Holding cost model for Greenfield Housing developments

Presentation provided to a PhD Colloquium between two Australian and one Malaysian University providing the opportunity to inform and critique progress of students concerning their selected topic. This presentation essentially involves "The conceptualisation, sensitivity and measurement of holding costs and other selected elements impacting housing affordability" as provided by Gary Owen Garner of QUT, with research objectives thus: 1. To establish the nature and composition of holding costs over time, as related to residential property in Australia, and internationally. 2. To examine the linkages that may exist between various planning instruments, the length of regulatory assessment periods, and housing affordability. 3. To develop a model that quantifies the impact of holding costs on housing affordability in Australia, with a particular focus on the consequences of extended assessment periods as a component of holding costs. Thus, provide clarification as to the impact of holding costs on overall housing affordability.

Approaches for calculation of holding costs in the context of greenfield residential development

There are increasing indications that the contribution of holding costs and its impact on housing affordability is very significant. Their importance and perceived high level impact can be gauged from considering the unprecedented level of attention policy makers have given them recently. This may be evidenced by the embedding of specific strategies to address burgeoning holding costs (and particularly those cost savings associated with streamlining regulatory assessment) within statutory instruments such as the Queensland Housing Affordability Strategy, and the South East Queensland Regional Plan. However, several key issues require further investigation. Firstly, the computation and methodology behind the calculation of holding costs varies widely. In fact, it is not only variable, but in some instances completely ignored. Secondly, some ambiguity exists in terms of the inclusion of various elements of holding costs and assessment of their relative contribution. Perhaps this may in part be explained by their nature: such costs are not always immediately apparent. They are not as visible as more tangible cost items associated with greenfield development such as regulatory fees, government taxes, acquisition costs, selling fees, commissions and others. Holding costs are also more difficult to evaluate since for the most part they must be ultimately assessed over time in an ever-changing environment based on their strong relationship with opportunity cost which is in turn dependant, inter alia, upon prevailing inflation and / or interest rates. This paper seeks to provide a more detailed investigation of those elements related to holding costs, and in so doing determine the size of their impact specifically on the end user. It extends research in this area clarifying the extent to which holding costs impact housing affordability. Geographical diversity indicated by the considerable variation between various planning instruments and the length of regulatory assessment periods suggests further research should adopt a case study approach in order to test the relevance of theoretical modelling conducted.

Preliminary modelling outcomes : calculation of holding costs in greenfield residential development

Many of the costs associated with greenfield residential development are apparent and tangible. For example, regulatory fees, government taxes, acquisition costs, selling fees, commissions and others are all relatively easily identified since they represent actual costs incurred at a given point in time. However, identification of holding costs are not always immediately evident since by contrast they characteristically lack visibility. One reason for this is that, for the most part, they are typically assessed over time in an ever-changing environment. In addition, wide variations exist in development pipeline components: they are typically represented from anywhere between a two and over sixteen years time period - even if located within the same geographical region. Determination of the starting and end points, with regards holding cost computation, can also prove problematic. Furthermore, the choice between application of prevailing inflation, or interest rates, or a combination of both over time, adds further complexity. Although research is emerging in these areas, a review of the literature reveals attempts to identify holding cost components are limited. Their quantification (in terms of relative weight or proportionate cost to a development project) is even less apparent; in fact, the computation and methodology behind the calculation of holding costs varies widely and in some instances completely ignored. In addition, it may be demonstrated that ambiguities exists in terms of the inclusion of various elements of holding costs and assessment of their relative contribution. Yet their impact on housing affordability is widely acknowledged to be profound, with their quantification potentially maximising the opportunities for delivering affordable housing. This paper seeks to build on earlier investigations into those elements related to holding costs, providing theoretical modelling of the size of their impact - specifically on the end user. At this point the research is reliant upon quantitative data sets, however additional qualitative analysis (not included here) will be relevant to account for certain variations between expectations and actual outcomes achieved by developers. Although this research stops short of cross-referencing with a regional or international comparison study, an improved understanding of the relationship between holding costs, regulatory charges, and housing affordability results.

