I was in London recently, standing on the train platform at Blackfriars. It’s my favourite London station, because its platforms are on a bridge across the Thames and you get a fabulous view while you wait for a the train. (It’s also got one of the biggest solar arrays in the city on the roof) I was struck at the number of cranes I could see at work. London is undergoing another construction boom, and that reminded me of the ‘skyscraper index’.
The skyscraper index is a theory that skyscraper building is a decent indicator of recession. Attempts to build the tallest tower in a city or region are particularly notorious, with a history of record breaking towers opening their doors and struggling to find anyone to move in. I wrote about this in 2011 with London’s shard, the city’s tallest building, which duly predicted Britain’s double dip economic slowdown.
The Shard was briefly Europe’s tallest building. It was rapidly overtaken by four different skycrapers, all of them in Russia, and just in time for the Russian economy to go over a cliff. Turkey has three new entries in the top ten tallest buildings in Europe, all commissioned in 2012 and foreshadowing a sharp decline in the country’s fortunes. Saudi Arabia started work on Jeddah Tower in 2013, aiming to be the first building to crack a kilometre in height. As a petrostate I thought they might buck the trend, but their GDP figures prove otherwise. China continues to turn out record breaking towers without technically entering recession, but its property bubble is deflating and growth has slowed.
The reasons for this pattern are not hard to explain. It takes a lot of capital to finance a skyscraper, so it only happens when money is cheap and investors are confident. In the case of record breaking towers, we’re literally talking about ‘the sky’s the limit’ exuberance. Like the residents of Babel in Genesis, the cry goes up to build a monument to a city’s greatness, and it often ends up serving more as a reminder of arrogance, greed, and impossible expectations.
What about Britain? What do all those cranes tell us? The boom is certainly not imaginary. A new tower was given planning permission at a rate of one a week in 2016, leading to a record number of tall building sites in 2017. Most of them are residential, with an unhealthy number of luxury apartments aimed at overseas investors. There are now apparently 14,000 unsold luxury apartments on the market in London, including the Shard’s penthouses, with the problem only getting worse as each new building is completed. That’s bad news for London and an insult to those who can’t afford a home in the city, but I couldn’t say what it implies for the economy overall.
There are no plans to dethrone the Shard, but the tallest building within the square mile of the City of London is under construction. Called 22 Bishopsgate, it sits on the site of ‘the stump’, a previous tower project that was halted by the last recession and sat for several years as an abandoned concrete core. If the Skyscraper Index is correct, that could be a suspiciously inert canary in our proverbial coalmine.
How seriously should any of this be taken? The originator of the Index, Andrew Lawrence, describes it as a ‘correlation’ and ‘a general economic principle’ that skyscrapers come at the top of economic cycles. It’s not a hard and fast law. He worked at Barclays Capital, who apparently issue an annual report. Their equity research is not available to the general public, but they must consider it vaguely worthwhile. Then again, a study in 2015 found no correlation between tall buildings and the business cycle. They only looked at the US, Canada, China and Hong Kong though. And I’m not paying £159 for the journal article.
In other words, the Skyscraper Index alone is no certainty of recession, but it is a warning sign.