Burj Dubai: The Skyscraper as Economic Nexus & Leading Index


[Remember all those Irish property expo shows for apartments in Turkey, Eastern Europe… Dubai? All emphases mine]

“The common pattern in these … historical episodes contain… the following features. First, a period of “easy money” leads to a rapid expansion of the economy and a boom in the stock market. In particular, the relatively easy availability of credit fuels a substantial increase in capital expenditures.
Capital expenditures flow in the direction of new technologies which in turn creates new industries and transforms some existing industries in terms of their structure and technology.”

“This is when the world’s tallest buildings are begun.”

“At some point thereafter negative information ignites panicky behavior in financial markets and there is a decline in the relative price of fixed capital goods. Finally, unemployment increases, particularly in capital and technology-intensive industries…”

In the twentieth century the skyscraper has replaced the factory and railroad, just as the information and service sectors have replaced heavy industry and manufacturing as the dominant sectors of the economy.”

The skyscraper is the critical nexus of the administration of modern global capitalism and commerce where decisions are made and transmitted throughout the capitalist system and where traders communicate and exchange information and goods, interconnecting with the telecommunications network. Therefore it should not be surprising that the skyscraper is an important manifestation of the twentieth-century business cycle, just as the canals, railroads, and factories were in previous times.” (Thornton – Ref. 3)

“A DISTINCTIVE FEATURE OF FLUCTUATiONS of both construction and real estate prices over the last 150 years in the United States, Great Britain, and other countries is the regularity of cycles of roughly 20 years… Clarence Long… observed that a decline in building precedes general business declines in major downturns… a phenomenon that has continued to the present day.”

“The United States has had a real estate cycle of roughly 18-year spans, starting as early as 1800, The peaks of the U,S. real estate cycles prior to World War II occurred in 1818, 1836, 1854, 1872, 1890, 1907, and 1925, Cycle bottoms occurred in 1819, 1843, 1858, 1875, 1894, 1908, and 1933… Upward movement in real estate prices persisted in 1819-1836,1860-72,1894-1907, and 1908-1925, Sharply falling real estate prices occurred in 1818-19,1837-1840,1857-59,1873-75,1892-94,1907- 08, and 1929-32… Detailed histories of these cycles are related in Hoyt (1933), Sakolski (1932), Hicks (1961), English and Cardiff (1979), and other works.”

“The congruence of the real estate and business cycles is seen clearly in the Great Depression and preceding 1920s boom. In 1920, the total value of U.S. urban land in cities of over 30,000 was $25 billion. By 1926, urban sites rose to over $50 billion… During 1925, $500 million of northern capital had poured into Florida real estate, where speculation was most extreme… In the fall of 1926, the Florida land boom collapsed. Construction in the cities continued with undiminished ardor during 1927-1928; from 1923 to 1929, the square feet of office space in Chicago almost doubled. So powerful was the 1920s boom and subsequent bust that no new office buildings were erected and no new large hotel was built in Chicago from 1931 to 1950…”

“If the production of capital goods, especially construction, was the key element of the “second derivative” of the 1920s boom, its decline after 1925 would eventually bring the first-derivative growth to a halt. The timing, in the midst of the boom, was right. Hansen (1964, p. 46) calls the drop in construction in 1928 “catastrophic,” and states, “No explanation of the boom of the twenties or the severity and duration of the depression of the thirties is adequate which leaves out of account the great expansion and contraction in building activity.” Hoyt (1970, p. 532) remarked that the increase in the number of foreclosures in 1927 “was a barometer of approaching financial storms…”

Land is essential for all production. In any particular economic region, the quantity of surface sites is fixed… When a boom is underway, the anticipated increase in rent induces speculators to buy land for price appreciation rather than for present use, which causes the current site value to rise above that warranted by present use. Once widespread speculation sets in, land values are carried beyond the point at which enterprises can make a profit after paying for rent or mortgages. The rate of increase of investment slows down, eventually reducing aggregate demand as the slowdown ripples through the economy, increasing unemployment and bringing forth a depression. Thus a fall in demand follows the initial cause, the rising cost of land…”

“Murray Rothbard (1975, p, 86) reports that the money supply of the United States increased by 62 percent during the 1920s boom. The major increases in credit expansion took place in 1922-25, Here again, the money and credit system, this time orchestrated by the new Federal Reserve System, fueled the speculation.”

