TORONTO

Toronto’s housing boom has been such a driving force behind economic growth in Ontario that the provincial economy would take a major hit if the market cools down, according to a new study.

A report released by the Fraser Institute concluded weak business investment in the province has left the economy “increasingly dependent” on the city’s housing market for growth.

“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,” researcher Philip Cross — author of Ontario’s One Cylinder Economy: Housing in Toronto and Weak Business Investment — said Tuesday.

The former chief economic analyst for Statistics Canada said the study found homebuilding costs and record high housing prices accounted for 29% of Ontario’s economic growth in 2016.

In the first quarter of 2017, the study found housing starts in Ontario surpassed 85,000 — the highest level on record since 1990 — and more than 60% of those homes were being built in the GTA.

“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.

“Anemic business investment” in Ontario is leaving the province’s economy increasingly reliant on Toronto’s housing market, the study found.

The report determined firms plan to invest only $50.9 billion in Ontario in 2017, less than the pre-recession peak of $53.8 billion in 2008. And that dip will particularly be felt in the manufacturing sector — still the third largest employer in the province — where firms invested nearly $8.5 billion in 2007 compared to a planned $6.2 billion this year.

The report also identifies numerous factors that currently discourage business investment in the province.

High electricity costs: Industrial users in Ontario such as auto plants typically pay more than $80 per megawatt-hour, about 40% more than in Quebec. And, according to Ontario’s auditor general, provincial government policy mistakes caused hydro costs for Ontarians to jump by $37 billion from 2006 to 2014.

High labour costs: Ontario’s labour costs are the highest in the country outside Atlantic Canada, according to Statistics Canada. And despite already having one of the highest minimum wages in Canada, the provincial government increased the rate in January and plans to raise it 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%, nearly 10% higher than neighbouring Michigan. Ontario’s corporate income tax rate is more competitive but remains the 18th highest out of 44 jurisdictions in developed countries.

cdoucette@postmedia.com