The role of FAR in determining land value
- The market value of a square meter of floor area in the neighborhood (P)
- The construction cost of building that square meter of floor area (C)
- The amount of square meters of floor area that the developer can build on that lot (A)
Okay, profit margin should be included there as well, but for simplicity's sake, let's set it aside since it would only complicate explanations and anyway, it's pretty much a constant.
≤ (P-C)A/LOT AREA= (P-C) times FAR
- Lot value is directly proportional to the FAR developers expect to be able to build on it
- When FAR is not regulated, or when cities are open to spot zoning or FAR-raising variances, then this creates uncertainty about the ultimate FAR allowance of a lot, and thus, its value
- Speculators will tend to estimate optimistically the FAR that will be ultimately allowed on their lot (because they want to maximize profit), developers will tend to estimate pessimistically the FAR (because they want to minimize risk)
- It is crucial for reducing uncertainty and allowing speculators and developers to come to terms more readily to stabilize FAR with rigorous regulations, this helps stabilize land prices and helps the liquidity of lots
The de facto FAR regulation of geometric regulations
- A lot coverage maximum (how much of the lot can be built over)
- A FAR maximum (representing lot coverage times the number of stories that can be built)
No, not correct.
- Maximum lot coverage: 54 meters wide by 23 meters deep, 1 242 square meters on a 2 100 square-meter lot, so 59% (let's round that up to 60%).
- Maximum FAR: 60% times 6 stories equals 360% FAR
- Essentially impose thick, deep buildings that fill up this entire space in urban areas.
- Where land prices are high, you get almost exclusively 1-bedroom apartments as a result (except where lots are smaller and have detached buildings only), anything else becomes much too expensive to build and buy because it would require to cut down the FAR and thus have much higher prices per square meter
- In suburban areas, this problem is much reduced, and so you'll get more flexibility on building shape and size.
A proposalSo my proposal after this reflection is the following:
- FAR needs to be regulated directly, and it needs to be done in a strict manner, not easily modifiable by zoning variances or spot zoning, in order to create certainty with regards to land valuation
- Maximum FAR ought to be at most 70 or 80% of "de facto maximum FAR", which is the FAR calculated as the maximum allowed if all geometric dimensions were pushed to the limits allowed by geometric regulations (height limits, setbacks, margins), so that developers are more free to adopt building shapes adapted to people's needs rather than just build thick boxes.
- Geometric regulations can be kept to consider externalities, and should still be modifiable with variance demands, flexibility on geometry, inflexibility on FAR
- Overall, allowed FAR should be increased by right in all neighborhoods to flood the market with available, untapped FAR, which should reduce the land value costs per square meter of floor area.
- In this regulation, there is one exception, there should be a low-rise zone with a 4-story limit that should be strictly respected and FAR designed accordingly, because low-rises are much, much cheaper to build than midrises and high-rises. Once a zone is upzoned from low-rise to mid-rise, the jump in FAR allowed should be significant to compensate that increase in construction costs.