AN ANALYSIS OF HOLDING COST IMPACT
ON HOUSING AFFORDABILITY IN
RELATION TO MIDSIZED GREENFIELD
RESIDENTIAL PROPERTY
DEVELOPMENTS IN SOUTH EAST
QUEENSLAND
Gary Owen Garner
CertAg(Tocal), AssocDipVal(WAIT), BBus(Curtin), GradDipB&M(ACT)

Submitted in fulfilment of the requirements for the degree of
Doctor of Philosophy

School of Urban Development
Faculty of Built Environment & Engineering
Queensland University of Technology
January 2012

FINAL VERSION



i

Keywords
discount rate; EOQ model; finance holding costs; greenfield; holding costs; housing;
housing

affordability;

inflation;

infrastructure

contributions;

development

assessment; interest rates; inventory; investment; land banking; net present value;
opportunity cost; planning; planning requirements; property development; regulatory
assessment; residential development

An Analysis of Holding Cost Impact on Housing Affordability in Relation to Midsized Greenfield Residential
Property Developments in South East Queensland
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ii

Abstract
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
ii An Analysis of Holding Cost Impact on Housing Affordability in Relation to Midsized Greenfield Residential
Property Developments in South East Queensland


iii

implications in relation to the framework used in Australian jurisdictions that
promote, retain, or otherwise maximise, the opportunities for affordable housing.

An Analysis of Holding Cost Impact on Housing Affordability in Relation to Midsized Greenfield Residential
Property Developments in South East Queensland

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Table of Contents
Keywords ................................................................................................................................................. i
Abstract ...................................................................................................................................................ii
Table of Contents ................................................................................................................................... iv
List of Figures ......................................................................................................................................viii
List of Tables ........................................................................................................................................xii
List of Equations ................................................................................................................................... xv
List of Abbreviations ........................................................................................................................... xvi
Statement of Original Authorship .......................................................................................................xvii
Acknowledgments ..............................................................................................................................xviii
CHAPTER 1: INTRODUCTION ....................................................................................................... 1
1.1

Background .................................................................................................................................. 2

1.2

Context – research problem ......................................................................................................... 4

1.3

Purposes – aims and objectives.................................................................................................... 7
1.3.1 Primary considerations of this Research ........................................................................... 7
1.3.2 Research questions ........................................................................................................... 8
1.3.3 Discussion of the Research Questions .............................................................................. 8


1.4

Significance, scope and definitions ............................................................................................ 10

CHAPTER 2: LITERATURE REVIEW ......................................................................................... 13
2.1

Introduction................................................................................................................................ 13
2.1.1 Holding costs – a major determinate of value ................................................................ 13
2.1.2 Compatibility with other key housing affordability research agendas ............................ 14

2.2

Historical Background (Incorporating an Overview of Australian and Queensland
residential property market & trends) ........................................................................................ 17
2.2.1 Residential housing prices and residential housing sales volumes (transfers) ................ 17
2.2.2 Building & construction activity .................................................................................... 33
2.2.3 Conclusions and contextualisation within housing affordability .................................... 43

2.3

The issue of housing affordability ............................................................................................. 44
2.3.1 Definition & significance of housing affordability ......................................................... 44
2.3.2 Relationship between housing affordability, and property supply & demand ................ 47
2.3.3 Relationship between housing affordability & time ....................................................... 59
2.3.4 Measurement of housing affordability in australia ......................................................... 60
2.3.5 Correlation of housing affordability & housing costs ..................................................... 69
2.3.6 Holding costs: a critical component of housing development costs and
consequently a significant impactor on housing affordability ........................................ 70


2.4

Holding & opportunity cost theory in a property development context ..................................... 74
2.4.1 Holding cost components ............................................................................................... 74
2.4.2 Statutory interpretation of holding costs ......................................................................... 76
2.4.3 Holding period / holding period return ........................................................................... 77
2.4.4 Treatment of holding costs by commercial software models ......................................... 79
2.4.5 Complexity of the holding cost calculation .................................................................... 80
2.4.6 Holding cost estimates and linkages with statutory bodies............................................. 82

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2.4.7
2.4.8
2.4.9
2.4.10
2.4.11
2.4.12
2.4.13
2.4.14
2.4.15

