Far Regulations and the Spatial Size of Brazilian Cities

This paper evaluates the influence of the maximum-allowed floor area ratio (FAR) on the spatial size of Brazilian cities. We built a novel database on building height restrictions for the 325 largest cities in the country and combined it with recent satellite data. Our estimations show that, as predicted by theory, tighter constraints lead to an increase in urban areas, and this result is robust to several specifications, sensitivity tests, and different estimation strategies. Using the share of homeowners among high-income households as an instrumental variable for FAR stringency, we find that the decrease of one standard deviation in the maximum-allowed FAR increases the spatial area of a city by 12.4%. Additionally, back-to-the-envelope calculations show that a higher stringency of the building height regulation generates an annual cost of about US$ 9.58 million per average Brazilian city