Necessity of minimum floor area ratio regulation: a second-best policy

This article examines where and how to impose floor area ratio (FAR) regulations in the presence of negative externalities engendered in population density, e.g., traffic congestion and noise, using a simple static closed city model. Results indicate that FAR regulation is the second-best policy and that there is a need for “minimum FAR regulations,” in addition to the currently used “maximum FAR regulations.” Thus, the imposition of only maximum FAR regulations, a practice common in actual city planning, is concluded to be insufficient for a closed city.