FAR (Floor Area Ratio)
Two identical plots of land can be worth wildly different amounts, and the reason usually has nothing to do with the dirt itself.
Floor area ratio — FAR — is the ratio of a building’s total floor area to the size of the land it sits on. A FAR of 1.0 on a 10,000-square-foot lot allows 10,000 square feet of building; a FAR of 4.0 on that same lot allows 40,000. It sounds like a dry planning formula, but it is, in practice, one of the single most powerful determinants of what a piece of land is worth — often more powerful than the land’s location, soil, or shape.
Zoning authorities set maximum FAR by district, and that ceiling functions as a hard cap on how much sellable or leasable product a developer can ever extract from a given site, no matter how much they’re willing to spend on construction. Two adjacent, identical parcels — same size, same street, same views — can carry entirely different values if one is zoned for a FAR of 2.0 and the other for a FAR of 10.0, because the second parcel can legally support five times as much building, and therefore five times as much rentable or sellable space, from the same footprint of land. This is why land value in dense cities is so often quoted not in dollars per square foot of land, but in dollars per “buildable square foot” — a number that only makes sense once FAR is known.
FAR is also one of the main levers cities pull when they want to steer growth without directly building anything themselves. Raise the allowable FAR near a new transit station, and land near that station becomes dramatically more valuable overnight — not because anything physical changed, but because the legal ceiling on what can be built there just moved. Many cities use this lever deliberately, offering FAR bonuses in exchange for public benefits: a developer who includes affordable housing units, preserves a historic facade, or builds a public plaza at street level might be granted extra FAR above the base zoning allowance, effectively letting them buy additional buildable area with amenities instead of cash.
This is also why rezoning fights generate such outsized stakes in real estate markets. A city council vote to raise the maximum FAR in a neighborhood is, functionally, a decision to instantly increase the value of every parcel of land within that boundary — which is precisely why landowners lobby hard for upzoning and why existing residents, worried about density, traffic, or changing neighborhood character, often lobby just as hard against it. The land hasn’t moved. Its legal potential has.
It’s worth noting that FAR caps interact with, but are distinct from, height limits, setback rules, and parking requirements — a site can be FAR-constrained on paper while a height limit or parking minimum makes it practically impossible to build out the full allowable floor area anyway. A careful developer checks all of these constraints together, because the binding limit is whichever rule turns out to be the tightest, not necessarily the one written in the biggest font in the zoning code.
Before asking what a piece of land is worth, ask what’s legally allowed to be built on it. FAR usually answers that question before the market ever gets a say.