Skyscrapers & economic slumps

A new study from Barclays Capital has revealed an “unhealthy correlation” between a boom in skyscraper building and economic crashes.

Analysts from Barclays Capital said, “Often the world’s tallest buildings are simply the edifice of a broader skyscraper building boom, reflecting a widespread misallocation of capital and an impending economic correction.”

Within the research they cite various examples, including the development of Chicago’s Willis Tower in 1974 which coincided with an oil shock and the US abandoning their dollar peg to gold.

The building of Petronas Towers in Malaysia in 1997 coincided with the Asian financial crisis.

The correlation between events and financial markets is always interesting, but results should be taken with a pinch of salt.

A few years ago we wrote about the ‘Bikini Index’, which involved a correlation between a US fashion model appearing on the cover of the Sports Illustrated Swimsuit Edition and the performance of the US stock market.

As a professor used to regularly tell me at University, correlation is not causation.

In this case, a boom in the development of new skyscrapers should not be seen as a reliable indicator of a looming financial crisis.

If this was a reliable index, investors should be most concerned about the economic health of China, where 53% of all skyscrapers in the world are currently being built.

Property exuberance is one useful economic indicator; on its own it provides an interesting story, little else.

Photo credit: Flickr/Powerhouse Museum