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mises
Joined: 05 Nov 2007
Location: retired
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 Posted: Tue Sep 23, 2008 9:52 am Post subject: Booms, Busts, and Construction Cranes |
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http://www.lewrockwell.com/podcast/?p=episode&name=2008-08-21_025_skyscrapers_and_economic_cycles.mp3
http://www.lewrockwell.com/french/french69.html
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I�ve traveled to many cities the past 12 months for work and play, and if there was one sight viewed virtually every place I went it was the high-rise construction crane. They are everywhere, all over the world: from housing projects under construction in Jerusalem to casino resorts underway in Macao.
Even in mega-sprawl Phoenix, cranes are in high demand commanding rents of $25,000 to $65,000 per day, according to the Arizona Republic. Those looking to buy one must wait 18 months. Over 60 cranes dot the Las Vegas skyline with two-dozen on MGM�s CityCenter project alone.
A recent article in the Las Vegas Review Journal dubbed the high-rise crane Nevada�s state bird. At the same time, while in Beijing, our guide quipped that the national bird of China is officially the Red-Crowned Crane, but that it should really be the construction crane. According to the Beijing Lonely Planet City Guide there are 2,000 high-rise buildings under construction in the city. It looked to be all of that and then some.
However, the tallest building we saw has been the tallest in the world since its completion in 2004 � the Taipei 101 in downtown Taipei, Taiwan. Taipei 101 will lose its tallest title when the 164-floor Burj Dubai is completed in 2009. James Grant wrote in The Trouble With Prosperity, "Skyscrapers were the architectural expression of optimism." Indeed, standing on the 88th-floor observation deck of the Jin Mao Tower in Shanghai, any capitalist gets an exhilarating rush, looking down upon over 5,000 high-rise buildings (all built over the past two decades) in a teeming city of 18 million people. But, the building under construction next door, the Shanghai World Financial Center, must be looked up at � it will be 101 floors and features a distinctive hole near the top to allow "dragons to pass through." That building is finally scheduled for completion next year after the foundation stone was laid over a decade ago, on August 27, 1997.
Another mega-skyscraper that is under construction is the 102-floor Union Square Phase 7 building in Hong Kong, due for completion in 2010. Another six buildings, each over 90 stories are in the planning stages to be built in Russia, Korea, Taiwan and China.
So what does all this skyscraper building tell us? Mark Thornton of the Mises Institute examined the connection between the completion of the next tallest-building and the business cycle in "Skyscrapers And Business Cycles" which appeared in the Spring 2005 edition of The Quarterly Journal of Austrian Economics. Using economist Andrew Lawrence�s skyscraper index, combined with Austrian Business Cycle Theory, Thornton finds that the skyscraper index is a good predictor of economic crisis and "that both the cause of skyscrapers reaching new heights and severe business cycles are related to instability in debt financing�"
The first skyscraper cycle began in 1904 in New York when the 47-story Singer Building and 50-story Metropolitan Life buildings began construction. This building boom was quickly followed by the Panic of 1907. In the late 1920�s with Wall Street booming three record-setting towers � 40 Wall Street, Chrysler Building, and the Empire State Building � were started, only to be completed after the stock market crash of 1929 and the onset of the Great Depression.
The third cycle began with the commencement of construction of the Sears Tower in Chicago in 1970 and the World Trade Center in New York, which broke ground in 1966. By the time these projects were completed the US economy was mired in stagflation.
The 88-story Petronas Tower in Kuala Lumpur, features twin "cosmic pillars" spiraling endlessly towards the heavens. Petronas was completed in 1997, the same year as the Asian Financial Crisis.
These four cycles, Thornton points out, share common characteristics: A period of cheap, easy money, leading to stock market booms and increases in capital expenditures. This new capital leads to technological advances and employment growth. During the booms, the next tallest building is planned and construction begins. But, prior to completion, negative information leads to market panics and the value of capital goods falls.
The coordinated and constant creation of liquidity by the world�s central banks, especially since the Greenspan era, has led to not only more contenders for the tallest building title all over the world, but also frenzied high-rise construction everywhere.
Thornton�s work shows us that before the construction party ends, the economy wakes up with a bad hangover. Better stock up on aspirin, there is a lot of pain coming.
