Yesterday, Austin City Council voted 10-1 in favor of a building code amendment that will allow single-stair apartment buildings up to five storeys and with 4 homes per floor. This is progress. Austin now joins Seattle, New York, and possibly other US cities in allowing this building type, which is a type that is widespread outside of North America. Paris, for instance, allows single-stair buildings up to 50m.
In all of these newly allowable cases, there's usually a requirement to sprinkler the building and cap the number of homes per floor, among other life safety requirements. What I'm not clear on, though, is how flexible these new codes are in allowing larger apartment buildings.
In my opinion, it's better (and hopefully more accurate) to think about unit maximums on a per stair basis as opposed to a per floor basis. Because that's how you create larger point-access block buildings: you cluster multiple blocks together, each with its own exit stair. Is that allowed in these building codes? I'm not exactly sure, but one would hope.
Regardless of this important detail, I continue to be impressed by Austin's willingness to drive positive change in its housing market. It makes you wonder: What the hell is taking Toronto so long? Single-stair buildings up to 6 storeys should already be permissible. We should be leading.
Cover photo by Clark Van Der Beken on Unsplash
One thing that you need to do in Ontario if you are converting a development site to a more sensitive land use — so for example, taking a commercial site and converting it to residential — is file what's called a Record of Site Condition (RSC) with the Ministry of the Environment, Conservation and Parks (MECP). This is an important risk consideration because it's complicated, expensive, and it typically takes a long time; meaning it can delay an entire project or make it infeasible all together.
At a high level, here some things you should consider as a developer (though please keep in mind that I am not an environmental engineer and that you should obviously seek professional advice when dealing with environmental matters). If the site is clean and free from environmental contaminants, then the process is relatively straightforward. Complete your environmental investigations (i.e. drill boreholes) and then submit all your findings to the Ministry. Filing an RSC, in this scenario, should be fairly low risk.
Soil and groundwater contamination
However, things get a lot more complicated if you have environmental contamination, which is most often the case with urban sites. Developers usually assume a site is contaminated until proven otherwise. When you have contamination it can occur in two ways. You can have soil contamination and/or you can have groundwater contamination. The latter is worse for at least two reasons: (1) water, as you know, moves around and so it's harder to delineate and clean up and (2) it can expose you to additional liability if it's migrating off-site.
Point number two can be a serious risk and there's lots of case law out there that will tell you that. If you think you might be in this situation, you definitely want to do your homework and get some sound advice. But for the purposes of this post, you should just know that soil contamination is easier to deal with than groundwater contamination.
Two main approaches
Once you've established that you have a contaminated site and you know the actual contaminants and their concentrations, there are generally two main paths you can choose to ultimately reach a point where you can file an RSC with the Ministry. One, you can remediate the site, which means removing the contamination by physically taking it off site, doing injections, or by some other means. Or two, you can do what's called a "Risk Assessment."
Real estate development is a risky endeavor and so a big part of this business is managing those risks. There's planning risk, market risk, construction risk, bad-drawing risk, and the list goes on. But it's also important to keep in mind that the risks you worry about the most will invariably change throughout the course of each real estate cycle.
For example, early on my career, we worried a lot less about construction cost escalations. We'd plug in a 2-3% annual increase into the pro forma and then move on the next line item. Of course, during the pandemic, this is almost all we worried about. What's our exposure? Do we have enough of an allowance? How are our subcontractor contracts drafted?
This particular panic has subsided since then, but now there's new panic: closing risk. We've spoken about this before, but given the number of condominium completions expected this year, I think it's going to remain top of mind for at least another 18 months (in the Greater Toronto and Hamilton Area).
The simple point I'd like to make today is that it's important to worry about risks, but it's equally important to worry about the risks that don't seem like risks at all today, which is admittedly trickier. Because you just never know. It's hard, for instance, to predict exactly when your largest trading partner might suddenly start an arbitrary trade war.
But it can happen, as we've learned.
Cover photo by Tiomothy Swope on Unsplash
Yesterday, Austin City Council voted 10-1 in favor of a building code amendment that will allow single-stair apartment buildings up to five storeys and with 4 homes per floor. This is progress. Austin now joins Seattle, New York, and possibly other US cities in allowing this building type, which is a type that is widespread outside of North America. Paris, for instance, allows single-stair buildings up to 50m.
In all of these newly allowable cases, there's usually a requirement to sprinkler the building and cap the number of homes per floor, among other life safety requirements. What I'm not clear on, though, is how flexible these new codes are in allowing larger apartment buildings.
