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Last year Prishram Jain and Michael Krus stood atop a ridge in Toronto's west end and envisioned five luxury houses for five different buyers — each with more than $1-million to spend.

The principals of Tact Development Inc. had acquired three large lots accommodating small bungalows that they planned to tear down. The partners had approvals in place and financing lined up for the new custom-built houses on Mossom Road.

But then came global financial turmoil, accompanied by stock market mayhem and the rapid deflation of Toronto's real estate market. Mr. Jain and Mr. Krus swiftly changed tack.

"We refrained from building even a single house on spec — which we were just about to do last fall," Mr. Jain says. "In this market, it's very difficult to build on spec."

Many small builders and renovators are stepping back from the uncertainty of the current housing market. Others — caught in the squeeze of falling prices — are quietly shelving projects or putting properties up for sale halfway through construction. In many neighbourhoods of Toronto, run-down houses have been left standing with papered-over windows.

Other houses, with asking prices that reflect the 2008 building and labour costs that went into them, are languishing on the market.

Paul Johnston is a real estate agent with Right at Home Realty in Toronto. He also works with developer Andrew DelZotto to build and bring to market infill houses and townhouses in downtown Toronto through Cityspace Urban Developments.

As an agent, Mr. Johnston is hearing very little from clients who want to scout for properties.

"I don't think there's a terrific appetite to acquire new land," he says. "Six to eight months ago, people were doing almost anything to buy land."

As a small developer, Cityspace is working on zoning applications and permits for a slate of new townhouses near Brock and Dundas, but they are not rushing to start construction, Mr. Johnston says.

"Hopefully, we'll break ground in late summer or early fall."

A second plan to build up to 20 houses near Ossington is on hold.

Last year Cityspace tore down a tiny house near Queen and Bathurst and erected two tall, modern houses in its place. The first, 91A Claremont, sold last month; 91B Claremont is currently for sale with an asking price of $819,000.

Mr. Johnston says another segment of the market was occupied by contractors who would buy a ramshackle property, gut it, renovate and put it up for sale again.

"The flippers — the guys who just spend a month at Home Depot — have all but disappeared," Mr. Johnston says. "That is just categorically not the story any more. I think most of them are on the sidelines."

Mr. Johnston says many such houses looked good cosmetically but often the renovators — in their haste to turn the property around — paid little attention to making sure elements such as wiring, plumbing and roofing were solid.

"It's really sad because, at the height of the market, people were buying houses that were really substandard. Thankfully, they're not moving any more."

Mr. Johnston says builders had good reason to push the pause button last September. Not only did it become apparent that labour costs were set to fall, but suppliers of paint, lumber, wiring and all kinds of other materials had to cut better deals.

"The whole financial picture changed. All of the spreadsheets from last summer don't work."

Mr. Jain and Mr. Krus of Tact are moving ahead, but more cautiously than before.

They have listed two of the properties for sale with Sotheby's International Realty Canada, but Mr. Jain says it's difficult for buyers to visualize a sumptuous new dwelling where they can only currently see a tear-down bungalow.

Tact is carrying the cost of the land already, Mr. Jain points out, and in a healthy market the company would be willing to venture into paying for construction as well. But even though lenders were still willing to offer financing, the partners didn't want to take on the debt.

"We wouldn't dare build all five on spec — it's too risky," he says.

Instead, Tact is waiting for a venturesome purchaser, who will get the most advantageous deal and — since the first house will serve as a de facto model for the others — the finest construction and greatest choice in interior design, Mr. Jain says.

"We're still holding out for the first buyer."

Mr. Jain and Mr. Krus met when they were working at the architectural firm Kuwabara Payne McKenna Blumberg in the 1990s. In 1997, they teamed up outside of the office to purchase an old house, restore it and sell it.

"It was obviously a great time in the market," Mr. Jain says. "So one project led to another project led to another project."

After renovating houses in Forest Hill and Yorkville, Tact began buying land.

Mr. Jain says the two also operate Tact Design, which provides consulting services to large developers. That bread-and-butter business is still doing well and helps to offset the risk of the development side, he adds.

Graham Connaughton of Sotheby's has listed two of the properties on Mossom Road. He says many developers are being more careful about selling existing projects before they commit to new ones.

"The best thing to do is work from other people's money," Mr. Connaughton says.

Mr. Johnston expects that home buyers will eventually wade back into the market in greater numbers, and when they do, new houses in downtown Toronto be will in demand. Inventory will shrink with the plunge in housing starts.

"If you're looking for new, modern, infill housing downtown, in six months you're out of luck because there's nothing in the pipeline," he says.

But for now, small-scale builders and developers have little incentive to start new projects.

"Not a lot of developers are ready to jump and put shovel to the ground."