January 7, 2008 |
I believe this to be largely accurate. And we seem to have a good test looming. Shanghai and Dubai have built huge numbers of super-tall buildings. |
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VanIslander
Joined: 18 Aug 2003
Location: Geoje, Hadong, Tongyeong,... now in a small coastal island town outside Gyeongsangnamdo!
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| Posted: Tue Sep 23, 2008 11:08 am Post subject: |
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| Even in mega-sprawl Phoenix, cranes are in high demand commanding rents of $25,000 to $65,000 per day... |
That's chickenfeed. Here in Korea on Geoje Island, the world's biggest shipbuilding municipality thanks to two of the top-20 shipyards, Daewoo Shipbuilding in Okpo on Geoje borrowed a large crane from Samsung Shipbuilding across the island in Gohyeon for a sum in excess of a million dollars a day u.s.!!! and they borrowed it for two months.  Billions of dollars every year in shipbuilding on Geoje, that's why a megasized bridge from Busan is being built right now that'll take 45 minutes to drive!
And, oh, in terms of seeing cranes used in building construction, I've counted over a hundred in just one vista while on the bus entering Seoul from the south. I've never seen so many cranes. Entire apartment suburb cities are being built. It looks very futuristic/grandieur in its scale.
This country's economy is in trouble if it relies on domestic apartment and highway construction as well as a (now thriving but threatened by emerging cheaper Chinese) shipbuilding industry not on solid foundation. The economy's flagship car and electronics makers (along with exported engineering services) are about the only firm foundation around. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Tue Sep 23, 2008 11:11 am Post subject: |
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| I believe that Korea, like Singapore and others have seen their manufacturing demand/competitiveness eroded significantly by competition from China. Korea, like Singapore is using a massive housing boom to feed the economy and hoping to high hell that it does not explode. Of course, both states will see epic housing crashes that will make Miami or Vegas look like nothing. But again, I see Dubai as having the largest crash followed by Shanghai. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Mon Oct 06, 2008 9:34 am Post subject: |
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http://www.thesun.co.uk/sol/homepage/news/article1772769.ece
Oh Dubai..
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World's tallest building plan
It is not clear exactly how high or how expensive the Nakheel Tower will be but it will have �more than 200 floors� and be part of �a multi-billion pound development�.
Dubai developer Nakheel � the company behind the man-made islands in the shapes of a palm tree and the world � said the structure would be the centre-piece of an inner-city harbour, set to become the emirates� new, unofficial capital.
Debates about what counts includes whether buildings under construction should be considered and whether roof-top antennas count.
What is certain is that the tower will climb above what is said to be current holder of the �world�s tallest building� position � the emirates' own Burj Dubai.
Speaking at a press conference yesterday, a cautious Nakheel chief executive officer, Christopher O�Donnell, said: �From our perspective, we are building a tower that�s going to be over 1km in height.
"This is a complete iconic development. It may be the tallest. Someone may build something taller.�
The Nakheel Tower will have around 150 lifts and be built with some 500,000m3 of concrete.
If the reinforcing bars planned were laid end to end, they would stretch from Dubai to New York.
The building will have enough cooling capacity to air-condition more than 14,000 modern homes.
The temperature in the atmosphere at the top of the building could be as much as ten degrees cooler than the bottom.
Planned high speed shuttle lifts will allow people to see the sunset twice � from the bottom and again from the top of the building.
Asked if Nakheel was concerned about embarking on such a development during a banking crisis, Mr O�Donnell said: �It was always going to be a project that would take ten years-plus.
"When you go about trying to fund a project like this, you have to take account of the economic cycles.�
The tower and harbour project will take more than ten years to complete.
Apart from the landmark structure, there will also be another 40 towers, ranging in height from 20 floors to 90 floors.
The entire development will be home to more than 55,000 people and a work place for more than 45,000 people.
Nakheel executive chairman, His Excellency Sultan Ahmed bin Sulayem, said: �There is nothing like it in Dubai.
"Nakheel Harbour and Tower is located in the heart of �new Dubai�, where we have focused on creating a true community, a location for living, working, relaxing and entertaining, for art and culture.
