Ontario’s economy is being increasingly propped up by the Greater Toronto Area’s (GTA) white-hot housing market, according to a new study released by the Fraser Institute, July 5.
The weak business investment climate has the economy increasingly dependent on Toronto's housing market for growth, leaving the province vulnerable if the market slows, said a report by the policy think-tank called Ontario's One Cylinder Economy: Housing in Toronto and Weak Business Investment.
"Toronto's hot housing market is the one leg propping up Ontario's otherwise weak and vulnerable economy, making the spectre of a possible housing bubble burst or even just a slowdown all the more worrying," said the report’s author Philip Cross, former chief economic analyst for Statistics Canada, in a news release.
Homebuilding costs and record high prices accounted for 29 per cent of Ontario's economic growth in 2016. First quarter housing starts this year reached more than 85,000, the highest since 1990.
More than 60 per cent of these new homes were in the GTA.
The study concludes that Toronto's housing market is driving the economy “because of anemic business investment.”
Projected investment in Ontario this year is $50.9 billion, less than the pre-recession peak of $53.8 billion in 2008.
In manufacturing, $6.2 billion is planned for this year, compared to nearly $8.5 billion in 2007.
"The entire provincial economy is so reliant on Toronto's housing market for growth, that a cooling off -- or worse, a burst -- would be felt across Ontario, not just in the GTA," Cross said.
The Fraser paper identifies factors that are discouraging business investment in Ontario.
High electricity costs: Industrial users typically pay more than $80 per megawatt-hour, 40 per cent more than in Quebec. According to Ontario's auditor general, provincial government policy mistakes increased hydro costs for Ontarians by $37 billion between 2006 and 2014.
High labour costs: Ontario's labour costs are the highest in the country outside of Atlantic Canada, according to Statistics Canada. That worries the Fraser Institute with the provincial government set to increase the minimum wage to $15 an hour by 2019.
High taxes: Ontario has the second-highest marginal personal income tax rate of any province or state in North America at 53.5 per cent, nearly 10 percentage points higher than Michigan. Ontario's corporate income tax rate, while more competitive, is the 18th highest out of 44 jurisdictions in developed countries.