Our cost consultant, Finnegan Marshall, gave our team a presentation today on what's happening with construction costs in Toronto and across Canada. I've said this before, but hard costs are no joke right now.

One of the areas that they focused on was the impact that inclusionary zoning is likely to have on development economics here in Toronto. To illustrate the point, a sample high-rise condominium pro forma was used. Think something in the 30-35 storey range.

Assuming a requirement of 10% affordable (the policy details are still TBD), there is going to be a real cost to development pro formas that will need to be somehow paid for.

One school of thought is that land prices will simply adjust downward. In this case, the landowner would be the one paying. I don't think this will be the case (land prices tend to be sticky), but if they were to adjust downward, it would need to drop by $44 per square foot buildable to maintain the project's margins in this example. (That's $13.2 million on a 300,000 sf project.)

If, on the other hand, the price of the remaining market rate condominium suites were to increase to offset the cost of the affordable component, they would need to increase by $91 per square foot. This translates, in the above example, into a sticker price increase of approximately $60,000 per suite.

These numbers are, of course, not exact. That is not the point of this post. Every project is different. But hopefully it gives you an idea of some of the levers that will invariably need to be pulled when inclusionary zoning comes into force.

My sense is that this latter scenario is more likely to happen. I have yet to see land prices adjust downward in the face of rising costs. So all of this is likely to be bad for broad-based affordability, but good if you want to be bullish on market rate home prices.

Today was the 2019 Land & Development Conference here in Toronto. I was on a panel in the morning about Proptech. I then sat in on a discussion about construction costs. But after that I had to get back to the office to prepare for a couple of meetings.

Here are my tweet takeaways (from the back of the room) during the construction cost session. You may need to click through to see the full thread.

The construction cost escalations that we have seen over the last 2-3 years have had a significant impact on new construction in this region. Niall Finnegan's view is that we are 85% of the way through this "storm."

From his experience, it takes 18 months or so for hard costs to respond to changes in demand. And so the storm we are currently in is a result of elevated condo sales from 2017-2018.

The general consensus from the panel was that costs should start to moderate sometime soon, though maybe not this year. Nobody really knows when that will happen. But if/when hard costs do adjust, it typically happens quickly.

One comment that didn't make it into my tweets, but that I found interesting, was about how uncertainty and volatility in the market -- like what we are seeing today with construction costs -- could actually stifle innovation.

Because it creates additional project risks, it limits people's appetite for other kinds of risks -- like trying new things. I can see that.