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"All of this is concentrated in one area.�
Nakheem said the designs of the planned harbour and tower were inspired by landmarks of Islamic design � including the gardens of Alhambra in Spain, the harbour of Alexandria in Egypt, the promenade of Tangier in Morocco and the bridges of Isfahan in Iran.
�With the Islamic influences governing its design, Nakheel Tower has been able to reach its height of more than a kilometre,� said His Excellency.
�This inspired approach has enabled us to achieve a number of amazing feats of engineering, for example the tower will be the world�s tallest concrete structure.� |
Yes, idiots, let's continue the housing boom but going even bigger. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Mon Oct 13, 2008 9:35 am Post subject: |
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http://www.dailymail.co.uk/news/worldnews/article-1077109/Saudi-Arabia-build-worlds-tallest-building.html
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Saudi Arabia to build world's tallest building
By Daily Mail Reporter
Saudi Prince Al-Waleed bin Talal says he will build the world's tallest building in the Saudi city of Jeddah.
The statement by his firm, Kingdom Holding Company, says the building will be more than a kilometre (3,281 ft) high and will be part of a larger project that will cost 100billion Saudi Riyals (�15.5billion). |
Well, if it is any consolodation, the petro-dollars held by Arabs are not being put to long-term productive use and they therefore are not an economic threat to us.
Oh, Dubai.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a4sAgqSD_LIA&refer=worldwide
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Dubai May Need Help From Abu Dhabi to Fund Borrowing (Update2)
Oct. 13 (Bloomberg) -- Dubai may need help from Abu Dhabi and the United Arab Emirates government to finance a surge in borrowing that paid for the world's tallest tower, palm tree- shaped man-made islands and stakes in banks worldwide.
Dubai's ``potential reliance'' will be ``most significant'' in coming years, Moody's Investors Service said in a report today. Government-controlled companies owe at least $47 billion, more than Dubai's gross domestic product, and they will continue to accumulate debt at a faster pace than the economy grows, the New York-based rating firm said.
``These companies that are based in Dubai have become larger than Dubai itself,'' said Giyas Gokkent, chief economist at National Bank of Abu Dhabi, the U.A.E.'s second-largest commercial bank by assets. ``If anything were to go wrong with any of these companies, Dubai does not have the wherewithal to deal with it.'' |
Without Abu Dhabi, Dubai would be in a similar situation to Iceland. |
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Jandar
Joined: 11 Jun 2008
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| Posted: Mon Oct 13, 2008 5:04 pm Post subject: |
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I think the Iceland scenario will be followed by Poland and Ukraine very shortly.
I don't know much but yep the Korea, Singapore and Dubai booms can't last forever. |
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VanIslander
Joined: 18 Aug 2003
Location: Geoje, Hadong, Tongyeong,... now in a small coastal island town outside Gyeongsangnamdo!
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| Posted: Mon Oct 13, 2008 5:59 pm Post subject: |
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| Jandar wrote: |
| I don't know much but yep the Korea, Singapore and Dubai booms can't last forever. |
Korean work ethic and high technology, Singaporean logistics and trading advantages and Dubai's strategy of merging Western style business with Middle Eastern oil are not things that'll be going away any time soon.
You just named three of the best bets for the next decade or two in terms of stability of investment at least. Not a bust among them. |
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Kikomom
Joined: 24 Jun 2008
Location: them thar hills--Penna, USA--Zippy is my kid, the teacher in ROK. You can call me Kiko
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| Posted: Mon Oct 13, 2008 6:18 pm Post subject: |
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The reason that cranes are so much in demand is because more pre-cast boxes are being used for both bridge and high rise construction versus the older technology of framing then pouring concrete in place. Besides picking steel, they need them now for the concrete box picks too.
Interesting article on the Busan-Geoji bridge/tunnels:
Primarily Precast: A Fixed Link Sinks Deep and Soars High Over Choppy Sea |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Mon Oct 13, 2008 6:40 pm Post subject: |
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Korean work ethic and high technology, Singaporean logistics and trading advantages and Dubai's strategy of merging Western style business with Middle Eastern oil are not things that'll be going away any time soon.
You just named three of the best bets for the next decade or two in terms of stability of investment at least. Not a bust among them. |
Oh nonsense. You sound like the WSJ from 4 years ago.