– (Foldvary – Ref. 1)

“In the overheated speculation of the 1920s, as land prices rose, towers grew steadily taller. Or should the order be: as skyscrapers grew taller, land prices rose? The variables that contributed to real estate cycles were even more complex than this “chicken and egg” conundrum. (Willis 1995, p. 88)”

1818    —         LAND price peak
1819     —        BUST
-24         $    [recession: harvest & bank failures, widespread farm foreclosures]


1836     (18)     LAND price peak
1836    —        CONSTRUCTION peak
1837     (18)     BUST
-43         $$$    [“Panic of 1837” American banks stop payment in precious metal – speculation markets greatly affected]


1854     (18)     LAND price peak
1856     (20)     CONSTRUCTION peak
1857     (20)     BUST
–60          $    [recession triggered by Ohio Life Insurance & Trust Company bust, European bubble in US railroads]


1871     (15)     CONSTRUCTION peak
1872     (18)     LAND price peak
1873     (16)     BUST
-79             $$$    [“Panic of 1873” largest bank in US fails, bursts post-Civil War speculative bubble]
$    [Coinage Act of 1873 demotes silver in favour of gold – effectively cuts credit of Western & rural populations]
-96             $    [“The Long Depression”]
1890     (18)     LAND price peak
1892     (21)     CONSTRUCTION peak
1893     (20)     BUST
–96         $    [recession triggered by failure of US Reading Railroad & withdrawal of European investment]


# = NEW RECORD for World’s tallest building.

1907     (17)     LAND price peak
$    [“Panic of 1907”, run on Knickerbocker Trust Company deposits]

# Singer Building    New York     (Completed)

1909     (17)     CONSTRUCTION peak

# Metropolitan Life    New York    (Completed)

# 1913         Woolworth         New York    (Completed)

$    Founding of Federal Reserve System:
“…The Panic of 1907… widely considered to be a key event in the passage of the Federal Reserve Act in 1913…”

1914-18             WWI

1918     (25)        BUST
–21         $    [severe hyperinflation in Europe,
rampant real estate speculation in Germany]
Depression         Jan 1920-Jul ’21


Sharp Recession    May 1923-Jul ’24
1925     (18)     LAND price peak
(16)     CONSTRUCTION peak
Mild Recession     Oct 1926-Nov ’27
1929     (11)     BUST
-39         $$$    [stock markets crash worldwide, the Great Depression]
Depression        Aug 1929-Mar ’33

# 1929        40 Wall St         New York     (Completed)

# 1930        Chrysler Building    New York     (Completed)

# 1931        Empire State        New York     (Completed)

Depression        May 1937-Jun ’38
1939-45           WWII


1947-91           Cold War
-51                [Marshall Plan]
Sharp Recession    Nov 1948-Oct ’49
Sharp Recession    Jul 1953-May ’54
1956                [Federal-Aid Highway Act – “Dwight D. Eisenhower National System of Interstate & Defense Highways”; construction absorbs more than half the world’s commodities in 1950’s. (Holmes, Ref. 4); The golden age of Suburbia & Los Angeles (designed for cars)]
Sharp Recession    Aug 1957-Apr ’58
Mild Recession    Apr 1960-Feb ’61

