FAR/FSI determines the purpose and character of a neighborhood, but it’s not widely understood, even by real estate professionals. It’s one of those terms I used to pretend to understand when it was dropped into a discussion, always nodding knowingly while hoping no one would ask me about it.
FAR stands for Floor Area Ratio (sometimes called FSI, or Floor Space Index). This ratio tells you how much you’re allowed to build on a parcel of land; it’s a ratio that compares the total floor space in a building to the size of the plot it sits on. It’s pretty straightforward, and, though it seems like it’s a ratio measuring the footprint of a structure, it actually measures the floor space of the entire building, even the upper floors, rather than just the area of the first floor. It’s the area of all floors of a building divided by the area of the parcel of land it sits on.
Here’s the formula:
FAR = Total Built-Up Floor Area ÷ Area of the Lot
For example, if you own a 10,000-square-foot plot and your city’s zoning laws allow a FAR of 2, that means you can build 20,000 square feet in total. That could be two floors of 10,000 square feet each, four floors of 5,000 square feet, or any combination that adds up to 20,000. You could theoretically build a 2-story building that takes up the entire lot, or a building that’s 10 feet by 10 feet… and 200 stories high. Of course, there are tons of other zoning regulations that would likely intervene to prevent this 200-story building, but a FAR of 2 would not be one of them.
A frequently cited example of an extreme FAR is the Empire State Building, which has a FAR of 25. This means that this 10,000 square foot parcel of land we just discussed could contain 250,000 square feet, way more than the 20,000 square feet you could build on the same property with a FAR of only 2. Land on which you can build with a FAR of 25 is usually extremely valuable, since you can rent out 250,000 square feet of space. You’re essentially multiplying your usable land area by 25.
It’s much more difficult to purchase land with massive FARs than it used to be, especially because of stronger zoning regulations established over the past century that dictate height limits, setbacks, open space requirements, etc. Without FARs and other zoning regulations, New York City might have built itself into another galaxy.
A higher FAR lets you build more on the same land, which usually means higher returns for developers, so if you’re sitting on an urban plot of land with a FAR of 30 then you’ve got it made. City planners use FAR to help manage how communities grow. It’s a useful tool if you’re trying to keep development balanced so that roads, utilities, schools, and other infrastructure can handle the number of people living and working in an area. It also influences a neighborhood’s walkability. In areas where FAR values are low, you’ll experience your neighborhood primarily from one place, which is the inside of your car. High-FAR-value areas, on the other hand, are much more walkable.
For real estate developers, investors, and the agents who represent them, understanding FAR is crucial. It affects everything from what kind of project can be built to how much a property is worth to the general look and feel of the neighborhood. To be overly poetic about it, FAR truly paints the skyline of a city. Now that you’re a FAR expert, go out and impress some developers and city planners with your knowledge!
You Need to Understand FAR/FSI if You’re in Real Estate