Concerns about the rollout of broadband : a legal consideration of Australia’s NBN greenfield policy

This paper examines the Australian federal government’s proposal that developers take the primary role for deploying the National Broadband Network (‘NBN’) in greenfield estates. It identifies issues facing the NBN’s implementation and concerns raised by industry. A failure to address these concerns may lessen industry support as well as adversely impact on consumers as NBN implementation costs are passed onto them. The author identifies the need for NBN legislation to clearly establish what is a ‘greenfield estate’; how and when exemptions from implementation obligations will apply; and that NBN services must be treated the same as any other utility service.

An analysis of holding cost impact on housing affordability in relation to midsized Greenfield residential property developments in South East Queensland

The position of housing demand and supply is not consistent. The Australian situation counters the experience demonstrated in many other parts of the world in the aftermath of the Global Financial Crisis, with residential housing prices proving particularly resilient. A seemingly inexorable housing demand remains a critical issue affecting the socio-economic landscape. Underpinned by high levels of population growth fuelled by immigration, and further buoyed by sustained historically low interest rates, increasing income levels, and increased government assistance for first home buyers, this strong housing demand level ensures problems related to housing affordability continue almost unabated. A significant, but less visible factor impacting housing affordability relates to holding costs. Although only one contributor in the housing affordability matrix, the nature and extent of holding cost impact requires elucidation: for example, the computation and methodology behind the calculation of holding costs varies widely - and in some instances completely ignored. In addition, ambiguity exists in terms of the inclusion of various elements that comprise holding costs, thereby affecting the assessment of their relative contribution. Such anomalies may be explained by considering that assessment is conducted over time in an ever-changing environment. A strong relationship with opportunity cost - in turn dependant inter alia upon prevailing inflation and / or interest rates - adds further complexity. By extending research in the general area of housing affordability, this thesis seeks to provide a detailed investigation of those elements related to holding costs specifically in the context of midsized (i.e. between 15-200 lots) greenfield residential property developments in South East Queensland. With the dimensions of holding costs and their influence over housing affordability determined, the null hypothesis H0 that holding costs are not passed on can be addressed. Arriving at these conclusions involves the development of robust economic and econometric models which seek to clarify the componentry impacts of holding cost elements. An explanatory sequential design research methodology has been adopted, whereby the compilation and analysis of quantitative data and the development of an economic model is informed by the subsequent collection and analysis of primarily qualitative data derived from surveying development related organisations. Ultimately, there are significant policy implications in relation to the framework used in Australian jurisdictions that promote, retain, or otherwise maximise, the opportunities for affordable housing.

RMAA safety performance : how does it compare with Greenfield projects?

Gross value of cons truction work in the repair , maintenance, minor alte ration and addition (RMAA) sector in Hong Kong has expanded dramatically by 58% from 1998 to 2007, accounting for over 53% of the whole construction market in 2007. Unfortunately, the portion of industrial accidents arising from this sector also increased substantially during the same period. It is important to improve the safety performance of the RMAA sector. This paper has set out the objectives to examine safety statistics of RMAA works; to compare them with those of green field projects; and more importantly, to highlight potential hurdles en countered in the process of comparison and finally to provide effective recommendations for overcoming these impediments. To strive for continuous safety improvement of RMAA works, comparable safety statistics should be compiled for this sector.

