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Riding the Up-and-Down Construction Cycle

Has the Hawaii construction sector finally turned the corner?

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Skyscraper Index: tracking Booms and Busts?

It’s interesting to look at the Honolulu skyline through the lens of the famous Skyscraper Index.

This theory, first proposed by the economist Andrew Lawrence in 1999, posits that the construction of the tallest skyscrapers usually presages major economic downturns. He offered as examples the Singer Building and the Metropolitan Life Building, which were once the tallest buildings in the world, and which both began construction just before the Panic of 1907, and 40 Wall Street Tower, the Chrysler Building and the Empire State Building, all of which began construction just prior to the stock market crash of 1929 that precipitated the Great Depression. To this list, you could also add more recent examples, such as the Sears Tower and the World Trade Center, both built immediately prior to the stagflation of the early 1970s, and the Petronas Twin Towers, completed in 1997, just in time for the Asian Economic Crisis.

Does the Skyscraper Index apply to Hawaii?

Before answering that, it’s worth noting that not all economists buy the Skyscraper Index. They point to the construction of prominent buildings, like the Woolworth Building, in 1913, that aren’t associated with a financial crisis, or to major recessions, like Japan’s “Lost Decade,” that weren’t preceded by the construction of any iconic skyscraper. Lawrence himself proposed his theory at least partly in jest – in a paper whimsically entitled, “The Skyscraper Index: Faulty Towers” – so it’s probably a mistake to take it too literally. But, to the layman, the correlation between the construction of giant skyscrapers and the incidence of financial crises seems hard to ignore.

That’s true even in Hawaii – notwithstanding that none of the buildings here are tall in the sense that Lawrence meant. For our purposes, maybe they’re just tall enough. Think, for example, of the towers that were either completed just before the last cycle peaked (Capitol Place, Moana Pacific and Keola Lai) or whose completion was stalled or complicated by the credit market collapse that began in 2007 (The Allure and Moana Vista). Previous recessions had their own symbolic Hawaii high-rises (for example, the Japan Bubble: Prince Hotel and Ihilani). Indeed, this is how it’s been for almost every cycle in the Hawaii economy. The question today is simply: Which of the towers on today’s drawing boards will make its own mark on the local Skyscraper Index?

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Hawaii Business,September