Progress is happening slowly but surely.

Over the years we have spoken a few times about this nice little coffee shop on Shaw Street here in Toronto. It is a good looking and widely visited coffee shop that has made many guest appearances on urbanist Twitter.

The problem, though, is that it was a real battle to get it approved, thanks to the opposition of a single neighbor. That's all it takes to hold up a new project. In this case it was a coffee shop. But it could also be thousands of new homes.

But that was then. Today if you look on the City of Toronto's website you'll actually see this exact coffee shop on a page that speaks to the benefits and the historic role of small-scale retail, service, and office uses.

Right now these uses are only permitted in low-rise neighborhoods on major streets and through an amendment to the Zoning By-Law (unless the nonconforming use already exists). This is a lot of unnecessary work (see above) and it has translated into a steady decline in these sorts of uses across the city.

Thankfully, the city is now looking to change this and permit these uses on an as-of-right basis. So it looks like the good fight was worth it.

For more info, head over here. And if you'd like to attend the public meeting to talk about how brilliant this is, you can do that on July 5 over at City Hall.

Let's consider a scenario where we have a relatively affordable 20-unit apartment building in a rapidly growing global city. This particular building happens to be of an older vintage and so let's say that the in-place rents are about 40% below market.

Next let's assume that the zoning has just been updated for the land and it is now possible and economically feasible to build a total of 300 housing units in a new high-rise building. This would mean demolishing the existing 20 apartment units.

But because this global city has rental replacement policies in place, these 20 units would need to be rebuilt within the new high-rise and offered to the current residents at exactly the same rents. So same price, but new housing.

Compensation would also need to be provided to these residents to cover the cost of moving around. Because they would obviously need to move off site to allow for construction and then, if they'd like, move back once construction is complete.

How would such a scenario make you feel?

The typical objections usually involve, among other things, concerns around displacement, gentrification, and overall built form. There is a concern that investments of this magnitude might push people out of the area and also change the character of it.

But at the end of the day, these 20 existing homes are not disappearing from the market. They will remain part of the housing stock, but now with the addition of 280 new market rate homes.

I think it's important to remember that in a rapidly growing city, trying to maintain the status quo by limiting new development can actually have the opposite effect. Because what you end up doing is creating a scenario where more and more people are fighting for a relatively fixed supply homes. And that is certainly one way to encourage displacement and gentrification.

Somebody on Twitter responded to my recent post about inclusionary zoning and asked: Aren't all the upzonings that the City is already doing a kind of density bonus? In other words, and this is me elaborating here, why is there an economic "shortfall?" Why does there need to be any other sort of subsidy in order to mitigate the economic impacts of inclusionary zoning?

A density bonus can mean and can be used in a number of different contexts. Sometimes it is used as an incentive with landowners, whereby they get a bonus on top of their sale price if the developer manages to achieve a certain amount of density on the site. But in this particular case -- IZ subsidies -- we're talking about something else.

We're talking about density above and beyond what you might normally achieve on a particular site in order to directly offset -- maybe partially or maybe entirely -- the economic shortfall brought about by inclusionary zoning. The fact that upzonings are happening all over the city doesn't necessarily qualify them as bonuses. In the case of Toronto, the market is just responding to out-of-date zoning.

Here's a specific example.

Let's say you have a development site with in-place zoning that would allow you to build 20,000 sf of density. This is the as-of-right or by-right density. No need to rezone the site. Just file your building permits and you're off making things. If this is the most you could build, then the market would value the land based on this density. As we have talked about before, land is the residual claimant in a development pro forma.

However, if the zoning was out of date and it was fairly clear that one could rezone the site and build up to 100,000 sf, then the market would no longer value the site based on its in-place zoning. It would instead value it based on its future expected density. Again, because land is the residual claimant, more density = higher land value.

In this second scenario, the additional 80,000 sf is, in my view, not a density bonus. Give or take a bit here and there, it is the density that everyone is generally expecting. The market has already priced it in. A true bonus / subsidy, would be something above and beyond the base of 100,000 sf. Something that is only available to developers if they do X -- which could be build affordable housing.

Maybe the bonus is perfectly tuned to exactly offset the economic drag of doing X, or maybe the bonus is designed to serve as an incentive to do X. In this latter case, the bonus would more than offset the drag and be accretive to the pro forma, which would mean that every sensible developer would now want to do X. More carrot, less stick.

One of the challenges with this hypothetical scenario is that, for such a bonus structure to work, you need to know the baseline that you're bonusing against and you need to ensure that nobody gets the bonus unless they do the thing -- the X. Using the above example, that means that the 100,000 sf needs to be fairly firm and that anything above that number only happens with the delivery of affordable housing.