Desperate House-Owners

By Stephen Michalowicz

Photo by Stephen Michalowicz/Torontoist

The economic downturn has taken a toll on Toronto’s housing market. In comparison to 2007, November housing sales in the GTA were down 50 percent, and new high-rise condo sales, once the bedrock of Toronto’s housing market, declined 31.6 percent this year. The average sale price for a house in November fell by $43,500, while the average condo price fell by over 10 percent. So what awaits the market in 2009? Unfortunately, more doom and gloom.

Photo by Stephen Michalowicz/Torontoist

The Canadian Mortgage and Housing Corporation estimates that total housing sales will drop by 8.5%, or seventy-five thousand units, and Royal LePage is predicting a further 4% price drop and increased foreclosures. But even these grim figures haven’t completely halted development. Despite the credit crunch, new houses and condos continue to go up around the city—in fact, a record number of new condos will be completed in 2009. But with demand waning many of these new units will likely sit vacant, driving down prices and the incentive for new construction projects. Analysts predict that the large condo and housing developments already in the construction phase will likely finish; it’s the smaller projects that will have difficulties securing the financing necessary to complete construction.
While the housing industry is unlikely to collapse—Canada isn’t facing as large a credit crisis as the U.S.—its decline will have grave consequences for Toronto’s economy. Estimates indicate that the industry annually contributes more than two billion dollars to the city’s economy and is linked to six percent of the regional GDP. The housing construction industry alone employs approximately 143,300 people and when multipliers are factored in, the industry accounts for 12-14 percent of the jobs in the GTA [PDF]. There are also countless financial institutions and real estate companies that employ thousands of Torontonians and as loses mount these companies are going to start laying-off employees. In fact, lay-offs in the construction industry have already begun: Statscan reported that in December 44,300 jobs were lost in the construction sector nationwide.
Weak sales will also have a negative impact on consumer spending and city revenues. According to statistics compiled by the Clayton Research Association, the average sale of a house in Ontario generates twenty-seven thousand dollars in spin-off spending [PDF], on items like furniture, appliances, and renovations. (This figure includes the fees that real estate lawyers and brokers receive—direct homeowner spending is closer to $13,500.) Furthermore, the city of Toronto depends on property taxes for a substantial portion of its revenues—if housing prices continue to fall, the city will ax jobs and programs to make up for the budget shortfall. Now that the good times of the housing boom are over, it looks like we’re all going to feel the pinch.