Holding costs evolution from inventory management EOQ models. ............................. 86
Opportunity and sunk costs defined ................................................................................ 89
Opportunity cost and the present value / discount factor ................................................ 90

Opportunity cost: irreversibility and uncertainty ............................................................ 93
Discount rate as the opportunity cost of capital .............................................................. 94
Opportunity cost, and the cost of equity ....................................................................... 102
Taxation and liquidity effects ....................................................................................... 102
Impact of highly regulated environments and commercial risk .................................... 103
Dimensions of regulatory assessment in the greenfield residential development
pipeline ......................................................................................................................... 106
2.4.16 Impact of land supply ................................................................................................... 119

2.5

Summary and Implications ...................................................................................................... 124
2.5.1 Overview ...................................................................................................................... 124
2.5.2 Implications of the literature review ............................................................................. 125

CHAPTER 3: RESEARCH DESIGN ............................................................................................. 129
3.1

Methodology and research design ............................................................................................ 129
3.1.1 Methodology ................................................................................................................. 129
3.1.2 Research design ............................................................................................................ 136
3.1.3 Limitations of the research ........................................................................................... 145

3.2

Participants............................................................................................................................... 147
3.2.1 Industry survey ............................................................................................................. 147
3.2.2 Case studies (field investigations) ................................................................................ 147

3.3


Instruments............................................................................................................................... 149

3.4

Procedure and timeline ............................................................................................................ 151

3.5

Analysis ................................................................................................................................... 154
3.5.1 Quantitative analysis ..................................................................................................... 154
3.5.2 Qualitative analysis ....................................................................................................... 155

3.6

Ethics and limitations ............................................................................................................... 158

CHAPTER 4: RESULTS ................................................................................................................. 161
4.1

Economic modelling ................................................................................................................ 162
4.1.1 Development of a Holding Cost Economic Model examining the effects of time
for a property development project ............................................................................... 162
4.1.2 Modelling results .......................................................................................................... 173

4.2

Econometric modelling ............................................................................................................ 179

4.3


Industry survey: Development Assessment & holding costs ................................................... 181

4.4

Case studies – property development survey ........................................................................... 182
4.4.1 Scope of the case studies and property development survey ........................................ 182
4.4.2 Data collected: survey instrument #2 - questionnaire (structured survey for case
studies) .......................................................................................................................... 184
4.4.3 Data collected: survey instrument #3 questionnaire - (follow up personal
interview to confirm financial details and clarify uncertainties) ................................... 185

CHAPTER 5: ANALYSIS ............................................................................................................... 191
5.1

Introductory analytical discussion............................................................................................ 191

5.2

Nature and composition of holding costs over time ................................................................. 192
5.2.1 Case study / field investigations ................................................................................... 192
5.2.2 Conclusions .................................................................................................................. 205

An Analysis of Holding Cost Impact on Housing Affordability in Relation to Midsized Greenfield Residential
Property Developments in South East Queensland
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5.3

Linkages that exist between various planning instruments, the length of regulatory
assessment periods, and housing affordability ......................................................................... 210
5.3.1 Industry survey: Development Assessment and holding costs ..................................... 210
5.3.2 Conclusions .................................................................................................................. 254

5.4

Quantification of the impact of holding costs on housing affordability ................................... 268
5.4.1 Increased costs and housing affordability – measurement of the impact upon
mortgages ..................................................................................................................... 268
5.4.2 housing affordability measurements: mortgage equivalency as a percentage of
household income ......................................................................................................... 269
5.4.3 Interest rate impact ....................................................................................................... 274
5.4.4 Time frame impact ....................................................................................................... 279
5.4.5 Combined impacts: interest rate and time changes ....................................................... 281
5.4.6 Calculating holding costs for individual projects – comparison with estimates
derived by Queensland government and others ............................................................ 283

5.5

Theoretical development & econometric modelling ................................................................ 283
5.5.1 ―What-If‖ scenario modelling for holding cost variables: measuring sensitivity
and impact via housing affordability trend line equations ............................................ 283
5.5.2 Holding cost – housing affordability trend lines........................................................... 292

5.6

Conclusions.............................................................................................................................. 295


CHAPTER 6: CONCLUSIONS ...................................................................................................... 299
6.1

