These are stories Report on Business is following Monday, Feb. 10, 2014.

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Toronto prices a concern

The surge in Toronto prices is shaping up as a major economic threat, Bank of Montreal warns in a new report.

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In an economic forecast for North America released today, the bank noted three "risks," including those from newly embattled emerging markets, the continuing tussle over the U.S. government debt ceiling and, on the domestic front, residential real estate in Canada's biggest city.

"In Canada, accelerating home prices in Toronto (7.1 per cent year-over-year in January) risk straining affordability further, causing a correction when interest rates normalize and the market is trying to absorb a record number of newly built condos," said senior economist Sal Guatieri.

Mr. Guatieri's comments follow last week's report from the Toronto Real Estate Board, which showed the average selling price in January surged more than 9 per cent to $526,528 from a year earlier. The so-called benchmark price rose 7.1 per cent, as the BMO economist noted while warning that real estate price growth is outpacing family income.

On the home front, this is one of the bigger risks, more so to the local economy, Mr. Guatieri added in an interview. But because the local economy is such a big part of the national scene, there's an impact, he noted.

Mr. Guatieri doesn't see a near-term threat, but one that could spark trouble over the next few years as interest rates rise.

Consider, too, that according to the latest report from Canada Housing and Mortgage Corp., also released today, showed Toronto bucking the national trend when it comes to residential construction starts.

While those across the country edged down, housing starts in the Toronto area climbed to an annual pace of 36,186 units in January from 32,281 in December.

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The six-month moving average puts the number at 36,367, up from December's 35,547.

"Apartment starts remained high as the relatively high number of projects which began selling in 2011 reached sales targets that allow construction to begin," CMHC said of the Toronto market.

Across Canada, housing starts slipped to an annual pace of 180,248 in January from 187,144, the agency said, with the six-month moving average declining to 191,456 from 194,518.

"The decline in starts is an indication of housing supply falling into alignment with demand in most major markets (Vancouver, Calgary, Edmonton, Quebec City)," said economist Connor McDonald of Toronto-Dominion Bank.

"We've yet to see the same trend in Toronto, where new home sales have lagged due to limited supply," he added in a research note.

"However, we expect Toronto to follow suit as homes under construction reach completion and more supply comes online. Over all, the recent cooling of housing starts supports our view for a soft landing of the Canadian housing market in 2014 and 2015."

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Mr. Guatieri noted how the boom in Canadian housing is largely over as potential home buyers adjust to tighter mortgage insurance rules brought in by the government to head off a bubble, and with prices is several areas following the course of household income.

"Not so in Toronto, however, as its prices continue to outrun median family incomes, which averaged slightly over 2-per-cent growth from 2001 to 2011," the BMO economist said.

"Consequently, affordability continues to deteriorate even with relatively steady and low interest rates. While Vancouver remains the least affordable city in Canada, some softening in prices there has allowed Toronto to rapidly narrow the gap."

Here's what analysts said today about the Canadian total:

"A third consecutive monthly decline brought housing starts to their lowest level since April 2013, though bad weather in January and December may have weighed on readings in those months. As such, we may see some recovery in the next few months as weather normalizes … However, we expect modestly higher interest rates as 2014 progresses will weigh on housing affordability and lead to some moderation in residential building activity going forward. We forecast housing starts of 182,000 in 2014, down only slightly from the 187,000 units in 2013 though well below the 195,000 average seen in the second half of last year." Josh Nye, Royal Bank of Canada

"Underperformance of the Canadian economy relative to the U.S and the likely gradual increase of interest rates through 2015 will take some steam out of the demand for Canadian housing. We suspect that the pace of housing starts will continue their trek downward toward the demographically-supported level through 2015 … Over all, the recent cooling of housing starts supports our view for a soft landing of the Canadian housing market in 2014 and 2015." Connor McDonald, Toronto-Dominion Bank

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"It wasn't a good start to the year for residential construction with this below-consensus report for January. The decline in [multiple-unit building] shouldn't be surprising considering the accumulating inventories of unsold condos in some parts of the country. Considering the plunge in residential building permit applications towards the end of last year, it's unlikely that we'll get a quick rebound in starts in the current quarter." Krishen Rangasamy, National Bank Financial

"The data were a bit more encouraging in terms of GDP contribution, as the drop was all in multi-unit housing, with single starts rising more than 3 per cent. The last two months readings are actually reasonably healthy given a harsh winter in some parts of the country, and roughly in line with the demand associated with population growth. Still, housing no longer looks to be a source of growth, and we will see the evidence of that in GDP reports as the large numbers of condos still under construction reach completion in 2014, and are replaced by a lower number of new starts." Avery Shenfeld, CIBC World Markets

30 from Heenan to join BCF

Thirty lawyers from the Heenan Blaikie LLP law firm will follow prominent Quebec lawyer Marcel Aubut and join Montreal-based group BCF, The Globe and Mail's Sophie Cousineau reports.

