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http://www.abc.net.au/pm/content/2012/s3407003.htm
Recession indicator in skyscrapers
Michael Janda reported this story on Thursday, January 12, 2012 18:26:00
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BRENDAN TREMBATH: Look up in the sky, it could be an economic catastrophe.
A study by Barclays Capital shows the completion of the world's tallest skyscrapers has generally coincided with the worst economic downturns.
Business reporter Michael Janda spoke to the study's author Andrew Lawrence.
ANDREW LAWRENCE: There's an unhealthy correlation between completion of the world's tallest building and an economic downturn and this unhealthy correlation goes back to the late 1800s and can be seen in New York in the 1930s with the Great Depression and the Empire State Building, the 1970s in Chicago and obviously stagflation and the oil crisis.
And then when it came out of North America it ironically moved to Kuala Lumpur with the Petronas Towers and we had in 1997, as that completed, the Asian Financial Crisis.
More recently in 2010 the completion of the Burj Dubai. Somewhat ironically the Burj Dubai became the world's tallest building in July 2007, just as the debt crisis started.
MICHAEL JANDA: Are there any logical explanations for this correlation, or is it merely a coincidence?
ANDREW LAWRENCE: Well one of the key correlations that it draws out is effectively the misallocation of capital. So skyscrapers tend to start in this period of cheap, freely available credit and people have an optimistic view of the world, and tend to end, complete into the recession period when that credit is being pulled back and economies are having to slow.
You have building booms as well, so you can see not only just the world's tallest building coming through but you have a collection of tall buildings being built at the same time, which is a greater manifestation of the misallocation of capital.
Today if I look out, China has a significant building boom, likely to complete 53 per cent of the world's skyscrapers under constructions over the next five years.
MICHAEL JANDA: Does that give you a concern about the economic future of China and also India?
ANDREW LAWRENCE: It raises certainly a flag for investors that we're seeing particularly a misallocation of capital and China's been a very interesting model. What we've seen is development of skyscrapers on the eastern seaboard, in the main developed cities - Beijing, Shanghai. But what our data is now showing is that that skyscraper building is moving more inland into tier two and tier three cities, which suggests the misallocation of capital and perhaps a reflection of the lending within China in 2008-2009 in response to the global downturn.
BRENDAN TREMBATH: Andrew Lawrence, head of Asian property research at Barclays Capital, speaking with Michael Janda.
Recession indicator in skyscrapers
Michael Janda reported this story on Thursday, January 12, 2012 18:26:00
Listen to MP3 of this story ( minutes)
Alternate WMA version | MP3 download
BRENDAN TREMBATH: Look up in the sky, it could be an economic catastrophe.
A study by Barclays Capital shows the completion of the world's tallest skyscrapers has generally coincided with the worst economic downturns.
Business reporter Michael Janda spoke to the study's author Andrew Lawrence.
ANDREW LAWRENCE: There's an unhealthy correlation between completion of the world's tallest building and an economic downturn and this unhealthy correlation goes back to the late 1800s and can be seen in New York in the 1930s with the Great Depression and the Empire State Building, the 1970s in Chicago and obviously stagflation and the oil crisis.
And then when it came out of North America it ironically moved to Kuala Lumpur with the Petronas Towers and we had in 1997, as that completed, the Asian Financial Crisis.
More recently in 2010 the completion of the Burj Dubai. Somewhat ironically the Burj Dubai became the world's tallest building in July 2007, just as the debt crisis started.
MICHAEL JANDA: Are there any logical explanations for this correlation, or is it merely a coincidence?
ANDREW LAWRENCE: Well one of the key correlations that it draws out is effectively the misallocation of capital. So skyscrapers tend to start in this period of cheap, freely available credit and people have an optimistic view of the world, and tend to end, complete into the recession period when that credit is being pulled back and economies are having to slow.
You have building booms as well, so you can see not only just the world's tallest building coming through but you have a collection of tall buildings being built at the same time, which is a greater manifestation of the misallocation of capital.
Today if I look out, China has a significant building boom, likely to complete 53 per cent of the world's skyscrapers under constructions over the next five years.
MICHAEL JANDA: Does that give you a concern about the economic future of China and also India?
ANDREW LAWRENCE: It raises certainly a flag for investors that we're seeing particularly a misallocation of capital and China's been a very interesting model. What we've seen is development of skyscrapers on the eastern seaboard, in the main developed cities - Beijing, Shanghai. But what our data is now showing is that that skyscraper building is moving more inland into tier two and tier three cities, which suggests the misallocation of capital and perhaps a reflection of the lending within China in 2008-2009 in response to the global downturn.
BRENDAN TREMBATH: Andrew Lawrence, head of Asian property research at Barclays Capital, speaking with Michael Janda.