Singapore is in serious economic trouble. Like Korea, their manufacturing base evaporated to China and the high value added firms that replaced them are failing (Creative, pharm etc). Singapore has hitched her economic wagon to 1) housing booms 2) tourism 3) gaming 4) being a finance center. 1 is dead and gone, as is 4. For tourism and gaming, they want the mainland Chinese money. They are in direct competition with Macao. Lots of 7$ an hour jobs for imported Indian labour. The city is in trouble.
Korea is seeing her manufacturing base evaporate to China. And the FTA is dead on Obama arrival. They are seeing massive capital flight and are not trusted in any way/shape/form as a place to do business.
Dubai. Well, 40% or more of GDP is housing. And anyways, Dubai is almost out of oil. They are, like Singapore, trying to be a tourism and financial hub. It's working out well for them. See my last post.
Last edited by mises on Wed Nov 12, 2008 9:16 am; edited 1 time in total |
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Jandar
Joined: 11 Jun 2008
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| Posted: Mon Oct 13, 2008 7:03 pm Post subject: |
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| VanIslander wrote: |
| Jandar wrote: |
| I don't know much but yep the Korea, Singapore and Dubai booms can't last forever. |
Korean work ethic and high technology, Singaporean logistics and trading advantages and Dubai's strategy of merging Western style business with Middle Eastern oil are not things that'll be going away any time soon.
You just named three of the best bets for the next decade or two in terms of stability of investment at least. Not a bust among them. |
There is no monopoly on high tech and work ethic, high tech is migrating eastward into china along with ship building and auto manufacturing, as far as man power or work ethic they only go so far, all the high tech moved from the US to Japan and then to Korea, it is now moving to China by all accounts.
Events in the US market will turn bad for Korean trade very quickly at some point in the next three years, competition from India as well as China in the auto market will be overwhelming.
Singapore is an economic anomaly and may very well weather the storm though I don't expect there will be no effect over the next three years.
Dubai is a big gamble, has been and will remain a big gamble, dubai may become dependent on the petro dollar or may in fact become a drain on the petro dollar. I think there is much over confidence in Dubai.
I think some find these markets to be isolated from the primary markets of US, Euro, Russia, China and India, but they are in fact dependent markets, the US market fell all the others did the same, the US market rises all the others rise. How isolated was Dubai against this recent roller coaster? |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Wed Nov 12, 2008 9:18 am Post subject: |
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Dubai:
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Prices in the Downtown Burj Dubai area have fallen by as much as half, according to Dubai based estate agents. Because prices in the area had previously risen so high and so fast, when the slowdown happened, it affected that area, one of the most exclusive in Dubai, far more than others.
Whilst prices in the area were around �652 per square foot, they are now sitting at around �482. Downtown Burj Dubai, a mixed use urban development that includes the recently opened Dubai Mall, has some of the most expensive properties in the Emirate. The Burj Dubai Tower, due for completion next year, will put the area further onto the map.
This fall in property values has been pinned on the global crisis and current investors who have liquidated their assets in Dubai in order to get some ready cash.
Whilst short term investors are running scared and selling their properties for far lower prices, long term investors are sitting still holding onto their properties, confident that prices will rise once more. |
http://www.themovechannel.com/news/6247D4AF-FBC2/
Long term investors are going to lose their shirts. |
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ontheway
Joined: 24 Aug 2005
Location: Somewhere under the rainbow...
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| Posted: Wed Nov 12, 2008 9:27 am Post subject: |
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| Long term investors are going to lose their shirts. |
Shirts have never been a very good over the long term. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Fri Feb 06, 2009 9:00 am Post subject: |
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Dubai's housing crash:
http://www.youtube.com/watch?v=sk9Sbpnkd-4&
(A news report from AJ)
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For many expatriate workers in Dubai it was the ultimate symbol of their tax-free wealth: a luxurious car that few could have afforded on the money they earned at home.
Now, faced with crippling debts as a result of their high living and Dubai�s fading fortunes, many expatriates are abandoning their cars at the airport and fleeing home rather than risk jail for defaulting on loans.
Police have found more than 3,000 cars outside Dubai�s international airport in recent months. Most of the cars � four-wheel drives, saloons and �a few� Mercedes � had keys left in the ignition.
