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Why New 'Skyscrapers' Are Actually an Indicator of a Looming Recession

Skyscrapers show how an economy gets too confident and reckless with easy money. Let us explain.

Welcome back, Whales! A big hello to our 230,000+ subscribers. We hope everyone is gearing up for an awesome summer ahead.

Now, let's talk about something interesting. Everyone knows that investors have dozens of tools they use to figure out where the economy is going. This includes indexes like the yield curve, consumer confidence index, unemployment rate, Leading Economic Index (LEI), and more. 

Well, there's this one tool that's a bit different.

It's dubbed the 'Skyscraper Index.' This idea came from an economist named Andrew Lawrence over 2 decades ago. What it does is pretty neat: it looks at how the construction of the world's tallest buildings connects to the market cycles. Sounds odd, right? But there's a good reason behind it.

The Skyscraper Index Theory Explained.

You may be asking, why would the construction of a skyscraper represent a death knell for the economy. The answer is simple, skyscrapers are a prime example of an economy that has become dumb and hubristic, due to the influx of easy money.

Why would developers focus on building a massive skyscraper over a group of 3-4 smaller buildings which are infinitely less risky, and more demanding. It’s because the markets have become over-heated, and reality has become so distorted that approval is much easier. Plans to build ‘the biggest’ skyscrapers don’t happen in the recovery or early bull market phases.

Lawrence, who started this theory, found that nearly every time a new record-breaking skyscraper was started, it was followed by significant economic problems. Typically, these skyscrapers are announced and begin construction during the booming phase of the economy when growth is strong and unemployment is low. However, by the time these skyscrapers are finished, the economy has usually taken a sharp downturn, leading to recessions or depressions and higher unemployment.

For example, the Chrysler Building in New York started construction in 1928, during an economic boom. But just a year later, the stock market crashed in 1929, leading to the Great Depression. The Chrysler Building was completed in 1930, in the midst of this economic downturn.

Skyscrapers often signify economic exuberance driven by factors like low interest rates and abundant liquidity. When central banks lower interest rates to stimulate growth or provide easy access to credit, developers seize the opportunity to embark on ambitious construction projects, including skyscrapers. However, this influx of cheap money can lead to overinvestment and speculative behavior, fueling bubbles that eventually burst, causing economic instability. The data we’ve analyzed indicates a link between periods of low interest rates, surges in skyscraper construction, and subsequent financial crises, underscoring the risks associated with unsustainable growth fueled by easy money policies.

Lawrence's research received notable recognition in the business press. Investors' Business Daily acknowledged his evidence as "impressive" while raising doubts about the notion that constructing the tallest skyscraper might indicate economic vulnerability. Barron's concurred on its potential as a predictive tool for economic downturns, and Business Week likewise referenced the skyscraper index in its coverage.

However, as we know, not all indicators are reliable over time. The skyscraper index hasn't predicted all major economic downturns and has sometimes signaled problems when the economy only had minor issues. No index can predict a recession with 100% accuracy, since there are so many moving parts in the economy, and the future is never fully known.

Despite these challenges, the skyscraper index has a good track record for predicting significant economic downturns. Here’s a list we’ve made:

The graphic below, sourced from 'The Economist,' provides a clear visualization of the economic downturns that have historically followed the construction of the world's tallest skyscrapers.

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Toronto’s new residential building

Many Canadians are now under the impression that the Canadian housing bubble, one of the largest globally, will never burst. This belief stems from the continuous upward rally of the housing market despite numerous warning signs.

This scenario echoes the sentiments preceding the 2008 housing crisis in the United States, which ended in a dramatic temporary shock and collapse. I’ve always said this, but when a bubble reaches such staggering heights that even skeptics relinquish their doubts, it signals an impending burst.

Back in 2013, developers unveiled plans for Pinnacle One Yonge, slated to become the tallest residential building globally, situated at the former Toronto Star site. Originally scheduled for completion in 2024, delays have pushed the anticipated finish to 2025. If finished, the towering structure will soar above the skyline, offering a remarkable testament to Toronto's urban development.

Toronto's goal to build record-setting condo skyscrapers comes at a difficult time. The OECD predicts that Canada will have the worst economy among the G7 nations in the next decade. This is terrible news and raises concerns about the risks of the current housing market boom.

Furthermore, data shows that Toronto now has over 100 high rises under construction and 300 planned or proposed to complete by 2030. Not all of these are "Skyscraper" height, but if the current trend continues, Toronto could easily surpass Tokyo or Shanghai for skyscrapers. The market will not be able to sustain such rapid growth.


Number of Skyscrapers


231, 3 under construction, 4 planned/proposed


114 built, 10 under construction, 16 planned/proposed


62 built, 100+ under construction, 300+ planned/proposed

In August 2023, Phillip Colmar, managing partner of the Macro Research Board (MRB), an independent global research firm based in New York City, expressed his view on BNN Bloomberg TV that “Canada might be facing one of the largest housing bubbles ever.”

Colmar also highlighted Canada's vulnerability to the global economy, attributing it to historically low interest rates spanning the past decade.

He emphasized the concerning aspect of the housing bubble being accompanied by a credit bubble, noting the substantial Canadian leverage relative to income within the system.

Criticism of the Skyscraper Effect

As always, we aim to provide a balanced perspective, allowing readers to assess the validity of the information presented. In this case, It’s important to mention that the theory has faced disagreement from certain economists.

In 2015, economists Jason Barr, Bruce Mizrach, and Kusum Mundra wrote a report that delved into the relationship between skyscraper heights and the business cycle. The economists theorized that if building the tallest structures is an indication that the business cycle has peaked, then the plan to build these structures can also be used to forecast GDP growth.

Their study examined GDP growth per person in four countries: America, Canada, China, and Hong Kong, and compared it to the height of their tallest buildings. They found that as GDP increases, so does the height of skyscrapers. This correlation arises because during economic booms, developers aim to capitalize on the growing incomes and demand for office space.

Their research concluded with an intriguing insight: skyscraper height doesn't directly forecast GDP changes, but GDP can predict changes in skyscraper height. Put simply, the height of a building depends on how rapidly the economy is growing, but it doesn't necessarily indicate an imminent recession.

You can read there full report here, if you’re interested.

However, I see it a bit differently. While I agree that GDP growth might indeed predict changes in skyscraper height, I also believe that the skyscraper boom often coincides with the tail end of GDP growth, as evidenced by historical cases. Moreover, we're already witnessing signs of an economic slowdown in places like Canada. So, while a skyscraper boom may not be a direct signal of recession, it could serve as a warning sign that we should heed, especially when combined with other economic indicators, which are all signalling a peak.

It’s clear there are dozens of factors that have contributed to Canada's unprecedented housing bubble, especially the mass-immigration policies implemented by the current government, which have seen an influx of millions of immigrants. Each passing day brings us closer to a economic collapse, a trend that the discussed skyscraper index will likely accurately depict.

Although relatively obscure in the finance world, the skyscraper index offers a sensible and logical explanation, boasting a track record of remarkable accuracy. It’s something I find very interested and wanted to share. Just as "Pinnacle" aptly describes a skyscraper reaching new heights, it also serves as a symbol of the market's peak before it inevitably corrects back to reality.

Thank you for reading! 🐋❤️

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