Can the World's Tallest Buildings Predict the Next Recession?

New York City recently announced plans to spend $20 billion to build Hudson Yards , a neighborhood of skyscrapers geared toward attracting millennials to the city's workforce, with construction projects wrapping up between 2015 and 2024. While the project highlights the growing economic optimism at the moment, Hudson Yards doesn't feature any of the world's tallest buildings. It would be difficult to match plans for Kingdom Tower in Saudi Arabia, anyway, which is designed to be 1 kilometer high when completed in 2019. Ditto for Phoenix Towers in China, also designed to be 1 kilometer high when completed in 2018.

Source: /Rama.

Source: Wikimedia Commons /Rama.

Although it highlights the generally bullish attitude on global economic growth, Burj Khalifa is just one example of the Skyscraper Index in action. Consider that each of the world's seven tallest buildings standing or under construction today were or will be completed after 2010.

Building Height Year Completed
Phoenix Towers 3,330 feet 2018
Kingdom Tower 3,280 feet 2019
Burj Khalifa 2,717 feet 2010
Shanghai Tower 2,073 feet 2014
Makka Royal Clock Tower 1,971 feet 2012
One World Trade Center 1,776 feet 2014
CTF Finance Center 1,740 feet 2016

Source: World Almanac 2014.

Well, of course technological innovation will push skyscrapers closer to the clouds and make the top of the list overpopulated with more recent construction. But there certainly appears to be a correlation between the world's tallest building and recessions. Consider the following relationship between some of the world's most notable recessions and the tallest buildings under or finishing construction at the time.

Recession Building(s), Opening Year Height
Great Depression, 1930s Chrysler Building, 1930Empire State Building, 1931 1,047 feet1,250 feet
1973-1975 World Trade Center, 1973Willis Tower/Sears Tower, 1973Aon Center, 1973 1,727 feet1,450 feet1,136 feet
1981-1982 JPMorgan Chase Tower, 1982 1,002 feet
1997 Asian Financial Crisis Petronas Tower 1 & 2, 1998Jim Mao Tower, 1999CITIC Plaza, 1997Tuntex Sky Tower, 1997 1,483 feet1,380 feet1,283 feet1,240 feet
Great Recession, 2008-2009 See List . --

Source: Wikipedia.

Is there something here, or are researchers just cherry-picking the data? You may or may not believe that there's a real correlation between skyscraper height and economic recessions, but while Americans are worried about the progress of the "Housing Recovery," other nations have poured hundreds of billions -- even trillions -- of dollars into real estate development. For instance, China has built entire cities in an attempt to boost economic development. What's wrong with that? Well, many of them lie empty or outrageously out of reach for most Chinese citizens.

Can the Skyscraper Index predict recessions?

Studies have concluded that the height of buildings doesn't predict economic downturns, although GDP can be a predictor of the appetite for new construction (and many other things). Similarly, economic recessions occur, on average, about every decade or so, which happens to line up perfectly with the planned completion dates of the Phoenix Towers and Kingdom Tower. However, that appears to be more coincidence than a predictable pattern chalked up to the Skyscraper Index.

What should investors do? First, realize that recessions are a relatively normal occurrence. You'll see about half a dozen in your lifetime. Second, make steady contributions to your portfolio while taking a long-term approach, which remains your biggest advantage over Wall Street -- or greedy real estate developers.

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