New Skyscrapers Wherever one Looks

Readers may recall our recent discussion of the construction of the Jeddah Tower (see “Soaring to Bankruptcy” for details). This skyscraper is a typical symptom of an artificial boom that has moved past its due date, so to speak. The idea behind the skyscraper index is that in light of the immensity of projects that involve the construction of the tallest building in the world (or one of the tallest), they are only realized once the notion that boom conditions will continue forever has become firmly ingrained. By the time this happens, the boom is usually quite close to giving way to a bust.

Central Park Tower , a.k.a. the Nordstrom Tower, which is going to be finished in 2019. At a height of 547 meters (1,795 ft.) it will be the tallest building in the United States, as well as in the entire western hemisphere

Image credit: Extell

It is quite costly and time-intensive to build such an enormous structure. One needs to keep in mind that the effort involves much more than just the construction phase. Planning, permitting, solving technical and logistical challenges, organizing the necessary funding, etc., all have to be considered as well. The long term nature of such projects also means that they are far more likely to be tackled when interest rates are low – and especially when they are too low, i.e., suppressed below the natural rate by central bank intervention. As we have pointed out in the article on Jeddah, from an analytical perspective real estate can be viewed as akin to capital goods.

In recent years we have noticed that a string of very tall buildings has been erected all over the world. Many of them were even briefly considered the “tallest” at the time they were conceived. There was a noteworthy concentration of such projects in China and in oil-producing nations.

Even Iraq (!) is reportedly planning to build the tallest building in the world in Basra – the 1,152 meter (3,778 ft.) tall “Bride of the Gulf”. This one would even put the Jeddah Tower in the shade. We strongly suspect that the plans were made back when oil was still trading in triple digits. We also suspect that the “Bride” will remain stuck in the conceptual stage for the time being.