Some had used-to-the-limit credit cards in the glove box. Others had notes of apology attached to the windscreen.
�Every day we find more and more cars,� said one senior airport security official, who did not want to be named. �Christmas was the worst � we found more than two dozen on a single day.�
When the market collapsed and the emirate�s once-booming economy started to slow down, many expatriates were left owning several homes and unable to pay the mortgages without credit.
�There were a lot of people living the high life, investing in real estate and a lifestyle they couldn�t afford,� one senior banker said.
Under Sharia, which prevails in Dubai, the punishment for defaulting on a debt is severe. Bouncing a check, for example, is punishable with jail. Those who flee the emirate are known as skips.
The abandoned cars underscore a worrying trend. Five years ago the Emir, Sheikh Mohammed bin Rashid Al Maktoum, embarked on an ambitious plan to transform Dubai into a hub for business and tourism. A building boom fuelled double-digit growth, with thousands of Westerners arriving every day, eager to cash in on the emirate�s promise of easy living and wealth.
Many Westerners invested in Dubai�s skyrocketing real estate market, buying and reselling homes before building was even complete. But, as the recession took effect, property and financial companies made thousands of workers redundant and banks tightened lending. Construction companies have delayed or cancelled projects and tourism is slowing.
There are increasing signs that the foreigners who once flocked to Dubai are leaving. �There is no way of tracking actual numbers, but the anecdotal evidence is overwhelming. Dubai is emptying out,� said a Western diplomat.
International schools are having to be flexible on fees as expatriate parents run out of cash. Louise, a single mother from Britain, said that her son�s school had allowed her to pay a partial fee until she found a new job after her redundancy in December. �According to the headmaster, a lot of people had come into the school saying they had lost their jobs so the school was trying to be a bit more flexible,� she said.
Most of the emirate�s banks are not affiliated with British financial institutions, so those who flee do not have to worry about creditors. Their abandoned cars are eventually sold off by the banks at weekly auctions. Those recently advertised include BMWs, Porsches and Mercedes.
Simon Goldsmith, a spokesman for the British Embassy in Dubai, said that that there were approximately 100,000 Britons living in Dubai last year. However, the embassy has no way of tracking how many have fled back to the UK. �We�ve heard stories, but when somebody makes that kind of decision, they generally keep it to themselves,� he said.
Police have issued warrants against owners of the deserted cars. Those who return risk arrest at the airport.
Heading home
3.62 million expatriates in Dubai
864,000 nationals
8% population decline predicted this year, as expatriates leave
1,500 visas cancelled every day in Dubai
62% of homes occupied by expatriates 60% fall in property values predicted
50% slump in the price of luxury apartments on Palm Jumeirah
25% reduction in luxury spending among UAE expatriates |
http://business.timesonline.co.uk/tol/business/markets/the_gulf/article5663618.ece
Economic "growth" for Singapore, Taiwan and Korea this year is now optimistically forecast at -10,-11,-7 respectively. And the property crash is just getting started in SG and hasn't really even started yet in Seoul (but when that goes, it will be all at once, or near to). |
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Pluto
Joined: 19 Dec 2006
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| Posted: Mon Feb 09, 2009 6:42 pm Post subject: |
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http://www.youtube.com/watch?v=wWMtQxos5BQ
Interesting idea on why skyscrapers go up before the advent of an economic bust. Inverse relationship between interest rates and property values. As interest rates go down, property values go up, forcing architects and developers to build taller buildings. Should this theory hold, the Fed, and other central banks, may have an inverse and adverse effect on real estate, indeed, perhaps, the whole FIRE economy. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Mon Feb 09, 2009 7:31 pm Post subject: |
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| Pluto wrote: |
http://www.youtube.com/watch?v=wWMtQxos5BQ
Interesting idea on why skyscrapers go up before the advent of an economic bust. Inverse relationship between interest rates and property values. As interest rates go down, property values go up, forcing architects and developers to build taller buildings. Should this theory hold, the Fed, and other central banks, may have an inverse and adverse effect on real estate, indeed, perhaps, the whole FIRE economy. |
Yeah, it all makes sense eh?
One of the more nefarious effects of a boom is the inefficiency (in most all ways) of very tall buildings. |
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