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Dubai: Curse of the Skyscraper

| Wednesday January 20th, 2010 | 0 Comments

There has always been a significant amount of prestige and pride associated with creating the world’s tallest building as skyscrapers represent a spectacular display of money, power and hubris. Given the sneaky tricks used by architects to add a couple of inches to the top, it can be somewhat difficult to assess which building truly deserves to be labeled the tallest in the world. The completion of the Burj Dubai, however, has made that decision a lot easier. Finished in December 2009, it took the title of “world’s tallest building” by the mere fact that it is really big.

Standing at 2,717 feet tall, it is more than 1,000 feet taller than its nearest competitor, the Taipei 101 building in Taiwan. Its success, though, is not as sweet as many had hoped given the fact that its arrival coincides with a debt crisis in Dubai. Its property market has crumbled and this once booming city is now in the midst of a cold, economic winter.

One person probably not surprised by the situation in Dubai is Andrew Lawrence, a Hong Kong-based analyst, who in 1999 created the “skyscraper index,” which showed that the world’s tallest buildings have risen on the eve of economic downturns. The Singer Building and the Metropolitan Life building, completed in 1908 and 1909 respectively, stand as reminders of the depression which lasted from 1907 until 1910. The Chrysler Building, which opened its doors in 1930 and the Empire State Building, which opened in 1931, were both being finalized during the 1929 stock market collapse. The World Trade Center buildings opened in 1972 and 1973 and the Sears Tower in 1974, all while the U.S. was mired in growing unemployment and inflation. The Petronas Towers opened in 1998 in Malaysia just as the Asia Financial Crisis was sweeping through the region.

According to Auburn University’s economist Mark Thornton, skyscrapers represent the physical manifestation of the bull markets that build them. Although the index is treated more like a novelty, Thornton argues in his 2005 research paper, “Skyscrapers and Business Cycles,” that the correlation is real. “It has all the components that are involved in a major boom or bust cycle,” he says. The same components that give rise to the skyscrapers give rise to the boom: loose monetary policy and easy credit, which drive up land prices. Thornton predicted tough times for the emirate two years ago in a blog entitled “New Record Skyscraper (and depression?) in the making.”

We humans continue to be fascinated by the marvel of skyscrapers. The brand building power of these buildings is unparalleled. Architects continue to push the limits of design and businesses continue to clamor to stake their claim on the impressive real estate. The earliest skyscrapers were completed by newspaper companies fighting with each other to sell papers. Though construction of tall buildings might be stalled (for good reason), the race to touch the sky continues.

Regardless of the criticism surrounding the skyscraper index, the theoretical linkages between skyscraper building and business cycles has usefulness in improving our understanding of business cycles and the economic theory behind them. Hopefully in the future, rapidly developing cities like Dubai will adopt a more sustainable development model that pursues a better balanced, triple-bottom-line return for the long term benefit of all stakeholders.


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