by Kyle Johnson
Research analyst Andrew Lawrence is credited with first writing about the “Skyscraper Curse” or “Skyscraper Index.” He studied record-setting skyscrapers and spotted a pattern. They would be completed and opened to the public… then the economy would crash.
Economist Mark Thornton expanded on the Skyscraper Curse by incorporating the Austrian business cycle theory. In short, expansion of the money supply and low interest rates spur economic activity. But the economic boom is artificial and unsustainable. Eventually, interest rates must rise, credit contracts, and the economy goes bust.
Thornton also incorporates the Cantillon effect—the idea that newly created money does not enter the economy uniformly. Instead, the money flows first and disproportionately to those hooked into the banking system.
These additions help explain why expensive, record-setting construction projects attract capital during a boom—and why an economy may falter after a tower opens. To be clear, Thornton does not argue that record-setting skyscrapers cause economic crashes. Rather, they are symptoms of ill-fated fiscal and monetary policies.
Thornton narrowed his study to buildings setting records for height, highest livable floors, and most floors. A record could be for a country, continent, or globally. He notes that such buildings often require technological innovations related to elevators and cooling systems.
Starting with the completion of the Auditorium Building (Chicago) in 1899, Thornton found 16 instances of the Skyscraper Curse. Other examples include the Chrysler building, which opened to the public in 1930… at the beginning of the Great Depression. The Empire State Building opened a year later as the depression worsened. The World Trade Towers opened in December 1970 and January 1972, during Bretton Woods stagflation. The economy was still in crisis when the Sears Tower opened in September 1973. The Petronas Towers opened in September of 1999 during the Asian financial crisis. The Taipei 101 opened in December 2004 while the crisis persisted. The Burj Khalifa opened in January 2010 during the Great Recession.
You might be surprised by China’s absence on that list. But it’s not for lack of trying. Construction of Sky City One began in 2013 but was halted in 2016. It was set to become the world’s tallest building at 838 meters (2,749 feet). Construction of Goldin Finance 117 began in 2008 but faced many delays and setbacks. The project was finally abandoned in 2015. It would have been the fifth-tallest building in the world, but Goldin Finance 117 is now the world’s tallest unoccupied building at 597 meters (1,959 feet). I suspect these projects are the true reason behind China’s law capping skyscrapers at 500 meters, unless a special exemption is granted.
Economic crises have stopped many projects from ever being completed. The 2008 Global Crisis halted construction of the 1,500-meter (4,921-foot) Nakheel Tower. COVID-19 ended construction on the 1,300-meter (4,300-foot) Dubai Creek Tower and the 1,000-meter (3,281-foot) Jeddah Tower.
Some current construction projects deserve close attention. Construction on the Merdeka 118 building in Kuala Lumpur was recently completed. It’s now the second-tallest building in the world at 679 meters (2,227 feet) tall and is scheduled to open to the public later this year. Located in Egypt, construction of the Iconic Tower has begun. It’s set to become the tallest building in Africa at 393 meters (1,305 feet).
Some other projects caught my eye, even though they’re not typically included in Thornton’s analysis. But they seem to align with the forces behind it. The Ciel Tower is under construction in Dubai. It’s set to become the world’s tallest hotel at 360 meters (1,181 feet). Royal Caribbean is currently building a ship named Icon of the Seas. Labeled by some in the media as “a monstrocity,” it will become the world’s biggest cruise ship by both length (365 meters/1,198 feet) and by gross tonnage (250,800). SeaWorld Abu Dhabi recently opened; it’s estimated to have over 58 million liters (15 million gallons) of water in total.
Both Lawrence and Thornton focus on privately financed buildings. They ignore government-funded infrastructure projects (airports, railway systems, bridges, tunnels, etc.). However, Saudi Arabia is blurring the lines between them.
Construction will soon begin on The Mukaab (also known as “the cube”)—a single building that will be 400 meters (1,312 feet) on all sides. Construction has already begun on the Mirror Line—two separate buildings running parallel to one another. Each will be 200 meters (656 feet) wide, 500 meters (1,640 feet) tall, and 170 kilometers (105 miles) long.
I’m not sure even Saudi Arabia can insulate itself from the global economy. The global financial system has become even more interconnected since the last crisis. China is evidently in deep distress. Germany and the Netherlands have both slipped into recession. The US economy is currently in a precarious position. If it crashes, countless dominoes will fall.
We might see the Skyscraper Curse claim several new victims.
One thing is for certain: the coming months will be highly entertaining.
PS: Your portfolio will suffer if you wait for headlines about the Skyscraper Curse striking once again. Stay up to date on the markets and the global economy by signing up for our free, no-hype, no-spam Speculator’s Digest.