Conclusions and Implications .................................................................................................. 299
6.1.1 What is the nature and composition of holding costs applying in South East
Queensland residential property markets? .................................................................... 300
6.1.2 How does the length of the regulatory assessment period impact holding costs in
South East Queensland? ............................................................................................... 300
6.1.3 To what extent is the assessment period (and other primary holding cost factors)
a contributor that impacts housing affordability in South East Queensland? ............... 301
6.1.4 What correlations with housing affordability can be derived from a model
quantifying the impacts of holding costs? .................................................................... 302
Addressing the Null Hypothesis H0 .............................................................................. 304
6.1.5

6.2

Limitations of the research ...................................................................................................... 305

6.3

Recommendations .................................................................................................................... 306

APPENDICES ................................................................................................................................... 309
Appendix A: Publications (Research) Output .......................................................................... 309
Appendix B: Research Output & Sequencing .......................................................................... 313
Appendix C: 30 month / 2.5 year Base Case Holding Cost Economic Model Assumptions and Summary Output .............................................................................. 314
Appendix D: Base case scenario – primary model outputs ...................................................... 316
Appendix E: Base case scenario – additional model outputs ................................................... 317

Appendix F: Case Studies Summary ....................................................................................... 318
Appendix G: Timelines for the Property Development Pipeline ............................................. 319
Appendix H: Generic Greenfield Property Development Pipeline .......................................... 320
Appendix I: Case Studies: Property Development Pipelines ................................................... 321
Appendix J: Research Project Timelines ................................................................................. 322
Appendix K: Impact of interest rate changes, time frame changes, and interest and time
frame changes ............................................................................................................... 323
Appendix L: Linear Trendline Analysis - Sensitivity of Factors Impacting Holding
Costs and Subsequent Effect on Housing Affordability ............................................... 324
Appendix M: Case Study Comparisons against the Base case Scenario (summary data) ....... 325
Appendix N: Case Study A: Summary Input and Output ........................................................ 327
Appendix O: Case Study B: Summary Input and Output ........................................................ 328
vi An Analysis of Holding Cost Impact on Housing Affordability in Relation to Midsized Greenfield Residential
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Appendix P: Case Study C: Summary Input and Output ......................................................... 329
Appendix Q: Case Study D: Summary Input and Output ........................................................ 330
Appendix R: Holding Cost Economic Model Output: Long term Analysis to Examine
the Sensitivity of Time on a Development Project ....................................................... 331
Appendix S: Scenario Modelling – Gross Realisations and Holding Costs ............................. 332
Appendix T: Case Studies: Cost Component summaries and comparisons ............................. 333
Appendix U: Residential Lot Cost Comparisons based on Interest rates ................................. 334
Appendix V: Residential Lot Cost Comparisons based on Time Frame .................................. 336
Appendix W: Scenario Modelling: Holding Costs – Housing Affordability Summary
and comparison of all independent variables ................................................................ 337
Appendix X: Holding Cost - Housing Affordability Trend lines: Polynomial trend line
equations ....................................................................................................................... 338

Appendix Y: Industry Survey – Development Assessment & Holding Costs (Survey
Instrument #1)............................................................................................................... 339
Appendix Z: Data Obtained for Survey Instrument #2 – Questionnaire (Structured
Survey for Case Studies) .............................................................................................. 365
Appendix Z1: Development Assessment & Holding Cost Survey Instrument ........................ 387
Appendix Z2: Property Development Survey (Case Studies) Survey Instrument ................... 400
Appendix Z3: Follow Up Interview Questions – Property Development Survey (Case
Studies) Survey Instrument ........................................................................................... 418
BIBLIOGRAPHY ............................................................................................................................. 421

