As I recollect, the area north of Erie is the Bruce peninsula, mainly farmland. But it’s so far south that there’s no place to go, except the US, and what good Brit or Canadian would want to do that?
The lines of communication from the Bruce ran north-east, to Hamilton and Toronto, staying in British and later Canadian territory, but on land, which at that time was not as efficient and cheap as water transport. There was no easy water access from Lake Ontario to Lake Erie (you may recall there’s a bit of an obstacle between the two). Since water traffic on Lake Erie couldn’t connect to Lake Ontario, that hampered development on the north shore.
When it came time to build the railway to the Pacific, it wouldn’t go near the Bruce peninsula, because the goal was to have a railway entirely in Canadian territory. That meant going north-west, over Lake Huron and Lake Superior, at tremendous financial cost. The Bruce peninsula was a dead-end, for the purposes of an all-Canadian route, so no magic railway money to spur urban development.
The Grand Trunk, the first Canadian railway, would likely have been interested in trying to connect the Bruce Peninsula to US railways, because it had never been interested in all-Canadian routes, but the federal government turned off the financial taps to the Grand Trunk (it had originally been the earliest, prime example of “corporate welfare bums”, depending on government largesse to survive). The federal government was only interested in the all-Canadian route, as a nation-building exercise, not subsidising a railway that connected to the US lines.
It’s no surprise that Sir Alan Macnab, one of the joint Premiers of the Province of Canada, famously said: “All my politics are railways.” That was what drove the development of Central Canada in the mid-19th century, and Canada at large in the 1880s.
ETA: just by way of historical detail, one of Sir Alan’s descendants is now the Queen of the United Kingdom and Canada.