The dynamics of holding costs in greenfield residential property development

Abstract

In the case of greenfield residential property developments, it is generally accepted that aside from the cost of the undeveloped land, and subsequent direct development costs (i.e. building and construction), development costs contributions expended towards infrastructure typically represent the largest planning related cost. However, it may be demonstrated that holding costs (i.e. essentially, those costs revolving around an assessment of “carrying costs” related to capital and other outlays) not only rival, but typically even exceed apparently more pervasive, obvious costs involved in property development. Of particular significance is that, together with non-financial barriers, these costs are being increasingly recognised as significant impactors in relation to housing affordability. Such costs arise from inconsistent planning requirements, development assessment procedures, and conflicts between developers and local councils. Their impact has underpinned a diverse range of planning reforms currently underway in various regions throughout Australia. Examples include systematic enhancements intended to provide greater standardisation, and reduced administrative requirements, system complexity and timeliness. It is indisputable that developer infrastructure costs strongly impact housing costs and therefore affordability: and, compared to holding costs, they are much more visible and easily quantified. In contrast, holding costs may seem less tangible as they typically stem from issues revolving around uncertainty, timeliness and inconsistency. Nonetheless, it can be established that they represent a potentially formidable financial barrier. As a consequence, the impact of holding costs emphasises the financial benefits arising from planning reform and intervention. Whilst this research involves investigation of the dimensions of holding costs based on data largely derived from case study investigations originating from midsized to larger (up to 200 lot) residential greenfield property development in South East Queensland, theoretical modelling strongly suggests that the outcomes have application outside this specification.