Condominiums are playing an increasingly important role in the GTA’s housing market.

As the region continues to be shaped by a growing number of intensification building policies that are highly complicated — and often conflicting — the average price of a new highrise home has been growing more modestly compared to that of a lowrise home, up 6.4 per cent versus 12.9 per cent in June, according to Altus Group.

New condominiums have been key in maintaining some equilibrium in the housing market to this point. They serve as the main source of affordable home ownership options and new rental apartment stock.

But that role will be challenged from here on.

New condo prices are influenced not only by demand and supply, but also by the costs associated with creating that supply through a highly complicated and ever-changing development process. Land prices and government fees and charges are the most significant of these costs.

In the past, as development costs grew, affordability was maintained through design innovation, with builders offering smaller but more efficiently laid-out units.

The challenge ahead for the new condominium market is how to continue to absorb — and work into the price of condos — the rapidly rising land costs and ever-increasing development charges.

Land costs are rising because intensification is forcing the redevelopment of infill properties to accommodate new housing. Many of these are currently income-producing properties in a low-yield environment, so the cost to purchase the sites for redevelopment comes at a significant premium.

In a tight housing market (remaining unsold highrise inventory was at a five-year low of 8,697 in June, according to Altus Group), the cost of building new supply is highly influential in establishing market prices.

If the input costs for future supply increase by $30 to $50 per square foot, as they’re projected to, consumers could see end prices spike by as much as $60 per square foot next year in new launches.

The development industry doesn’t make the rules, but it must operate in accordance with them. In attempting to buy expensive land while delivering affordable home ownership, builders are going to find themselves increasingly between a rock and a hard place moving forward.

Consumers looking to enter the home-ownership market are going to be even more challenged, as supplies of new housing continue to shrink thanks to intensification.

And governments will likely feel the need to respond to consumer concerns about intensification by adding new development charges or taxes in a bid to keep housing affordable.

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So if you think home prices have been accelerating rapidly so far, fasten your seatbelt: Intensification Turbo could be about to kick in.