the structures are finished, the economy has already taken a turn for the worse.

The report further states that China’s property bubble is already well on the way to bursting. It notes that residential property sales in several leading cities have already decreased by half, while developers are losing confidence in the market and cutting prices. A report by JP Morgan Chase quoted by the BBC seconds this view, agreeing that China’s recently expanded property market is already weakening and could experience a drop of up to 20 per cent in the next 12 to 16 months.

Some have voiced concern about the impending completion of the 310m-tall tower in London known as the Shard, which will soon be the tallest building in Western Europe. Could this imposing structure signal more hard times for the UK’s economy? And will the Chinese and Indian economies continue to expand, or indeed fall prey to the skyscraper curse?

What are your thoughts on the correlation between building skyscrapers and economic downturn? Share your thoughts in the comments below.

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