What is the 'Floor Area Ratio - FAR'

The floor area ratio (FAR) is the relationship between the total amount of usable floor area that a building has, or has been permitted to have, and the total area of the lot on which the building stands. This ratio is determined by dividing the total, or gross, floor area of the building by the gross area of the lot.

A higher ratio is more likely to indicate a dense or urban construction. Local governments use FAR for zoning codes.

BREAKING DOWN 'Floor Area Ratio - FAR'

The floor area ratio accounts for the entire floor area of a building, not simply the building's footprint. Buildings with varying numbers of stories may have the same FAR value. For example, the FAR of a 1,000-square-foot building with one story situated on a 4,000-square-foot lot would be 0.25. A two-story building on the same lot, where each floor was 500 square feet, would have the same FAR value.

Floor Area Ratio Importance and Variations

Every city has a limited capacity or limited space that can be utilized safely. Any use beyond this point puts undue stress on a city. This is sometimes known as the safe load factor. Essentially, the FAR is that safe load factor. FAR is likely to vary because population dynamics, growth patterns and construction activities vary, and because the nature of the land or space where a building is placed varies. Industrial, residential, commercial agricultural and nonagricultural spaces have differing safe load factors, so they typically have differing FARs. In the end, governments put regulations and restrictions that determine FAR into effect.

FAR Implications for Developers

FAR is a key determining factor for development in any country. A low FAR is a general deterrent to construction. Many industries, largely the real estate industry, seek hikes in FAR to open up space and land resources to developers. An increased FAR allows a developer to complete more building projects, which inevitably leads to greater sales, decreased expenditures per project and greater supply to meet demand.

FAR Impact on Land Value

The impact that FAR has over land value cuts both ways. In some instances, an increased FAR may make a property more valuable if, for example, an apartment complex can be built that allows for more spacious rentals or more tenants. However, a developer who can build a larger apartment complex on one piece of land may decrease the value of an adjoining property with a high sale value bolstered by a view that is now obstructed.

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