Selected elements of housing affordability impacting otherwise potentially sustainable communities

It is widely held that strong relationships exist between housing, economic status, and well being. Therefore, recent events emerging from the United States, culminating in widespread housing stock surpluses in that country and others, threaten to destabilise many aspects related to individuals and community. However, despite global impact, the position of housing demand and supply is not consistent. The Australian position provides a strong contrast whereby continued strong housing demand generally remains a critical issue affecting the socio-economic landscape. Underpinned by strong levels of immigration, and further buoyed by sustained historically low interest rates, increasing income levels, and increased government assistance for first home buyers, this strong housing demand ensures elements related to housing affordability continue to gain prominence. A significant, but less visible factor impacting housing affordability – particularly new housing development – relates to holding costs. These costs are in many ways “hidden” and cannot always be easily identified. Although it is only one contributor, the nature and extent of its impact requires elucidation. In its simplest form, it commences with a calculation of the interest or opportunity cost of land holding. However, there is significantly more complexity for major new developments - particularly greenfield development. Analysis suggests that even small shifts in primary factors impacting holding costs can appreciably affect housing affordability. Those factors of greatest significance not only include interest rates and the rate of inflation, but even less apparent factors such as the regulatory assessment period. These are not just theoretical concepts but real, measurable price drivers. Ultimately, the real impact is felt by the one market segment whom can typically least afford it – new home, first home buyers. They can be easily pushed out of affordability. This paper suggests the stability and sustainability of growing, new communities require this problem to be acknowledged and accurately identified if the well being of such communities is to be achieved.

Holding and opportunity cost theory in a property development context

This paper focuses on the varying approaches and methodologies adopted when the calculation of holding costs is undertaken, focusing on greenfield development. Whilst acknowledging there may be some consistency in embracing first principles relating to holding cost theory, a review of the literature reveals considerable lack of uniformity in this regard. There is even less clarity in quantitative determination, especially in Australia where there has been only limited empirical analysis undertaken. Despite a growing quantum of research undertaken in relation to various elements connected with housing affordability, the matter of holding costs has not been well addressed regardless of its part in the highly prioritised Australian Government’s housing research agenda. The end result has been a modicum of qualitative commentary relating to holding costs. There have been few attempts at finer-tuned analysis that exposes a quantified level of holding cost calculated with underlying rigour. Holding costs can take many forms, but they inevitably involve the computation of “carrying costs” of an initial outlay that has yet to fully realise its ultimate yield. Although sometimes considered a “hidden” cost, it is submitted that holding costs prospectively represent a major determinate of value. If this is the case, then considered in the context of housing affordability, it is therefore potentially pervasive.

The conceptualisation, sensitivity and measurement of holding costs and other selected elements impacting housing affordability (Literature review and research methodology for confirmation of PhD candidature)

It is widely held that strong relationships exist between housing, economic status, and well being. This is exemplified by widespread housing stock surpluses in many countries which threaten to destabilise numerous aspects related to individuals and community. However, the position of housing demand and supply is not consistent. The Australian position provides a distinct contrast whereby seemingly inexorable housing demand generally remains a critical issue affecting the socio-economic landscape. Underpinned by high levels of immigration, and further buoyed by sustained historically low interest rates, increasing income levels, and increased government assistance for first home buyers, this strong housing demand ensures elements related to housing affordability continue to gain prominence. A significant, but less visible factor impacting housing affordability – particularly new housing development – relates to holding costs. These costs are in many ways “hidden” and cannot always be easily identified. Although it is only one contributor, the nature and extent of its impact requires elucidation. In its simplest form, it commences with a calculation of the interest or opportunity cost of land holding. However, there is significantly more complexity for major new developments - particularly greenfield property development. Preliminary analysis conducted by the author suggests that even small shifts in primary factors impacting holding costs can appreciably affect housing affordability – and notably, to a greater extent than commonly held. Even so, their importance and perceived high level impact can be gauged from the unprecedented level of attention policy makers have given them over recent years. This may be evidenced by the embedding of specific strategies to address burgeoning holding costs (and particularly those cost savings associated with streamlining regulatory assessment) within statutory instruments such as the Queensland Housing Affordability Strategy, and the South East Queensland Regional Plan. However, several key issues require investigation. Firstly, the computation and methodology behind the calculation of holding costs varies widely. In fact, it is not only variable, but in some instances completely ignored. Secondly, some ambiguity exists in terms of the inclusion of various elements of holding costs, thereby affecting the assessment of their relative contribution. Perhaps this may in part be explained by their nature: such costs are not always immediately apparent. Some forms of holding costs are not as visible as the more tangible cost items associated with greenfield development such as regulatory fees, government taxes, acquisition costs, selling fees, commissions and others. Holding costs are also more difficult to evaluate since for the most part they must be ultimately assessed over time in an ever-changing environment, based on their strong relationship with opportunity cost which is in turn dependant, inter alia, upon prevailing inflation and / or interest rates. By extending research in the general area of housing affordability, this thesis seeks to provide a more detailed investigation of those elements related to holding costs, and in so doing determine the size of their impact specifically on the end user. This will involve the development of soundly based economic and econometric models which seek to clarify the componentry impacts of holding costs. Ultimately, there are significant policy implications in relation to the framework used in Australian jurisdictions that promote, retain, or otherwise maximise, the opportunities for affordable housing.