In my opinion, it's better (and hopefully more accurate) to think about unit maximums on a per stair basis as opposed to a per floor basis. Because that's how you create larger point-access block buildings: you cluster multiple blocks together, each with its own exit stair. Is that allowed in these building codes? I'm not exactly sure, but one would hope.
Regardless of this important detail, I continue to be impressed by Austin's willingness to drive positive change in its housing market. It makes you wonder: What the hell is taking Toronto so long? Single-stair buildings up to 6 storeys should already be permissible. We should be leading.
Cover photo by Clark Van Der Beken on Unsplash
One thing that you need to do in Ontario if you are converting a development site to a more sensitive land use — so for example, taking a commercial site and converting it to residential — is file what's called a Record of Site Condition (RSC) with the Ministry of the Environment, Conservation and Parks (MECP). This is an important risk consideration because it's complicated, expensive, and it typically takes a long time; meaning it can delay an entire project or make it infeasible all together.
At a high level, here some things you should consider as a developer (though please keep in mind that I am not an environmental engineer and that you should obviously seek professional advice when dealing with environmental matters). If the site is clean and free from environmental contaminants, then the process is relatively straightforward. Complete your environmental investigations (i.e. drill boreholes) and then submit all your findings to the Ministry. Filing an RSC, in this scenario, should be fairly low risk.
Soil and groundwater contamination
However, things get a lot more complicated if you have environmental contamination, which is most often the case with urban sites. Developers usually assume a site is contaminated until proven otherwise. When you have contamination it can occur in two ways. You can have soil contamination and/or you can have groundwater contamination. The latter is worse for at least two reasons: (1) water, as you know, moves around and so it's harder to delineate and clean up and (2) it can expose you to additional liability if it's migrating off-site.
Point number two can be a serious risk and there's lots of case law out there that will tell you that. If you think you might be in this situation, you definitely want to do your homework and get some sound advice. But for the purposes of this post, you should just know that soil contamination is easier to deal with than groundwater contamination.
Two main approaches
Once you've established that you have a contaminated site and you know the actual contaminants and their concentrations, there are generally two main paths you can choose to ultimately reach a point where you can file an RSC with the Ministry. One, you can remediate the site, which means removing the contamination by physically taking it off site, doing injections, or by some other means. Or two, you can do what's called a "Risk Assessment."
Real estate development is a risky endeavor and so a big part of this business is managing those risks. There's planning risk, market risk, construction risk, bad-drawing risk, and the list goes on. But it's also important to keep in mind that the risks you worry about the most will invariably change throughout the course of each real estate cycle.
For example, early on my career, we worried a lot less about construction cost escalations. We'd plug in a 2-3% annual increase into the pro forma and then move on the next line item. Of course, during the pandemic, this is almost all we worried about. What's our exposure? Do we have enough of an allowance? How are our subcontractor contracts drafted?
This particular panic has subsided since then, but now there's new panic: closing risk. We've spoken about this before, but given the number of condominium completions expected this year, I think it's going to remain top of mind for at least another 18 months (in the Greater Toronto and Hamilton Area).
The simple point I'd like to make today is that it's important to worry about risks, but it's equally important to worry about the risks that don't seem like risks at all today, which is admittedly trickier. Because you just never know. It's hard, for instance, to predict exactly when your largest trading partner might suddenly start an arbitrary trade war.
But it can happen, as we've learned.
Cover photo by Tiomothy Swope on Unsplash
Option 1 - Remediation
This option is more challenging if you have groundwater contamination because it's harder to be confident that you'll be able to get it all. So oftentimes groundwater contamination will lead you toward option number two below. But if all you're dealing with is contaminated soil and you feel confident in your delineation (i.e. you've determined the extents of it), then it's fairly common to just remediate it during construction. And if you're building something like underground parking anyway, it often makes sense to do exactly this. Industry people call this a "dig and dump" approach.
However, there are cost and schedule impacts associated with this approach. Removing and disposing of contaminated soil costs money — there's a premium. So a typical approach is to test the soil as you're excavating it to determine what's clean and what's contaminated. This process of stock piling and testing requires addiitional effort, but without it you'd have to assume that 100% of the soil you're excavating is contaminated and that's often a more expensive proposition. Regardless of your exact remediation approach, you will need to budget both time and money.
Option 2 - Risk Assessment
The simplest way to understand a risk assessment is that it's a way of saying, "we all acknowledge that this site is contaminated and that we're not going to clean it up, but we've accurately assessed all the environmental risks and, if necessary, we will implement appropriate risk management measures." Again, this approach can be useful if you have groundwater contamination or there's some other reason why it's not reasonable or feasible to simply remediate the site. Maybe you don't need or want to excavate and so this would be a significant incremental cost.
