### 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. The 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.

### The Formula for the Floor Area Ratio (FAR) Is

### How to Calculate the Floor Area Ratio (FAR)

The floor area ratio (FAR) is calculated by dividing the total building floor area by the gross lot area.

### What Does the Floor Area Ratio (FAR) Tell You?

The floor area ratio (FAR) accounts for the entire floor area of a building, not simply the building's footprint. Excluded from the square footage calculation are unoccupied areas such as basements, parking garages, stairs and elevator shafts.

Buildings with varying numbers of stories may have the same FAR value. 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.

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 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.

### *Key Takeaways*

*The floor area ratio is the relationship of the total usable floor area of a building relative to the total area of the lot.**A higher ratio is indicative of a dense or highly urbanized area.**The FAR will vary based on structure type, such as industrial, residential, commercial or agricultural.*

### Example of How to Use the Floor Area Ratio (FAR)

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.

Considered another way, a lot has a FAR of 2.0 and the square footage is 1,000. In this scenario, a developer could construct a building that covers up to 2,000 square feet. This could include a 1,000 square foot building with two stories.

As a real-life example, consider an apartment building for sale in Charlotte, North Carolina. The complex is for sale for $3 million and is 17,350 square feet. The entire lot is 1.81 acres, or 78,843 square feet. The FAR is 0.22, or 17,350 divided by 78,843.

### The Difference Between the Floor Area Ratio (FAR) and Lot Coverage

While the floor area ratio (FAR) calculates the size of the building relative to the lot, the lot coverage takes into account the size of all buildings and structures. The lot coverage ratio includes structures, such as garages, swimming pools and sheds – also including nonconforming buildings.

### Limitations of Using the Floor Area Ratio

The impact that FAR has on 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.

### Learn More About the Floor Area Ratio

For more insight, check out Investopedia’s guide to real estate investing.