Is the Chinese Skyscraper Boom Excessive?

Abstract

According to Council on Tall Buildings and Urban Habitat, more than half of the 144 skyscrapers completed in 2017, i.e. buildings taller than 200 meters, were in China. In fact, China has been undergoing a dramatic skyscraper boom since the early 2000s. Many believe that the boom results from excessive competition to build taller skyscrapers on the part of local governments and developers. Such competition, some claim, will lead to over-building and potential future collapse of real estate prices. We examine this hypothesis by testing implications of the skyscraper contest model of Helsley and Strange (2008). We find some evidence of excessive competition among cities. Additionally, evidence of contests within cities are found in several large cities with many skyscrapers. We also build a panel regression model to identify cities where skyscraper building activities in the coming years may be excessive. Our findings suggest that tier-1 cities are less risky than lower-tier cities. Tier-3 and lower-tier cities are especially risky as most of them are building too many skyscrapers. Overall, city governments or developers should be cautious and avoid engaging in unproductive contests, especially in cities that have already proposed too many skyscrapers.