Momof-one said "So my biggest question is if your building now and your price increases by 100g just for lumber and hardware what's the value of your house when prices return to normal. You didn't put in granite floors and marble counter tops to justify the increase in price. How are banks ok with this? "
That's a great question that I was wondering too. The best I can figure is that there's a bit of a gamble, as it's possible prices will go down, but statistically real estate always appreciates in the long term. Even after the housing bubble collapse in 2008 in the US, prices had rebounded only a few years later and have generally continued to increase.
In Canada, the greater danger is probably rising interest rates, which the stress tests are supposed to help buffer. If you have out a giant mortgage, what happens when interest rates start to eventually climb?
That's the bigger risk, at least in the short term.