An Analysis of Holding Cost Impact on Housing Affordability in Relation to Midsized Greenfield Residential
Property Developments in South East Queensland
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List of Figures
Figure ‎2-1 Median price of houses in Australia (capital cities), 2002-2010. ........................................ 22
Figure ‎2-2 Sale volumes (house transfers) in Australia (capital cities), 2002-2010.............................. 23
Figure ‎2-3 Comparison of median house prices and sales volumes in Brisbane, 2002-2010. .............. 23
Figure ‎2-4 Real median prices of houses, units and land, South East Queensland ............................... 25
Figure ‎2-5 Price Index of Established Houses, Australian capital cities, 2002-2010. ........................... 28
Figure ‎2-6 Long Term Price Index of Project Homes: Australian capital Cities 1986-2010 ................ 31
Figure ‎2-7 Medium Term Price Index of Project Homes: Australian capital Cities 2000-2010 ........... 32
Figure ‎2-8 Comparison of Price Index of Established Houses and Project Homes: Brisbane
2002-2010 ............................................................................................................................ 32
Figure ‎2-9 Trend (linear regression) comparison of price index of established houses and
project homes: Brisbane 2002-2010 ..................................................................................... 33
Figure ‎2-10 Number of Private Sector Dwelling Approvals – Australia, 1983-2010 ........................... 37

Figure ‎2-11 Number of Private Sector Dwelling Approvals – Queensland, 1983-2010 ....................... 37
Figure ‎2-12 Dwelling unit commencements – Queensland 2002-2010 ................................................ 39
Figure ‎2-13 Dwellings Approved / Private Sector House Approved 2009-2010 (Australia) ................ 40
Figure ‎2-14 Dwelling Unit Commencements, Australia: 2002 -2010................................................... 40
Figure ‎2-15 Dwellings Commenced 2002-2010 (Australia) ................................................................. 40
Figure ‎2-16 Private Dwellings commenced – Long term 1957-2010 (with Trends), Australia ............ 41
Figure ‎2-17 Private Dwellings commenced – Long term 1957-2010 (with Trends), Queensland ........ 41
Figure ‎2-18 Private Dwellings commenced – Medium term 2000-2010 (with Trends),
Queensland ........................................................................................................................... 42
Figure ‎2-19 Private Dwellings commenced – Short term 2006-2010 (with Trends), Queensland ........ 42
Figure ‎2-20 Median House Price Comparisons: Australian Capital Cities, as at October 2010. .......... 49
Figure ‎2-21 Residential Sales Volumes: Australian Capital Cities, as at October 2010. ...................... 50
Figure ‎2-22 Change in the Housing Supply Gap - Queensland & Australia ......................................... 51
Figure ‎2-23 Change in Underlying Demand for Housing (Number of Households - Australia) .......... 53
Figure ‎2-24 Short Term Projected Change in the Housing Supply Gap (Australia) ............................. 55
Figure ‎2-25 Longer Term Projected Change in the Housing Supply Gap (Australia) ......................... 57
Figure ‎2-26 Housing Affordability Nation Comparison ....................................................................... 62
Figure ‎2-27 Housing Affordability - Australia. Extracted from Cox & Pavletich (2007) ..................... 62
Figure ‎2-28 Changes in housing affordability (1988 to 2008). ............................................................. 67
Figure ‎2-29 Impact of planning delays on capital investigation: three scenarios demonstrating
the acquisition of holding costs. ........................................................................................... 73
Figure ‎2-30 Hyperinflationary periods are rare: propensity of interest rates to exceed inflation
(as measured by the Consumer price Index) over time. ....................................................... 99
Figure ‎2-31 Impact of Time & Associated Holding Costs ................................................................. 101

