It's actually not an "archaic" system at all.  It's doing exactly what it is supposed to do - namely keeping the island community intact and safe from Bay Street execs, house flippers, and other profiteers.
It works perfectly.

The community over there is vibrant and alive - and most of all, it's affordable to the folks who grew up there - unlike the rest of Toronto.

The prices aren't what the article says.  They basically work out to what it would cost to build the house today, minus depreciation.  So, if you keep your house repaired, and make improvements, that value is maintained.  You loose nothing.  

It is, however, not at all suitable for flippers, speculators, and profiteers - which is perfect, imho.  None of those people know the first thing about living in a community. 

 If you buy a house there it's because you want to live there - not because you're trying to extract profit.