1967-72            “An old-fashioned real-estate boom finally developed, especially for apartments, from 1967 to 1972, coinciding with increased inflation. Baby boomers increased the demand for rental housing. Prices of apartment buildings were rising faster than their rents, but ‘investors didn’t care . . . they were buying into the rental property market in order to speculate on future price increases’…
$    The Tax Reform Act of 1969 had made rental property more attractive. Tax shelters used negative cash flow as a tax advantage. Real estate became a favored hedge against increasing inflation, the stock market having topped out. ” (Foldvary)
Mild Recession    Dec 1969-Nov ’70
1972     (47)         CONSTRUCTION peak

# -73         World Trade Center    New York

$$$    Real Estate Investment Trust (REIT) assets grew from $2 billion in 1969 to $20 billion in 1973. Commercial bank mortgage loans increased from $66.7 billion in 1969 to $113.6 billion in 1973…” “Then vacancies began to increase. ‘With catastrophic swiftness, the money machine sputtered to a stop. The financial suptirstructure collapsed; the REIT industry faced bankruptcy’… “Interest rates were also increasing. Many REITs and developers went bankrupt. Apartment units begun dropped from their peak of 1,047,500 in 1972 to 268,300 in 1975…
‘More money may have been lost in the Apartment Crash than in any of the more celebrated crashes.
But it remains an unheralded financial crisis’ … It was the worst recession in the U.S. since the 1930s.” (Foldvary)
Sharp Recession    Nov 1973-Mar ’75
Ben Bernanke (2003): “… the deep 1973–75 recession was caused only in part by increases in oil prices per se. An equally important source of the recession was several years of overexpansionary monetary policy that squandered the Fed’s credibility regarding inflation… ”
1973     (48)      LAND price peak
(44)      BUST

# 1974        Sears Tower        Chicago     (Completed)

US Population growth rate & Wholesale Price Peak (Long-Wave IV): “Baby Boomers”


1978     (6)         CONSTRUCTION peak
1979     (6)         LAND price peak
1980     (7)         BUST
Mild Recession    Jan 1980-Jul ’80
Sharp Recession  Jul 1981-Nov ’82
-94        $     [Cheney: “Reagan proved that deficits don’t matter”]
[1,600+ banks insured by FDIC closed or received financial assistance. L. William Seidman, former chairman of both the FDIC and the Resolution Trust Corporation: “The banking problems of the ’80s and ’90s came primarily, but not exclusively, from unsound real estate lending.”]


1986     (8)        CONSTRUCTION peak
$    [Tax Reform Act removes many tax shelters for real estate investments.]
-89             [FSLIC closed or otherwise resolved 296 institutions with total assets of $125 billion.]
-95            [number of US federally insured S&L’s in the US declined from 3,234 to 1,645;
primarily due to unsound real estate lending.]
1987             $$$    [Oct 19 Black Friday Stockmarket Crash worldwide]
1989     (10)     LAND price peak
-95             [Resolution Trust Corporation agency resolution of an additional 747 thrift banks.]
1990     (10)     BUST
Mild Recession    Jul 1990-Mar ’91
[Douglas Coupland’s “Generation X” in their 20’s, originally referred to as the “baby bust” generation]
1986-1991      [number of new homes constructed dropped from 1.8 to 1 million; lowest rate since WWII.]


1989-91           [End of Cold War: Fall of Berlin Wall, collapse of Soviet Union & Comecon network;
Former Soviet populations and resources now accessible – Fukuyama’s “End of History” & rise of global – IMF enforced – neoliberalism]
[1991-present: Al Gore invents Internet (!); rise of World Wide Web, cybernetic Information Technology networks]
$    [1995–Mar 2000 Dotcom & Information Technology Bubble – Newt Gingrich invents “Information Superhighway” (!), & NAFTA – puts Contract on America]
1993-96          $    [Foreign debt-to-GDP ratios rise from 100% to 167% in the four large ASEAN economies.]

