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Condominiums near Simcoe Street and Lakeshore Boulevard in downtown Toronto on December 19, 2012.Michelle Siu/The Globe and Mail

Government policies are distorting the real estate market in the Greater Toronto Area, causing the price of new houses to rise by too much in relation to condos, a building industry group suggests.

The index price of new houses (including detached homes and townhouses) rose 16 per cent last year to a record high of $632,868 in the GTA, as buyers chased a dwindling supply, according to a report released Wednesday by real estate research firm RealNet Canada Inc. and the Building Industry and Land Development Association (BILD), which represents developers and builders.

(The report deals only with newly-constructed homes, as opposed to resales of existing homes. The index price that RealNet calculates strips out unusually expensive and cheap homes.)

The index price of new condos, in contrast, rose just 0.4 per cent to $436,024 last year. (The index size of a newly built condo shrunk by 16 square feet, while the index price per square foot rose two per cent).

As a result, the price gap between the two has widened to its highest level ever – $196,844 – more than double the long-term average.

"It's a huge problem because there's a $200,000 swing between average prices in condos and low-rise homes, and if we want choice and affordability, the low-rise market is just out of reach for a considerable part of the population," Steve Deveaux, vice chair of BILD, said in an interview Wednesday.

The industry group says that government-imposed land constraints and regulations, as well as complex approval processes, are impacting the availability of houses for new-home buyers by weighing on the supply of houses, as opposed to condos.

"Provincial policies push regions and the industry into building more in built-up areas, increasing densification, in an attempt to make better use of existing infrastructure," Mr. Deveaux said. "And that's great, the industry supports the growth plan," he said, adding that the industry supports the greenbelt in principle.

"But there has been a lot of delay with the production of the regional plans, a lot of them are under appeal, the process has just taken way too long, and then you've got all the infrastructure that has to be built to support [housing] development, it could be years and years further than what was expected. So that limits choice, it limits affordability."

Sales of both new houses and new condos in the GTA each fell significantly last year, with low-rise sales down nearly 20 per cent compared to 2011 and high-rise sales down nearly 35 per cent. The decreases picked up towards the end of the year, with sales in both categories falling in about half in December 2012 compared to December 2011.

Sales of new houses came in at 14,069 for all of 2012, the second-lowest level since 2000, a phenomenon that the report's authors attribute to a decrease in supply. The supply of new houses has dropped 52 per cent in the last four years, while the index price has risen 44 per cent.

Meanwhile 18,755 new condos sold last year. While that's down 35 per cent from 2011's record level of sales, it still markets the fourth-highest level since 2000.

Sales of new condos have been above average in recent years while sales of new houses have been below average.

"While it's hard for most people to miss the growing number of new condominiums, it's easy to miss the shrinking number of ground-related developments across the GTA, and therefore misunderstand the market," said George Carras, the president of RealNet.

"When you look at it, the market's pretty consistent overall [in recent years], it's just the shift from one form of housing to the other," he said in an interview.

Total inventory of all types of new homes rose 29 per cent during the year, to come back in line with normal levels, RealNet said. But condo inventories are now much greater than low-rise inventories, whereas the reverse used to be true.

"Back in 2001, the composition of the inventory was basically three low-rise homes for every one high-rise," Mr. Carras said. "Now it's three high-rise homes for every one low-rise."