Now, there are different streams of Risk Assessments. Some take longer than others. But on challenging sites, it would not be unheard of for the process to take between 2-3 years, and sometimes even longer. This can cause significant delays to a project, especially in municipalities where they maybe aren't as accustomed to dealing with contaminated infill sites and they haven't gotten their head around things like conditional building permits. (Conditional building permits can allow a project to continue moving forward while a developer works to file their RSC, among other requirements.)
Barrier to new housing
Finally, I would like to highlight the barrier that the above processes represent for the delivery of new housing. This is especially true as Toronto and other cities work to encourage more infill housing. Small projects with little or no parking (i.e. no undergrounds) are challenging and expensive to remediate because there's usually no planned excavation. At the same time, these projects don't have the luxury of waiting around for 2-3 years while a Risk Assessment works its way through the Ministry. The entire project timeline might be shorter than this.
Obviously human safety is paramount. That should never change. But I feel strongly that we're going to need to find ways to streamline the environmental approvals for new housing. Otherwise we'll continue to restrict large portions of our cities from becoming new homes. The requirement to file an RSC could alone kill the feasibility of a small-scale housing project. And that's why it was one of the points in my recent post about "how to improve the feasibility of infill housing."
Once again, I will remind all of you that I am not an environmental engineer, or an environmental lawyer, or anyone besides a generalist developer. Though I have had to deal with this process on virtually every site I've ever worked on. It's complicated and every site is unique — so as a developer, it's important to do your own homework. This post is simply intended as a basic environmental primer for developers, and as a way to further highlight one of the many barriers to new infill housing.
Cover photo by Anastasia Meraki on Unsplash
Option 1 - Remediation
This option is more challenging if you have groundwater contamination because it's harder to be confident that you'll be able to get it all. So oftentimes groundwater contamination will lead you toward option number two below. But if all you're dealing with is contaminated soil and you feel confident in your delineation (i.e. you've determined the extents of it), then it's fairly common to just remediate it during construction. And if you're building something like underground parking anyway, it often makes sense to do exactly this. Industry people call this a "dig and dump" approach.
However, there are cost and schedule impacts associated with this approach. Removing and disposing of contaminated soil costs money — there's a premium. So a typical approach is to test the soil as you're excavating it to determine what's clean and what's contaminated. This process of stock piling and testing requires addiitional effort, but without it you'd have to assume that 100% of the soil you're excavating is contaminated and that's often a more expensive proposition. Regardless of your exact remediation approach, you will need to budget both time and money.
Option 2 - Risk Assessment
The simplest way to understand a risk assessment is that it's a way of saying, "we all acknowledge that this site is contaminated and that we're not going to clean it up, but we've accurately assessed all the environmental risks and, if necessary, we will implement appropriate risk management measures." Again, this approach can be useful if you have groundwater contamination or there's some other reason why it's not reasonable or feasible to simply remediate the site. Maybe you don't need or want to excavate and so this would be a significant incremental cost.
Now, there are different streams of Risk Assessments. Some take longer than others. But on challenging sites, it would not be unheard of for the process to take between 2-3 years, and sometimes even longer. This can cause significant delays to a project, especially in municipalities where they maybe aren't as accustomed to dealing with contaminated infill sites and they haven't gotten their head around things like conditional building permits. (Conditional building permits can allow a project to continue moving forward while a developer works to file their RSC, among other requirements.)
Barrier to new housing
Finally, I would like to highlight the barrier that the above processes represent for the delivery of new housing. This is especially true as Toronto and other cities work to encourage more infill housing. Small projects with little or no parking (i.e. no undergrounds) are challenging and expensive to remediate because there's usually no planned excavation. At the same time, these projects don't have the luxury of waiting around for 2-3 years while a Risk Assessment works its way through the Ministry. The entire project timeline might be shorter than this.
Obviously human safety is paramount. That should never change. But I feel strongly that we're going to need to find ways to streamline the environmental approvals for new housing. Otherwise we'll continue to restrict large portions of our cities from becoming new homes. The requirement to file an RSC could alone kill the feasibility of a small-scale housing project. And that's why it was one of the points in my recent post about "how to improve the feasibility of infill housing."
Once again, I will remind all of you that I am not an environmental engineer, or an environmental lawyer, or anyone besides a generalist developer. Though I have had to deal with this process on virtually every site I've ever worked on. It's complicated and every site is unique — so as a developer, it's important to do your own homework. This post is simply intended as a basic environmental primer for developers, and as a way to further highlight one of the many barriers to new infill housing.
Cover photo by Anastasia Meraki on Unsplash
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