# 1997         Petronas Tower    Kuala Lumpur    (Completed)    “Asian Contagion”/”Asian Flu”

-98         $    [Thai government floats the baht, cuts peg to USD, after exhaustive efforts to support it;
foreign debt-to-GDP ratios beyond 180%; severe financial overextension part real estate driven; Russian Government default on government bonds; Long Term Capital Management loses $4.6 billion in less than four months, almost crashes system]


2000             $    [March, Dotcom crash]
2001                 [June 13, Taipei 101  “topped out.”]
# 2004        Taipei 101    Republic of China/Taiwan    (Completed)
[Burj Dubai – Construction start]
2005                [China uses half of world’s cement and 40 percent of world’s steel (Holmes, Ref. 4)]
2006                [China plans to build 14 express highways, six railways and a dozen new seaport facilities before 2010; energy consumption expected to be 69 percent higher in 2010 than in 2002, according to the FEIA; growth rate 5X US, >15X Europe; India invests 3.5% GDP on power plants, roads and other infrastructure, financing “industrial townships” (Holmes, Ref. 4)]
2006     (17)     LAND price peak
2006     (20)     CONSTRUCTION peak
2007             [“subprime mortgage financial crisis”]
2008                [Sep 1: Burj Dubai is tallest structure ever built.]
2008!     (18)    BUST
$$$ [The Crisis of 2008-20??]
2009                [Jan 17: Burj Dubai “tops out” at 818 m – half a mile]
# 2009         Burj Dubai     Dubai     [September-December, estimated completion date!]

# 2012         Shanghai     China     [estimated completion date as of 2005]

“In the overheated speculation of the 1920s, as land prices rose, towers grew steadily taller. Or should the order be: as skyscrapers grew taller, land prices rose?

“The common pattern in these … historical episodes contain… First, a period of “easy money”…

“…the money supply of the United States increased by 62 percent during the 1920s boom. The major increases in credit expansion took place in 1922-25, Here again, the money and credit system, this time orchestrated by the new Federal Reserve System, fueled the speculation.”

[A note on Ireland and the Crisis… if I remember correctly, there were plans by Sean Dunlop to build a skyscraper in D4 not so long ago? How’s that U2 tower going?]

“In a way, Ireland offers a lesson in how not to handle your newfound riches. Alan Ahearne, an economist at the National University of Ireland in Galway, worked for the U.S. Federal Reserve. When he came back to Ireland in 2005, he was unnerved. House prices had rocketed, outpacing incomes and rents [Remember US Apartment Crash of 1973: “worst recession in the U.S. since the 1930s”]. In 2006, the census found more than 250,000 empty properties, in a country with a population of just over four million. Many were investments their owners didn’t bother renting out, so good were the gains from rising prices. “That, to me, was a scary sign,” Mr. Ahearne said.

Ireland’s membership in the euro zone brought benefits, but also hazards. Low interest rates brought a flood of credit, which the Irish put to work buying homes.

The period of low rates was “fine for the German economy, which was very weak at the time, but it wasn’t for the Irish economy, which was very strong,” says Mr. Ahearne. To regain its footing, he says, Ireland will face painful “real devaluation” — falling wages and prices that bring the living standard down.”


Wall Street Journal, FEBRUARY 7, 2009, Ireland’s Boom Falls Hard in Global Crisis, By CHARLES FORELLE


Other references:
(1) “The Business Cycle: A Georgist-Austrian Synthesis”, Fred Foldvary (Economist, Santa Clara University), American Journal of Economics and Sociology, Vol. 56, No. 4 (October, 1977).
(2) The Concise Encyclopedia of Economics
by Geoffrey H. Moore
SOURCE: Based on table A-2 in G. H. Moore, Business Cycles, Inflation and Forecasting, 2nd ed., 1983. Note that the brief and mild recession of 1945 is omitted here.
(3) “Sky Scrapers and Business Cycles”, Mark Thornton,  The Quarterly Journal of Austrian Economics, Vol. 8, No. 1 (Spring 2005), 51-74.
(4) The Rise of the Chinese Consumer
By Frank E. Holmes
July 12, 2006


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