Welfare effects of floor area ratio regulation on landowners and residents with different levels of income

Abstract

This paper explores how Floor Area Ratio (FAR) regulations affect residents with income disparity and absentee landowners in a congested closed city. Theoretical results show that (1) an increase in FAR in a central zone may harm the utility of suburban residents due to the residential segregation pattern of heterogeneous people whereas it always increases the utility in a city with homogeneous households, and (2) how an increase in FAR changes land rents depends on the current FAR and the relative location of the zone where FAR increases. Numerical results clarify the effects of optimal FAR regulations on residents and absentee landowners. In addition, theoretical result (1) denoted above is numerically verified. Furthermore, it is found that optimal FAR gives higher benefits to high income households than to low income households regardless of the location pattern.