Jeremiah Shamess of Colliers made the claim this week that land values in some areas of the Toronto region are down 25%. He then shared a chart from Alan Leela showing how various factors have increased or decreased land values since 2020.

Broadly speaking, a revenue increase and/or more development density should increase land values; whereas something like inclusionary zoning, which is a cost to the project, should decrease land values. Indeed, this is one of the arguments in favor of inclusionary zoning: "Don't worry about the additional cost to the project because landowners will simply pay for it through reduced land prices."

In theory, all of this is correct.

Land is (or should be) the residual claimant in a development pro forma. Start with your revenue, subtract your costs, and then see what is left over for the land. (Though keep in mind that what is left over for the land could be $0 or even a negative number.)

But as I have argued before in the context of inclusionary zoning, I don't think things always play out so neatly in the market. Put differently, if the cost impact of inclusionary zoning is something like $44 psf, I don't think all landowners suddenly drop their prices accordingly -- especially in a rising market where developers are competing fiercely for land.

They don't care about your residual value model. Many or most will just hang on to their number and wait for someone to pay it.

So what I am saying with all of this is that, yeah, there are factors that put either downward or upward pressure on land values. But how it all actually plays out in the market tends to depend on the macro environment and what else is going on at the time. And right now we are at a point in the cycle where there is clearly downward pressure on land values.