The impact of holding costs in the housing affordability puzzle

Research is now emerging which exposes the significance and extent to which even small shifts in the regulatory assessment period, and other factors, affect housing affordability. It suggests that the extent of its significance has not been hitherto completely demonstrated.

The subtropical row house charrette

Current urban development in South East Queensland (SEQ) is impacted by a number of factors: growth and sprawl eroding subtropical character and identity; changing demographics and housing needs; lack of developable land; rising transport costs; diminishing fresh water supply; high energy consumption; and generic building designs which ignore local climate, landscape and lifestyle conditions. The Subtropical Row House project sought to research ‘best practice’ planning and design for contemporary and future needs for urban development in SEQ, and stimulate higher-density housing responses that achieve sustainable, low-energy and low water outcomes and support subtropical character and identity by developing a workable new typology for homes that the local market can adopt. The methodology was that of charrette, an established methodology in architecture and design. Four leading Queensland architectural firms were invited to form multidisciplinary creative teams. During the two-day charrette, the teams visited a selected greenfield site, defined the problems and issues, developed ideas and solutions, and benchmarked performance of designs using the Australian Green Building Council’s Pilot Green Star Multi-Unit residential tool. Each of the four resulting designs simultaneously express a positive relationship with climate and place by demonstrating: suitability for the subtropical climate; flexibility for a diversity of households; integrated building/site/vegetation strategies; market appeal to occupants and developers; affordability in operation; constructability by ‘domestic’ builders; and reduced energy, water and wastage. The project was awarded a Regional Commendation by the Australian Institute of Architects.

Property, planning and purpose : legal concerns facing broadband rollout in Australia

The Australian government, and opposition, are committed to facilitating high-speed broadband provision. In April 2009 the (then) Labor government announced a proposal to facilitate provision by mandating “…the use of fibre optic infrastructure … in greenfield estates ….” Separately, the installation of (usually overhead) cables commenced in select brownfield areas throughout Australia. In the lead up to the 2010 federal election, the broadband policy focus of the (then) federal opposition was to enabling private investment rather than direct investment by government itself. High-speed broadband is essential for Australia’s economic future. Whether implementation is undertaken by government, government owned corporations or private investors, will impact on the processes to be followed. Who does what, also will determine the rights available to land owners. The next stage, of necessity, will involve the establishment of procedures to require the retrofitting of existing urban environments. This clearly will have major property, property rights and valuation impacts. As Horan (2000) observed “…preserving... unique characteristics … of…regions requires a compromise between economic ambitions and social, cultural, and environmental values”. The uncertainty following the federal election, and the influence of independants with individual agendas; presents unique challenges for broadband implementation. This paper seeks to identify the processes to be followed by various potential broadband investors as they work to establish a ubiquitous network. It overviews current legislative regimes and examines concerns raised by stakeholders in various government reviews. It concludes by plotting a clear way forward to the future, with particular regard to property rights and usage.