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Holding and opportunity cost theory in a property development context

Garner, Gary O. (2010) Holding and opportunity cost theory in a property development context. [Working Paper] (Unpublished)

Abstract

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.

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ID Code: 32122
Item Type: Working Paper
Keywords: holding cost, opportunity cost, discount rate, greenfield, housing affordability
Subjects: Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > Economic Theory (140100) > Economic Theory not elsewhere classified (140199)
Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > COMMERCIAL SERVICES (150400) > Real Estate and Valuation Services (150403)
Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > APPLIED ECONOMICS (140200) > Financial Economics (140207)
Divisions: Past > QUT Faculties & Divisions > Faculty of Built Environment and Engineering
Past > Schools > School of Urban Development
Copyright Owner: Copyright 2010 Gary Owen Garner
Deposited On: 06 May 2010 08:08
Last Modified: 06 May 2010 08:08

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