The only problem with the neighbourhood (as developers like to say) is that God isn't making any more of it. Hence the new interest in building lots that, until quite recently, were thought too tight to put a house on.

Such a lot was discovered on a leafy Beaches street by the new architectural design team Reigo & Bauer − Merike Reigo and Stephen Bauer are partners in both life and art − who then embarked on the daunting job of filling it with a little house that worked as well as a big one.

The result, which was finished last week, is a success in every respect: intelligently designed for comfortable, compact urban living, efficient but hardly austere or constricting, and respectful of its gentle old streetscape of peaked roofs and modest front gardens.

Designed entirely within the prevailing official limits on height and size, the house is a snug stack of six rooms and two baths, each room sensitively tailored for its special architectural function. The heart of the house is the kitchen, which opens in one direction through a tall glass door to the walkout deck and back garden, and, in another direction, to the dining area facing the street and adjoining the front door. (The view beyond the kitchen and back garden reveals a sequence of other backyards rising up the hill − a pleasing, sociable sight common in many older Toronto neighbourhoods.)

Reigo & Bauer have made kitchen and dining room fill the whole main level of the house − a bold signal that declares their house to be less a retreat than a focus for the common life of a Beaches family. From this centre, the house spirals outward and flourishes − upstairs, to two rooms, one the master bedroom; downstairs, to the finished basement, and a space that, in the present configuration, is designated as a living room.

The other basement room has a slot window running across the top of the rear wall, and would make an ideal study for a couple whose jobs allow them to work from home.

But so bare a description of the interior arrangement − which, after all, is largely a matter of what was possible within the constricted envelope − does not do justice to the details that constitute the building's real beauty.

By making a steep cut outside the basement's front (south) wall, for example, the designers have opened the below-grade living room to direct sunlight, and provided a view of a rock garden that imaginative plantings could make a year-round delight.

Instead of running perpendicular to the street, the ridgepole of the pitched roof extends from the peak at the centre of the street façade to a corner at the rear − a delightfully eccentric move that creates surprises and unusual variety in the top floor ceilings.

The most lovely refinements in the scheme, however, occur at the expansive windows fore and aft, where the interior dwelling space meets the city.

In most of our homes, windows are simply cuts in the wall, framed and glazed; they are nothing more than punched-out openings to allow in light and air. In this house, the floors and walls do not quite touch the windows, which makes the glazing appear to be floating slightly beyond the house.

This beautiful effect is a kind of optical illusion, since house and glass are in fact quite firmly joined. But by making the outer window frames invisible from inside the building, Reigo & Bauer have softened the normally hard edge between inside and outside, making the rooms seem larger than they are.

The designers have also found an opportunity for unexpected grace and presence in a feature too often treated with indifference by residential architects and builders.

With the children of suburbia decamping for the old parts of town their parents abandoned, small building lots (along with laneways and other off-beat crevices in the urban fabric) are certain to become more attractive to architects and developers.