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CRICOS No. 00213Ja university for the worldrealR
16th PRRES Conference Wellington, New Zealand, 24-27 January, 2010
Constraints to Cost Effective Land Supply
Lyndall BryantQueensland University of Technology
Brisbane, [email protected]
CRICOS No. 00213Ja university for the worldrealR
Overview
• Introduction
• Research Premise
• Land Supply Equation
• Supply Side Cost Variables
• Findings and Conclusions
CRICOS No. 00213Ja university for the worldrealR
Introduction
• Initial scoping paper
• SEQ Regional Plan • 2.6% population growth• Supply is limited despite land
availability• Housing affordability falling• Developer pays/cost recovery
infrastructure charge policy framework
CRICOS No. 00213Ja university for the worldrealR
Research PremisePolicy aim is to
smooth boom and bust cycles
Supply = Demand ie. Market Equilibrium
Equilibrium price = affordability level = market value
Price is determined by macro factors eg.
Interest rates, employment
The challenge for the developer is to supply
product to the market at that price point.
Supply is constrained when the costs of production exceed
that price point
Market is in disequilibrium (boom/bust)
CRICOS No. 00213Ja university for the worldrealR
Equilibrium Price = Affordability
• Source: Trumpuniversity.com
CRICOS No. 00213Ja university for the worldrealR
Land Supply Equation
(Lc + Dc1 - n) x (1 + Di) = GR
Where:Lc = Land CostDc1 – n = Development Costs
Di = Development Margin GR = Gross Realisation
Queensland University of Technology
CRICOS No. 00213J
=For house prices to be at an
equilibrium level, the sum of the supply side costs must not exceed
the
equilibrium price.Land Cost
Develop-ment Costs
Develop-ment
Margin
Equilibrium Price
Market Value
Affordability Level
Land Cost
Develop-ment Costs
Develop-ment
Margin
CRICOS No. 00213Ja university for the worldrealR
Development Margin
• Forecast profitability rate upon which to base investment decisions
• Often omitted by policy makers’ equations
• Constraining effects:– Risk:Return judgment call– Elect to invest capital elsewhere– Inability to obtain finance
Appropriate margin? Inability to obtain finance
Land Cost
Develop-ment Costs
Develop-ment
Margin
CRICOS No. 00213Ja university for the worldrealR
• Endless list … $$$• Developer funded
infrastructure provision tied to development approvals
• Constraining effects:– Long approval periods– High infrastructure charges
(unable to be accurately forecast at acquisition)
– Increased holding costs over extended approval periods
Effective infrastructure funding model
Land Cost
Develop-ment Costs
Develop-ment
Margin
Development Costs
CRICOS No. 00213Ja university for the worldrealR
• Most elastic input (pre-acquisition)
• Vendor expectations based on historical evidence ++
• Constraining effects:– Redevelopment value of land
drops as other costs increase– Unmotivated vendors hold out
for higher prices– Highest and best use of sites
does not match density targets
Joint venture models?Land Cost
Develop-ment Costs
Develop-ment
Margin
Land Cost
CRICOS No. 00213Ja university for the worldrealR
Costs = Prices = Affordability
Demand
Equilibrium
Increased costs
P1
P2Price Increase
Quantity
Price
Reduced SupplyQ1Q2
CRICOS No. 00213Ja university for the worldrealR
Key Constraints to Cost Effective Land Supply in SEQ
CRICOS No. 00213Ja university for the worldrealR
Summary
• Introduction
• Research Premise
• Land Supply Equation
• Supply Side Cost Variables
• Findings/Conclusion
• Questions and Comments...