viiiAn Analysis of Holding Cost Impact on Housing Affordability in Relation to Midsized Greenfield Residential
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Figure ‎2-32 Residential Development Pipeline. ................................................................................. 116
Figure ‎2-33 Simplified Property Development Pipeline. .................................................................... 118
Figure ‎3-1 Schematic diagram showing detail of research program highlighting methodology
and sequence of research output ......................................................................................... 135
Figure ‎3-2 The Explanatory Sequential Design .................................................................................. 137
Figure ‎3-3 Holding cost relationships and possible correlations ......................................................... 138
Figure ‎3-4 Hierarchical structure of qualitative analysis conducted through NVivo
(diagrammatic representation only) .................................................................................... 157
Figure ‎4-1 Accelerating increase of mortgage repayments due to holding costs over time ................ 178
Figure ‎4-2 Accelerating increase of mortgage repayments due to holding costs (noting impact
of regulatory assessment period) over time ........................................................................ 179
Figure ‎5-1 Word frequency query (―Tag Cloud‖) – analysis of Survey Instrument #3
Questionnaire - follow up personal interview .................................................................... 192
Figure ‎5-2 Case Study timeframes for property development pipelines ............................................. 198
Figure ‎5-3 Cost component comparison of greenfield property development case studies ................ 203
Figure ‎5-4 Case Study comparison of greenfield residential property development cost
components ........................................................................................................................ 203
Figure ‎5-5 Confidence intervals for major cost components as a percentage of gross realisation
(case studies) ...................................................................................................................... 204
Figure ‎5-6 Confidence intervals for major cost components as a percentage of gross realisation
(case studies): logarithmic scale for the y axis ................................................................... 204
Figure 5-7 Exponential trend equation (total holding costs and total gross realisation)...................... 209
Figure ‎5-8 Linear regression trend equation (holding costs and gross realisation – per lot basis) ...... 209
Figure ‎5-9 Survey Respondent Profile ................................................................................................ 215
Figure ‎5-10 eDA awareness ................................................................................................................ 217
Figure ‎5-11 Usage of eDA tools ......................................................................................................... 218
Figure ‎5-12 Use of eDA tools by developers ...................................................................................... 219
Figure ‎5-13 Encouragement of developers to increase use of eDA tools ............................................ 222
Figure ‎5-14 Encouraging developers who do not use eDA tools ....................................................... 224

Figure ‎5-15 Holding costs incurred by respondents ............................................................................ 238
Figure ‎5-16 Holding costs typically incurred by Town Planner survey cohort ................................... 239
Figure ‎5-17 Holding costs typically incurred by Developer survey cohort ......................................... 240
Figure ‎5-18 Estimation by developers of holding costs typically incurred ........................................ 246
Figure ‎5-19 Estimate by developers of the proportion of holding costs incurred during the
development assessment process. ....................................................................................... 249
Figure ‎5-20 Developer response as to whether holding costs are passed on ....................................... 252
Figure ‎5-21 Passing on Holding Costs to end users - response from different cohorts indicating
they are mostly passed on ................................................................................................... 253
Figure ‎5-22 Passing on Holding Costs to end users – ―rarely‖ response from different cohorts ........ 253
Figure ‎5-23 Histogram of key holding cost periods affecting timelines for major outlay
milestones (case study results) ........................................................................................... 267

An Analysis of Holding Cost Impact on Housing Affordability in Relation to Midsized Greenfield Residential
Property Developments in South East Queensland
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Figure ‎5-24 Sensitivity of Time – Up to 66 months assessment ......................................................... 270
Figure ‎5-25 Sensitivity and Acceleration of the Impact of Time on a Land Development Project .... 271
Figure ‎5-26 Cost of mortgage repayments due to holding costs ......................................................... 271
Figure ‎5-27 Increased mortgage repayments and the accelerating effect of time due to holding
costs.................................................................................................................................... 272
Figure ‎5-28 Increase in Cost of Mortgage as a % of Household Income ........................................... 273
Figure ‎5-29 Accelerating increase in cost of mortgage equivalent as a % of household income
over time ............................................................................................................................ 274
Figure ‎5-30 Increase in cost of mortgage repayments and impact on housing affordability:
Interest rate effect @ 6% p.a .............................................................................................. 275

