From the BBC:
There is an "unhealthy correlation" between the building of skyscrapers and subsequent financial crashes, according to Barclays Capital. Examples include the Empire State building, built as the Great Depression was underway, and the current world's tallest, the Burj Khalifa, built just before Dubai almost went bust.
China is currently the biggest builder of skyscrapers, the bank said. India also has 14 skyscrapers under construction.
"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," Barclays Capital analysts said. The bank noted that the world's first skyscraper, the Equitable Life building in New York, was completed in 1873 and coincided with a five-year recession. It was demolished in 1912...
That all seems perfectly plausible to me.
By and large, the height and density of buildings are primarily an indicator of relative land values in towns and cities. So you get the highest and densest buildings in the town centre* and then it gets lower and sparser as you move out into the suburbs.
The other thing which sky scrapers indicate is over-inflated egos, and credit bubbles inflate people's egos in the same way as they inflate the selling price of land.
So it's clear why credit bubbles mean more skyscrapers being built; credit bubbles always burst; hey presto, there's your correlation between skyscrapers and recessions.
Or the theory might be complete bunk, who knows?
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* UPDATE, prompted by JT's comment, I refer you to Jason Barr's empirical research looking at the economics of skyscrapers in Manhattan:
One also notices that within the skyline there are distinct “waves” of building heights, with height rising toward the "center". These waves reflect the endogenous relationship between strategic height, land values and agglomeration economies. Corporations need to be near each other to lower their business costs and increase demand, yet they also desire to stand out in the skyline.
Being close is valuable, which is reflected in property values in the center; large land costs, in turn, drives developers to build even higher if they are to get a return on their investment, as well as have their buildings stand out.
He explains that on the one hand, builders want to build as high as possible, to maximise rental income, fair enough. By and large, rental values decline slightly with height (longer lift journeys etc) and construction costs rise disproportionately with height. So there is a cut-off height above which it makes no sense building, but hubris (esp. during a credit boom) makes people want to add a dozen floors too many, and credit booms also lead builders to underestimate the cost of capital tied up in those extra floors.
He can thus identify the "too tall" buildings, and lists the top fifteen "too tall" buildings on page 27. As you'd expect, their construction dates match peaks of the eighteen-year credit cycles, two in 1908-13; seven in 1926 - 1933; then a bit of a gap for WW2 which threw the cycles out of kilter (or dampened the one which would have happened in the late 1940s); two in 1960 - 61; three in 1972 - 77; and an odd one out in 1987.
Surprised by the outcome
3 hours ago
13 comments:
The Brill Buiding is an example (OK its only eleven storeys high)but it was built as a prestige development in 1931 (the facade/portico looks well pretentious) then as the Depression deepened they had to let space to all kinds of disreputable music publishers who subdivided it and crammed in people so that Carole King said she worked in a "cubby-hole" with just enough room for a piano,its bench and "maybe a chair for a lyricist". (I thought she wrote her own lyrics.)
The whole building was so integrated in the 60's that you could get a song written,an arrangement made and a demo produced internally.
The other thing which sky scrapers indicate is over-inflated egos, and credit bubbles inflate people's egos in the same way as they inflate the selling price of land.
There's also a possible rational hypothesis to explain what's going on.
First, a fact: as you build higher the costs increase, and that's exponential. You have to spend a LOT more per flor on things like air-conditioning, lifts, structural design to deal with high winds, worker safety and so forth as you go upwards. You can also only deal with a reasonably small number of companies who know how to do such projects.
So, when land prices are low, it's probably cheaper to build three 30 storey buildings than one 90 storey building. Despite needing 3 times the land, the costs are a lot cheaper.
When land costs soar, the balance shifts. Your building costs are roughly the same but your land costs have gone up. Using less land starts to make more sense, the costs of extra height start to get dwarfed by the cost of extra land.
That said, you have to rule out the ones in the arab states - they're just about status and some vague cargo cult idea about skyscrapers.
DBC, 1931 was an auspicious year, see update.
JT, good stuff, I've now linked to a bit of research that backs all that up.
M, have you read The Secret Life of Real Estate and Banking? The author P.J Anderson devoted a few pages to this very phenomenon and included pics to show the relative height of these bubble buildings.
CD, no. Is it any good?
M, yes, most definitely. I found it a bit heavy going (you probably wouldn't) but for Georgists it's well worth a read, even if it does cost ~£20.
One shouldn't forget a very important thing : The fact that skyscrapers would be "good generic shapes" to increase density at the scale of a city is simply a false myth, that is a lie (and especially true for housing, less for offices).
This was "formalized"(even if in a too simplified way at the time, basic results still stand) in the sixities by Leslie Martin and Lionel March in Cambridge, that is if you compare generic urbanism made of towers, slabs or courtyard buildings, using the same natural light constraints and with varying number of floors, it is false that the tower shape provides the best results, and all this is asymptotic anyway.
Or in other words, skyscrapers only "make sense" as a singularity, and the "increasing density mantra, the higher the better" is simply a "false moral excuse" in order to build them.
So wouldn't be surprised at all of this synchronicity between building some and financial crisis.
for details check two articles linked below(in english as pdf):
http://iiscn.wordpress.com/2011/05/15/densite-etages-lumiere/
YT, I've printed off the first one and I'll give it a read later.
What's going on in the middle-east may defy economics as we know it, but maybe it is totally rational according to cultural values where the display of conspicuous consumption doesn't seem to provoke the same disdain as in other parts of the world. Meaning being situated in one of these falloses may be an important goodwill asset, in an arms-race type of way...
-Kj
Good point, Kj. I'm inclined to think that value is actually tied in to human need and in particular that Maslow's hierarchy of needs actually gives good pointers as to what makes things valuable. Basically once people have spent money satisfying needs from the bottom of the hierarchy they start spending money on higher (less important) needs. The skyscraper building in the Gulf States is an example of this. It's basically oneupmanship, the need for status which fits in to the "Esteem" section of the Maslow pyramid. And whereas you only need to spend so much to satisfy basic needs like food and shelter, there's no limit to what needs to be spent in order to compete with your neighbours to be top dog.
Kj, agreed, but do you mean "fallacies" or "phalluses"?
D, Maslow's hierarchy, I mentioned that a while ago and how it still fits in nicely with the Georgist scheme of things, you already commented on that post.
Gosh, I forgot about that one, Mark. My memory's getting worse all the time. But yep. That post of yours covers exactly what I was talking about.
MW: Phalluses! Should have bothered to check that translation, rarely use it, which is a Good thing.
D: Agree. Also it seems to be an initial take-off that stabilizes after the actors realize it can't be sustained, and social and cultural capital takes over as the yardstick. Compare "new money" and "old money".
-Kj
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