Why don't you just get some Eibach lowering springs? Maybe I missed the reason elsewhere, but seems the logical thing, rather than messing with wheel and tyre circumferences.Needs bigger/taller wheels to fill them arches
Although, as it's a 1960s tribute, the gaps are not bad IMO. Cars in them days had HUGE arch gaps and wheels sat inboard of the bodywork and no-one cared (or knew any better).