While competing firms have recruited a number of star Heenan lawyers, this is the largest reshuffling since the Montreal-firm decided last week to dissolve its partnership, leaving more than 540 law professionals to find new homes.

A group of 60 lawyers in Toronto had looked into joining U.S.-based legal giant DLA Piper, but those talks have collapsed.

With close to 200 lawyers, BCF focuses on corporate work in Quebec. "They have an entrepreneurial spirit and I can identify myself with them," Mr. Aubut said in a phone interview from Sotchi, where he is attending the Olympic Games as president of the Canadian Olympic Committee.

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Separately, The Globe and Mail's Jeff Gray writes, former Canadian prime minister Jean Chrétien is joining the Canadian arm of Dentons.

Toyota pulls out of Australia

The retreat of the world's major auto makers from Australia is now complete.

Toyota Motor Corp. said today it would end production of autos and engines in the country by the end of 2017.

"We believed that we should continue producing vehicles in Australia, and Toyota and its work force here made every effort," president Akio Toyoda said in a statement.

"However, various negative factors such as an extremely competitive market and a strong Australian dollar, together with forecasts of a reduction in the total scale of vehicle production in Australia, have forced us to make this painful decision."

Toyota employs some 2,500 people in the country, which has already seen Ford Motor Co. and General Motors Co. decide to quit Australia, as well.

Concerns mount

Developments in Canada and Switzerland over the past few days highlight how concerns over foreign workers are growing louder.

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The issues in the two countries are different but nonetheless underscore a backlash in this post-crisis era of still-high unemployment.

In Canada's oil sands, a company at the centre of a controversy pledged late Friday to bring back dozens of iron workers who said they were replaced by temporary foreign workers.

Under Canada's Temporary Foreign Workers Program, such employees cannot be hired if there are Canadians for those jobs. The government moved to investigate the controversy swirling around Pacer Promec Joint Venture and the construction work at the Kearl oil sands mine near Fort McMurray, The Globe and Mail's Carrie Tait, Josh Wingrove and Joe Friesen report.

"On behalf of PPJV, I regret that our actions, which we believe are consistent with the legislation, led to the current controversy," managing partner Paolo Cattelan said in a statement on Friday.

"These temporary workers should have been assigned to other projects where there is an existing labour shortage."

Canada's unemployment rate stands at 7 per cent, and is forecast to hover around that level for some time yet amid a modest performance in the country's labour market.

In Switzerland, where unemployment is enviably low, the slimmest majority of voters decided in a referendum yesterday to limit immigrants from the European Union, of which it is not a member.

The issue is more one of identity in Switzerland, where more than one-quarter of the population is reportedly foreign-born.

But there are issues surrounding work, as well, as the outcome would bring in job-related quotas and, as in Canada, see Swiss nationals favoured in job applications.

The Swiss government did not back the move, which was pushed by a right-leaning political party, has sparked outrage across Europe, as it will change the nature of a deal with the EU under which workers flowed freely.

According to Bloomberg News, some companies are worried about the possibility of a program under which businesses have to ask for approval.

Swiss banks, in particular, rely on foreign workers, Reuters reports, and there are now concerns over how the move could affect economic growth going forward.

"The effects of the vote will take a long time to feed through but can't be good for growth," said Kit Juckes, the chief of foreign exchange at Société Générale, noting that the vote had a limited, and only temporary, impact in currency markets.

"Maybe more important is that the result will make sterling-watchers look at the slender lead of the anti-independence vote in Scotland in a new light," he added.

HudBay goes after Augusta

HudBay Minerals Inc. has launched an unsolicited bid for Augusta Resource Corp.

It's an all-stock offer – 0.315 of a HudBay share and worth what the company says is $2.96 a share – that aims to grab control of Augusta's Rosemont copper project near Tuscon.

"Given the fundamental value of Rosemont and the significant share price re-rating we expect upon securing the project's two remaining major permits, we view HudBay's unsolicited takeover offer to be low," said analyst Christopher Change of Laurentian Bank Securities.

"In our view, a positive permitting decision alone should improve Augusta's share price by more than 18 per cent."

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