# Understanding Floor Area Ratio: Definition, Formula, and Examples

![Floor Area Ratio](https://www.investopedia.com/thmb/f9NqKFDdy2VmdNX_-VkCc5pCEwY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/FloorAreaRatio_final-fff80fe0d8ae477bb919646664e54d6c.png)

*— Investopedia / Nez Riaz*

## What Is the Floor Area Ratio?

The floor area ratio (FAR) defines the balance between a building's usable floor space and the lot size it occupies, playing a vital role in [zoning regulations](https://www.investopedia.com/terms/z/zoning.asp). Local authorities use FAR to decide allowable density, impacting urban development and property valuations.  
  

### Key Takeaways

*   The floor area ratio (FAR) is the connection between a building's total usable floor area and the lot's total area, serving as a key element in zoning codes.
*   A higher FAR generally indicates denser urban construction, differentiating structure types such as residential or commercial on lot regulation.
*   FAR excludes unoccupied spaces like basements and parking, focusing only on usable floor area to inform city development potential.
*   An increased FAR allows developers to execute more projects on the same lot, potentially increasing supply and decreasing per-project costs.

## Calculating Floor Area Ratio

You can determine the ratio by dividing the total or gross floor area of the building by the gross area of the lot.

$\begin{aligned} &\text{Floor Area Ratio} = \frac{ \text{Total Building Floor Area} }{ \text{Gross Lot Area} } \\ \end{aligned}$

## Insights From the Floor Area Ratio

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

Buildings with a different number of stories can have the same floor-area-ratio 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.

The floor area ratio is variable because [population](https://www.investopedia.com/terms/p/population.asp) dynamics, growth patterns, and construction activities vary and because the nature of the land or space where a building is placed can vary. Industrial, residential, commercial, agricultural, and nonagricultural spaces have differing safe load factors so they typically have differing floor area ratios as well.

> **Important**
>
> Local governments establish regulations and restrictions that determine the floor area ratio.

The floor area ratio is a key factor for development in any country. A low floor area ratio is generally a deterrent to construction. Many industries and specifically the [real estate](https://www.investopedia.com/terms/r/realestate.asp) industry seek hikes in the floor area ratio to open up space and land resources to developers.

Higher floor area ratios help developers finish more projects, leading to increased sales, lower costs per project, and more [supply to meet demand](https://www.investopedia.com/articles/economics/11/intro-supply-demand.asp).

## Examples of Floor Area Ratio

The floor area ratio of a 1,000-square-foot building with one story situated on a 4,000-square-foot lot would be 0.25x. A two-story building on the same lot where each floor was 500 square feet would have the same floor-area-ratio value.

A lot has a floor area ratio of 2.0x and the square footage is 1,000. A developer could construct a building that covers as much as 2,000 square feet in this scenario. It could include a 1,000-square-foot building with two stories. 

Consider an apartment building for sale in Charlotte, North Carolina. The asking price for the apartment complex is $3 million and it spans 17,350 square feet. The entire lot is 1.81 acres or 78,843 square feet. The floor area ratio is 0.22x, or 17,350 divided by 78,843.

## What Does Bulk Mean in Zoning Ordinances?

The term bulk relates to the size and shape of buildings located on a lot as well as associated features of the lot that aren't necessarily part of one or more buildings. Bulk regulations include rules such as how closely these can be situated to lot lines as well as the floor area ratio.

## What's the Difference Between Floor Area Ratio and Lot Coverage?

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

## What Is the Law of Supply and Demand?

The law of supply and demand explains a delicate economic balance. Supply is how much of a given product that manufacturers have produced and want to sell. Demand measures how badly consumers want that product and how much of it they're willing to buy. These two factors are ideally equal, but that doesn't always occur. The floor area ratio and the law of supply and demand are directly related: FAR regulations control the supply of new housing and commercial space in a given area.

## The Bottom Line

The floor area ratio (FAR) plays a crucial role in determining property development and urban planning. It indicates the density of construction and directly influences the [value of a property](https://www.investopedia.com/articles/mortgages-real-estate/11/valuing-real-estate.asp). An increased FAR allows developers to maximize building capacity, thus boosting property value and meeting the demand for urban development.

However, it's essential to consider how these changes might impact surrounding properties and overall urban aesthetics. By understanding and applying FAR judiciously, developers and local governments can balance growth with maintaining a livable and attractive environment.

> **Article Sources**
>
> 1.  CFI Education. "[Floor Area Ratio (FAR)](https://corporatefinanceinstitute.com/resources/commercial-real-estate/floor-area-ratio-far/)."
>     
> 2.  American Planning Association. "[Floor Area Ratio](https://www.planning.org/pas/reports/report111.htm)."
>     
> 3.  Your Own Architect. "[What Is the Difference Between Floor Area and Lot Area?](https://www.yourownarchitect.com/what-is-the-difference-between-floor-area-and-lot-area/)"
>     
> 4.  Britannica Money. "[Supply and Demand](https://www.britannica.com/money/supply-and-demand)."