Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 1069

Over the past few weeks Drake has been posting teasers on social media of his temporary condo in Toronto. It’s temporary because he’s waiting for his 35,000 square foot faux chateau to be completed in the Bridle Path. (See, some Millennials in Toronto are still able to break into the housing market .)

Here is one of those posts taken from Instagram :

A lot of fans have been wondering which condo building Drake has been teasing. I like Drake, but my interest was peaked more as an architecture and real estate nerd.

Given the position of the CN Tower in the above picture, it looks like the building is to the north and just slightly to the east. The other clues are the curtain wall system ( SOTAWALL THERMO-3 series , I think) and the perimeter heating at the base of the windows. These are somewhat atypical details for a condo in Toronto. Also, if you look closely at the corner you’ll see that the south facade appears to slope outward.

So my guess: The Residences at the Ritz-Carlton, Toronto – designed by Kohn Pedersen Fox with Page + Steele as the local architect of record.

“The term “bubble” refers to a substantial and sustained mispricing of an asset, the existence of which cannot be proved unless it bursts.” - UBS

Last week UBS released its 2017 Global Real Estate Bubble Index . At the top of the list was none other than Toronto, followed by Stockholm, Munich, Vancouver and Sydney. And at the bottom of the list was Chicago – a city that UBS feels is undervalued.

Here is the full list of index scores:

The UBS index is a weighted average of the following five sub-indices:

1. Price-to-income
   

2. Price-to-rent (fundamental valuation)
   

3. Change in mortgage-to-GDP ratio
   

4. Change in construction-to-GDP ratio (economic distortion)
   

5. Relative price-city-to-country indicator
   

If you look at their price-to-income benchmark in isolation, Toronto drops down to the middle of the pack along with Geneva and San Francisco. Hong Kong, London and Paris sit at the top with the most unaffordable housing. 

Still, UBS credits “an overly loose monetary policy”, foreign demand, tight zoning, and rental market regulations for the eroding housing affordability in Toronto and Vancouver.

One of the challenges, of course, is that the capital flowing into real estate is not all local – it’s also global. And many cities around the world are seeing high price-to-income multiples, perhaps because of that. 

So exactly how much decoupling from local fundamentals should now be considered reasonable in our globalized world? And to what extent is this a result of “superstar economics?”

Here’s an excerpt from the UBS report:

The economics of Superstars explains why, in some professions, show business for instance, “small numbers of people earn enormous amounts of money and dominate the activities in which they engage.” By analogous reasoning, prices in the most attractive cities are expected to outperform average cities or rural areas in the long run. Hong Kong, London and San Francisco are exemplars of this theory.

The intuition is that the national and global growth of high-wealth households creates continued excess demand for the best locations. So, as long as supply cannot increase rapidly, prices in the so-called “Superstar cities” are supposed to decouple from rents, incomes and the respective countrywide price level.

I guess this is one of the reasons why bubbles are proven after the fact. If you would like to download a copy of the full UBS report, click here .

Richard Florida and Joshua Gans just published an article in Politico called: Trump Is Making Canada Great Again . The overarching argument is that as the US closes its borders, Canada benefits. The best and brightest from around the world are coming here.

This fall, international student applications at the University of Toronto were up 70% compared to last year. And numerous companies in Toronto are reporting “ steady, double-digit increases ” in the number of job applications from Americans.

This is exactly what I was getting at when I made the pithy prediction that Amazon is going to choose Toronto for HQ2. It’s about access to human capital (though I acknowledge the political reality of selecting a city outside of the US). 

Perhaps  here or here  might work for a location.

Here is an excerpt from the Politico article that starts to speak to the importance of foreign-born workers in the US:

As of 2013, foreign-born workers in STEM fields—science, technology engineering and math— accounted for  nearly a fifth of workers with bachelor’s degrees in the United States, 40 percent of those with master’s degrees and more than half of those with Ph.D.s. In the San Jose metro area, consisting largely of Silicon Valley, immigrants comprise more than 55 percent of adults who hold advanced degrees.

Here is a chart showing the US and Canadian metros with the highest percentage of foreign-born residents:

And here is a chart showing which metro areas receive the most venture capital dollars (in millions of US dollars):

As to be expected, Toronto, Vancouver and Miami lead in terms of the percentage of foreign-born residents. Though, I would bet that Toronto’s foreign-born population is far more diverse than those of Vancouver and Miami.

However, when you look at venture capital dollars invested, Toronto is nowhere near the top. Vancouver isn’t even on the list. And I suspect that some of you are surprised to see Miami sitting in between Chicago and Seattle (arguably a city that overperforms in tech relative to VC dollars invested). I was.

Perhaps Trump will help with this by making Canada great again.