Figure ‎5-31 Increase in cost of mortgage repayments and impact on housing affordability:
Interest rate effect @ 9% p.a (base case scenario) ............................................................. 275
Figure ‎5-32 Increase in cost of mortgage repayments and impact on housing affordability:
Interest rate effect @ 12% p.a ............................................................................................ 276
Figure ‎5-33 Increase in cost of mortgage repayments and impact on housing affordability:
Interest rate effect @ 15% p.a ............................................................................................ 276
Figure ‎5-34 Increase in cost of mortgage repayments and impact on housing affordability:
Interest rate effect @ 18% p.a ............................................................................................ 277
Figure ‎5-35 Increase in cost of mortgage repayments and impact on housing affordability:
Interest rate effect @ 21% p.a ............................................................................................ 277
Figure ‎5-36 Lot cost comparison @ 2.5 years development time (base case scenario) ..................... 279
Figure ‎5-37 Lot cost comparison @ 5 years development time .......................................................... 280
Figure ‎5-38 Impact of interest rate changes on a property development project ................................ 281
Figure ‎5-39 Impact of time frame changes on a property development project .................................. 282
Figure ‎5-40 Combined impact of interest rate and time frame changes on a property
development project ........................................................................................................... 282
Figure ‎5-41 Scenario model for interest rate / inflation change incorporating linear trend line
equation for measuring impact on housing affordability.................................................... 287
Figure ‎5-42 Scenario model for development time change incorporating linear trend line
equation for measuring impact on housing affordability.................................................... 288
Figure ‎5-43 Scenario model for mean household income change incorporating linear trend line
equation for measuring impact on housing affordability.................................................... 288
Figure ‎5-44 Scenario model for lot numbers change incorporating linear trend line equation for
measuring impact on housing affordability ........................................................................ 289
Figure ‎5-45 Scenario model for undeveloped land cost change incorporating linear trend line
equation for measuring impact on housing affordability.................................................... 289
Figure ‎5-46 Scenario model for acquisition costs (ex land) change incorporating linear trend
line equation for measuring impact on housing affordability ............................................. 290
Figure ‎5-47 Scenario model for rates, infrastructure charges, DA, consultants and other fees
change incorporating linear trend line equation for measuring impact on housing

affordability ........................................................................................................................ 290
Figure ‎5-48 Scenario model for development costs change incorporating linear trend line
equation for measuring impact on housing affordability.................................................... 291
Figure ‎5-49 Scenario model for developer‘s margin change incorporating linear trend line
equation for measuring impact on housing affordability.................................................... 291
x An Analysis of Holding Cost Impact on Housing Affordability in Relation to Midsized Greenfield Residential
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Figure ‎5-50 ―What-If‖ Scenarios: Holding Costs summary of all independent variables ................... 292
Figure ‎5-51 ―What-If‖ Scenarios: Gross Realisation summary of all independent variables ............. 292
Figure ‎5-52 Holding Cost – Housing Affordability Trend Lines ........................................................ 293
Figure ‎6-1 Research Output – Sequencing with Research Methodology ............................................ 313
Figure ‎6-2 Medium term increase in cost of mortgage payments due to holding costs (base case
scenario) ............................................................................................................................. 317
Figure ‎6-3 Long term increase in cost of mortgage payments due to holding costs (base case
scenario) ............................................................................................................................. 317
Figure ‎6-4 Generic Property Development Pipeline ........................................................................... 320
Figure ‎6-5 Research Stages and Project Timelines Gantt Chart.......................................................... 322

An Analysis of Holding Cost Impact on Housing Affordability in Relation to Midsized Greenfield Residential
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xii

List of Tables

Table ‎2-1 House Prices: Eight Capital Cities, Sep 2010 ....................................................................... 22
Table ‎2-2 Housing Price Potential Explanatory Independent Variable Matrix ..................................... 27
Table ‎2-3 Building Approvals, Australia (as at September 2010) ........................................................ 36
Table ‎2-4 Dwelling Commencements (last 12 months) - Australia ...................................................... 39
Table ‎2-5 Number of dwelling units commenced, Australia & Queensland: Correlation
Coefficients for Polynomial trend regression equations....................................................... 43
Table ‎2-6 Change in the Housing Supply Gap – Australia & Australian States ................................... 51
Table ‎2-7 No. of Households – Australian States (Reflecting Change in Underlying demand for
Housing) ............................................................................................................................... 52
Table ‎2-8 Gap between underlying demand and dwelling supply: 5 Year Projection (Australia,
2009-2014) ........................................................................................................................... 54
Table ‎2-9 Gap between underlying demand and dwelling supply: 20 Year Projection
(Australia, 2009-2029) ......................................................................................................... 56
Table ‎2-10 Housing affordability comparison of Australian Capital cities against others. ................... 63
Table ‎2-11 Costs (benefits) of poor (good) coordination between levels of government in a
planning and land development context ............................................................................... 65
Table ‎2-12 Comparison of EOQ Inventory Model against Property Development Holding
Costs ..................................................................................................................................... 88
Table ‎2-13 Derivation of financial gains foregone (the "best alternatives" for holding cash) .............. 97
Table ‎2-14 NHSC Development Pipeline (Summary) ........................................................................ 117
Table ‎3-1 Summary of links between research questions and research stages .................................... 131
Table ‎3-2 Concept of the cross sectional regression table .................................................................. 143
Table ‎3-3 Software utilised (not included in instruments) .................................................................. 149
Table ‎3-4 Instruments used in qualitative and quantitative analysis ................................................... 150
Table ‎3-5 Research project time-frame summary ............................................................................... 153
Table ‎3-6 Ethical clearance for low risk research involving human participants ................................ 158
Table ‎4-1 Holding Cost Economic Model – data input summary ....................................................... 164
Table ‎4-2 Developers Margins (Comparison of Case Studies and Base Case Scenario) .................... 168
Table ‎4-3 Selling costs (Comparison of Case Studies and Base Case Scenario) ................................ 168
Table ‎4-4 Mean and median household income comparison .............................................................. 173

