While lower interest rates have increased affordability, higher land prices are the main contributors to higher House Prices. A recent analysis of MPAC lot values and CMHC House prices by Will Dunning shows that in Richmond Hill, the lot price accounted for 34% of the House Price in 2000 but represented 53% of the House Price in 2010. During this period, the value of the land increased at an annual rate of 10.7% while the House Price increased at a rate of 5.9%.
The old adage “They are not making anymore land” is still true. Government policies discourage urban sprawl in Ontario’s Golden Horseshoe. This will continue to constrain the amount of land available for low-rise development.
For example, in Markham, this policy combined with a greenbelt restriction on growth north of Major Mackenzie Drive has created a buying frenzy at Upper Unionville. Based on published reports, this new development will eventually add 1700 new homes and 5,000 new residents to the area by its scheduled completion in 2017. Detached Homes on a 42 Ft. lot are being offered for over $980K and reflect the price appreciation of Detached Resale Homes in the area.