Record Large Building Construction Points to Financial Crisis Close Hand
The sky is not falling on the skyscraper market worldwide. Record construction of tall buildings continues unabated. It’s great for the construction industry, but it also traditionally foreshadows financial crisis in the real economy.
If we dissect the 100 years of data used in Barclay’s “Skyscraper Index,” that’s exactly the message we get. The index examines historical booms in large commercial construction projects, and peaks almost always precede economic downturns (recession).
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Why? Because conception lags behind project time to a significant degree. When the economy is expanding and credit is flowing, commercial developers put their money to work. Huge multipurpose office towers, high-end condominiums, and pet architectural projects get erected. But by the time they do, a recession has usually already arrived.
How much construction is going up? In 2016, 128 buildings, each greater than 200 meters high, were built worldwide, setting a new tall building completions record. It was the third consecutive record-breaking year. This brings the total number of 200-meter-plus buildings to 1,168, a 441% increase since 2000, when only 265 existed. (Source: “2016 Another Record-Breaker for Skyscraper Completions; 18 “Tallest Titles” Bestowed,” Council on Tall Buildings and Urban Habitat, 2017.)
Although China (who else?) led the way yet again, seven such buildings were erected in America. That was the largest number since 2010. Clearly, mega real estate developers, home and abroad, are feeling confident.
China Could Be the Financial Crisis Epicenter
If we consider financial crisis risk strictly based on the Skyscraper Index, China wins hands-down. China’s entire economy is filled with rampant overproduction made possible by government-mandated growth targets. Nowhere is this more apparent in big construction.
For the ninth straight year in 2016, China had 84 tall building completions, breaking its own record. Again, America only had seven.
Furthermore, this comes at a time when China’s growth rate is slipping below seven percent and shadow debt levels might top $40.0-trillion. Their great export machine is losing force, as competition from cheaper labor neighbors and growing protectionism curb demand. A simple paragraph doesn’t do justice to the immense scale of financial issues the country is facing. The massive buildout as gauged by the Skyscraper Index is just a supporting anecdote.
The immense issues China is facing are not just isolated. They are America’s problem too. China is one of the largest economies on the planet. If it can no longer force-feed credit into a saturated commercial/industrial complex, it could be enough to pull the entire world into a financial crisis.
The old saying, “When America sneezes, the rest of the world’s catches a cold” still applies. But America isn’t the only country that can make others sick. The biggest debt bubble the world has ever witnessed is currently raging in China, and we can only hope China is somehow able to orchestrate a “soft landing.”
But if Skyscraper Index history is any indication, the chances of such a landing look quite slim.