Table ‎4-5 Holding costs over time (per lot basis - base case scenario) ............................................... 175
Table ‎4-6 Economic Analysis to Examine the Sensitivity of Time on a Development Project –
Gross realisation required to cover holding costs (per lot basis) ........................................ 176
Table ‎4-7 Holding Costs: Mortgage equivalents ................................................................................. 177
Table ‎5-1 Case Studies overview ........................................................................................................ 197
Table ‎5-2 Case Study Comparisons: Summary Data .......................................................................... 200
Table ‎5-3 Case Study quantitative data summary (gross - prior to adjustments) ................................ 201
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Table ‎5-4 Case Study quantitative data summary (per lot - prior to adjustments) .............................. 201
Table ‎5-5 Case Studies: variations in lot cost components as a percentage of gross realisation ......... 202
Table ‎5-6 Case Study population statistics: variations in cost components as a percentage of
gross realisation .................................................................................................................. 202
Table ‎5-7 Respondent Industry Association Groups ........................................................................... 211
Table ‎5-8 Organisational Doubling up in the population sample ........................................................ 212
Table ‎5-9 Recalculated response rates based on eDA tool user adjustments & organisational
"doubling up" ..................................................................................................................... 213
Table ‎5-10 Estimate of Town Planner & Developer Organisations in Queensland ............................ 213
Table ‎5-11 Town Planners & Developers in Queensland and Comparison with Survey
Respondents ....................................................................................................................... 214
Table ‎5-12 Town Planners & Developers in SE Queensland .............................................................. 214
Table ‎5-13 Town Planners & Developers in SE Queensland using eDA Tools .................................. 214
Table ‎5-14 eDA Usage and awareness ................................................................................................ 218
Table ‎5-15 Cost of Staff Time (all respondents) ................................................................................. 229
Table ‎5-16 Time Saving Calculation: DA Preparation (all respondents) ............................................ 229
Table ‎5-17 Cost of Staff Time (Developers) ....................................................................................... 231

Table ‎5-18 Time Saving calculation: DA Preparation (Developers) ................................................... 231
Table ‎5-19 Time Saving: DA decision ................................................................................................ 234
Table ‎5-20 Calculation of Time saved for a DA Decision as a result of Using eDA tools ................. 234
Table ‎5-21 Time Saving: DA decision (Developers) .......................................................................... 234
Table ‎5-22 Calculation of Time saved for a DA Decision as a result of Using eDA tools
(Developers) ....................................................................................................................... 235
Table ‎5-23 Holding Cost estimate categories ...................................................................................... 241
Table ‎5-24 Holding Costs Estimate (all costs) .................................................................................... 243
Table ‎5-25 Daily Holding Cost Comparison – Survey data and case studies ..................................... 244
Table ‎5-26 Holding Cost Calculation - low, medium, high estimates ................................................. 244
Table ‎5-27 Holding costs estimates - all costs (developers)................................................................ 245
Table ‎5-28 Holding Cost Calculation - low, medium, high estimates (Developers) ........................... 246
Table ‎5-29 Proportion of holding costs due to DA assessment ........................................................... 250
Table ‎5-30 Calculation of the impact of the DA process on holding costs ......................................... 250
Table ‎5-31 Proportion of holding costs due to DA assessment (Developers) ..................................... 251
Table ‎5-32 Calculation of the impact of the DA process on holding costs (Developers).................... 251
Table ‎5-33 Passing on Holding Costs to end users - response from different cohorts indicating
they are mostly passed on ................................................................................................... 254
Table ‎5-34 Passing on Holding Costs to end users – ―rarely‖ response from different cohorts .......... 254
Table ‎5-35 Major activities in the property development timeframe: groupings for case study
data and input to the Holding Cost Economic Model......................................................... 265
Table ‎5-36 Case Study activity timeframes detail ............................................................................... 266
Table ‎5-37 Case Study grouped activities timeframes ........................................................................ 267
An Analysis of Holding Cost Impact on Housing Affordability in Relation to Midsized Greenfield Residential
Property Developments in South East Queensland
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xiv


