The Skyscraper Curse: And How Austrian Economists Predicted Every Major Economic Crisis of the Last Century

In 2014, there should have been a skyscraper alert issued for China. Groundbreaking ceremonies took place on what was expected to be the world’s tallest skyscraper, called Sky City tower. This project was noteworthy not just as an attempt to build a record-breaking skyscraper of 2,749 feet in height, but also because of the remarkably short construction schedule due to the construction company’s prefabricated construction process. Initially, on-site construction was delayed until April 2014. Later, the government cancelled the project due to environmental concerns over nearby wetlands. That reversed the need to broadcast a skyscraper alert.

The confluence of regional skyscraper signals in Europe, North America, and China, along with a skyscraper alert clearly suggested the possibility of a burgeoning world-wide economic crisis. This pattern would be very much like previous episodes of skyscraper records including the panic of 1907, the Great Depression, the stagflation of the 1970s, the Asian contagion ∕ dot-com bubble, and the housing bubble. In line with these skyscraper-based predictions, a fundamental case can be built around the notion of a looming world economic crisis. Most of the world’s major economies are facing pressing economic difficulties, including the United States, Europe, Russia, Brazil, Japan, and China. Additionally, central banks have been engaged in a worldwide currency war since the housing bubble, on a scale that has never been experienced in human history. It should not be surprising that super tall buildings are being built at an astonishing rate.

Not only is the world teeming with real estate speculation and skyscraper-building from China, to New York, to London and the Middle East, there is a new world-record-setting skyscraper being constructed in Jeddah, Saudi Arabia. The Kingdom Tower is designed to be over one kilometer in height, or more than eleven football fields. It is scheduled to be completed in 2020. As designed, the Kingdom Tower will exceed the height of the Burj Khalifa by more than 500 feet, although only a few floors of inhabitable space. If events proceed as the skyscraper curse predicts, the beginning of construction of the Kingdom Tower signaled a crisis alert, as a new record-breaking skyscraper has had its groundbreaking ceremony. This will change to a skyscraper signal when a new record height has been achieved between now and 2020.

The skyscrapers can sometimes tell us about the geography of world economic bubbles. The last bubble occurred in the oil-rich Middle East, and the next one would also be in the Middle East. Both bubble projects were begun when oil prices exceeded $100 a barrel.

It is interesting to note that according to Television Post,1 Prince Alwaleed, the owner of the Kingdom Tower project, recently and unexpectedly sold most of his large stake of stock in News Corp., Rupert Murdoch’s media conglomerate, to raise nearly $200 million. The move was said to have been part of an overall review and rebalancing of the prince’s $20 billion portfolio. This is probably a smart move given the collapse of oil prices and the hefty price tag of $1.2 billion for the prince’s Kingdom Tower.

With more financing in place, the next world’s tallest skyscraper project is moving forward. The final piece of financing that is necessary to bring the $1.2 billion Kingdom Tower project in Saudi Arabia to record heights has been obtained. Media reports also show that the structure has risen to more than seventy-five meters (246 feet), and construction is proceeding at an uninterrupted pace, although there remain many concerns about the project’s viability. (Subsequently, the project experienced more delays.)

For example, above-ground construction on the long-delayed Kingdom Tower, now called the Jeddah Tower, started in September 2014, but there was considerable doubt that the financing for the one-kilometer (3,280.84 feet) tower could be obtained, given the shaky financial conditions in Saudi Arabia.

But the Jeddah Tower is only the latest phase in an enormous boom that began setting new records in 2014. As I reported in February 2015:

Super tall buildings, or skyscrapers, are being built at an astonishing rate. Ninety-seven buildings that exceed 200 meters (656 feet) high were constructed in 2014, setting a new record. The previous record was eighty-one buildings completed in 2011. The total number of skyscrapers in existence now is 935, a whopping 350 percent increase since the year 2000.2

If completed as planned, Jeddah Tower will be the tallest building in the world. Jackie Salo, in the International Business Times, reports:

Saudi Arabia’s Kingdom Tower in Jeddah is slated to become the world’s highest skyscraper when it is erected in 2020, knocking Dubai’s Burj Khalifa tower from its perch as tallest building at 2,716 feet. The new tower will claim the title if it reaches its planned height of 3,280 feet. …The 200-floor Kingdom Tower will be part of a reported $8.4 billion project to construct Jeddah City. Construction of the skyscraper will entail 5.7 million square feet of concrete and 80,000 tons of steel.3

In other words, the Tower could be the next record-breaking skyscraper, which is just part of an even more massive project. That means it’s time for a new skyscraper alert (as of January 1, 2016).

Remember, a skyscraper alert is an indicator that suggests a significant economic crisis will occur in the near future, even though economic conditions currently appear good. This alert could have been issued earlier, because an alert is defined based on the groundbreaking ceremonies of a world-record-breaking skyscraper, not the initial announcement of the project, which in this case occurred in August 2011. At that time there was still considerable doubt the project would be completed as planned.

Skyscraper alerts indicate significant looming danger in the economy, but the danger is not necessarily imminent. The next pivotal date for the Jeddah Tower project is when it reaches the height to break the old record and a skyscraper signal is given. That date is difficult to estimate given the uncertainty of construction. Media reports indicate that the project will be completed in 2020 without indicating whether that date is the completion date or the opening ceremonies.

So, will this latest frenzy of new construction tip us off to the next bust? The Skyscraper Index is silent on the issue of timing, so the dating of when the skyscraper curse becomes apparent is just guesswork. It seems that the boom reaches its peak around the time the new record height is set, and this is when a skyscraper signal should be issued. The skyscraper signal means that economic danger is looming. In most episodes, record-breaking skyscrapers generally have their completion dates and opening ceremonies when the economic crisis is readily apparent.

The important thing to remember is that skyscrapers do not cause economic crises. Rather they are just very noticeable examples of the distortions taking place throughout the economy when interest rates are kept artificially low by the central bank. This point will be thoroughly reinforced in the next chapter.

• 1Television Post, “Prince Alwaleed Sells 5.6% Stake in News Corp for $188 Million,” March 2, 2015.
• 2Mark Thornton, “Where Is the Skyscraper Curse Today,” Mises Daily, February 24, 2015.
• 3Jackie Salo, “World’s Tallest Skyscraper Is Saudi Arabia’s Kingdom Tower? Jeddah Building Projected to Break Height Records,” International Business Times, December 1, 2015.