If a skyscraper goes up, the stock market goes down: according to the Skyscraper Index

There Jeddah Tower, designed by the architect Adrian Smith, the same author of the Burj Khalifa, the current tallest building in the world, aims to become the tallest skyscraper of all time and the first to reach a kilometer in height. However, construction of the Saudi tower, which began in 2013 at an estimated cost of 20 billion dollars, has stalled.

Which could be good news for the world economy.

The temporal coincidence between the erection of an architectural “peak” and a profound crisis, in fact, has already registered several times. Not surprisingly, one of the unconventional indicators seen as predictive of market difficulty is the so-called Skyscraper Indexan index that sees the beginning of a global economic crisis precisely in the completion of a new tallest building in the world.

Systematized by Andrew Lawrencea real estate analyst at Dresdner Kleinwort Wasserstein, the index would suggest that business cycles and skyscraper construction are correlated in such a way that skyscrapers reach a new peak height when the economy is ready for recession.

It seems counterintuitive, because a skyscraper appears as the emblem of economic and financial success, the pinnacle of a country’s expansion and growth phase. Yet Lawrence, focusing on the historical data relating to record-breaking buildings, highlighted the chronological closeness between the two elements, pointing out, for example, how the conclusion of two record-breaking buildings, the Singer Building and the Metropolitan Life Insurance Company Tower, completed in New York in 1908 and 1909, almost coincided with the Panic of 1907. Another series of towering skyscrapers, namely 40 Wall Street (known as the Trump Building), Chrysler Building and Empire State Building opened just before the Wall Street Crash of 1929.

The two towers of the World Trade Center opened in 1970 and 1972, and the Sears Tower (also known as the Willis Tower) opened in 1973, coinciding with the oil and stock crises that erupted that year.

That’s not all: in October 2009, two months after the construction company Emaar announced that it had completed the exterior of the aforementioned Burj Khalifa, the Dubai government came close to defaulting. Too many coincidences to think of just one case.

In 2005, the American economist Mark Thornton illustrated in an essay three possible reasons for the correlation between the crisis and record-breaking new skyscrapers. First, the fall in interest rates, which occurs at the beginning of an economic boom, leads to the purchase of more building land, the price of which therefore rises, thus prompting the exploitation of vertical space; at the same time, economic growth increases the average size of a company and creates a demand for larger offices, which are satisfied by the skyscrapers themselves. Furthermore, low rates allow for technological investments in the construction sector, which allow for ever taller buildings to be erected.

All three factors peak at the end of a growth phase, when the height of skyscrapers is accentuated by the speculative fever that affects both developers and lenders who have been making money up to that point.

However, some scholars have dismissed the skyscraper index as an unreliable tool: the recession of 1920-21, that of 1937 and that of the early 1980s were not marked by buildings monster. And three economists, Jason Barr, Bruce Mizrach and Kusum Mundra, applied mathematical analysis models to verify the relationship between the height of skyscrapers and changes in the gross domestic product (GDP) of the countries in which they rise, i.e. to deduce whether heights really predict recessions. They concluded that, no, height cannot be used to predict collapses in GDP, but that GDP can be used to predict changes in height instead. In other words, the extreme height of a building certainly follows rapid economic growth, and therefore GDP growth, but it is not enough to indicate a subsequent recession.

It may also be true, but let’s face it: with the times going, who among us is in a hurry for the Jeddah Tower to be completed?