Toronto housing starts defy gravity

Most indicators suggest that Toronto’s economy is not having its best year. Manufacturing in the Greater Toronto Area (GTA) is being hammered by the high Canadian dollar and the slowdown in the U.S. economy. The ‘Big Three’ auto firms are facing weaker demand from south of the border and a shift in production to more fuel-efficient vehicles. The financial sector is being challenged by investment bank failures elsewhere and the tightening of credit.

The unemployment rate in the city has risen to 7.0%, which places it above the national average (6.1%) and moves Toronto to near the bottom in a ranking, lowest to highest, of all of Canada’s Census Metropolitan Areas. Existing home sales in Toronto were -22% in units in August 2008 year over year and the average price paid was essentially flat (+0.8%). Nevertheless, look where Toronto stands in housing starts so far this year versus the same period last year ““ in second place among all of Canada’s largest urban centres.

High-Priced Condos Hold the Key

Toronto housing starts are +32% to date this year versus the first two-thirds of last year. The strength continues to be in multi-unit starts (+70%), whereas single-family starts are on the decline (-15%). The Toronto multi-unit market is comprised to a significant degree of high-priced condos being bought by wealthy foreign investors and well-heeled empty-nesters relocating downtown from their homes with a yard in other ritzy neighbourhoods. The strength in Toronto has raised Ontario (+20%) to be the leader among all of the provinces in year-to-date total starts.

The other city with a million-plus population to show particular strength in multi-unit starts has been Calgary (+55%). Also in this large-population category, Montréal and Vancouver have tied for percentage gain in multiples at +11% each. In centres below one million population, Kelowna (+63%) and Hamilton (+52%) have demonstrated impressive increases that have raised actual volumes above 1,000 units. 
Cities with Notable Declines ““ in Starts and Prices

As for single-family declines, Calgary (-43%) and Edmonton (-69%) are among the weakest large-city markets. In addition, Edmonton’s multi-unit decline of 27% explains why that city is in last place among all centres for total starts. The Canadian Real Estate Association (CREA) reports that year-over-year average house prices in Canada were -5.1% in August, with the largest drops coming in Calgary (-8.0%), Vancouver (-5.2%), Windsor (-5.0%), Edmonton (-4.8%) and Victoria (-1.2%).