Table ‎5-38 Holding cost differences at varying interest rates ............................................................. 278
Table ‎5-39 Holding Costs differences at varying timeframes ............................................................. 279
Table ‎5-40 Effect of increased timeframes (2.5 years to 5 years) ....................................................... 280
Table ‎5-41 Initial approach for conducting ―what-if‖ scenario analysis (representation only
showing 5 of the 18 scenarios calculated for each variable) .............................................. 285
Table ‎5-42 – Sensitivity of factors impacting holding costs, and subsequent effect on housing
affordability ........................................................................................................................ 287
Table ‎5-43 Polynomial trend line equations summary for case studies and the Holding Cost
Economic Model base case scenario .................................................................................. 294
Table ‎6-1 Publications Output ............................................................................................................ 309
Table ‎6-2 Major assumptions and gross holding cost calculations: Base Case Scenario (30
months / 2.5 years total development time period) ............................................................ 314
Table ‎6-3 Generic Greenfield Property Development Pipeline & Impact of Time ............................. 319

xivAn Analysis of Holding Cost Impact on Housing Affordability in Relation to Midsized Greenfield Residential
Property Developments in South East Queensland


xv

List of Equations
Equation ‎2-1 Holding Period Return ..................................................................................................... 78
Equation ‎2-2 General formula for Present value ................................................................................... 91
Equation ‎2-3 Opportunity Cost ............................................................................................................. 91
Equation ‎2-4 Risk adjusted expected rate of return ............................................................................... 93
Equation ‎2-5 Capital Asset Pricing Model (CAPM) ............................................................................. 93
Equation ‎2-6 NPV and IRR ................................................................................................................... 95
Equation ‎2-7 PV of Future Cash Flows ................................................................................................. 95
Equation ‎2-8 Expected cost of holding money ...................................................................................... 97
Equation ‎2-9 Present Value (assuming continuous discounting) ........................................................ 100

Equation ‎2-10 Relative rate of change of the present value ................................................................ 100
Equation ‎2-11 Cost of equity .............................................................................................................. 102
Equation ‎2-12 Land Holding Cost....................................................................................................... 121
Equation ‎3-1 Linear (two variable regression) form ........................................................................... 139
Equation ‎3-2 Polynomial form ............................................................................................................ 140
Equation ‎3-3 Exponential form ........................................................................................................... 140
Equation ‎3-4 Logarithmic (semilog) form .......................................................................................... 140
Equation ‎3-5 Multiple linear regression analysis form ....................................................................... 141
Equation ‎4-1 General compound interest rate conversion .................................................................. 169
Equation ‎4-2 Effective Annual Interest rate for 90 Day bank Bills..................................................... 170
Equation ‎5-1: Holding costs and gross realisation (total).................................................................... 209
Equation ‎5-2: Holding costs and gross realisation (per lot) ................................................................ 209

An Analysis of Holding Cost Impact on Housing Affordability in Relation to Midsized Greenfield Residential
Property Developments in South East Queensland
xv


xvi

List of Abbreviations
AHURI

Australian Housing and Urban Research Institute

ALGA

Australian Local Government Association

DA


Development Application, or Development Approval, as appropriate

eDA

Electronic development assessment (planning) system

EOQ

Economic Order Quantity (inventory management model)

EPAA

Environmental Planning and Assessment Act

ERA

Excellence in Research for Australia initiative

GFC

Global Financial Crisis

GST

Goods and Services Tax

HAF

Housing Affordability Fund


HIA

Housing Industry Association Ltd, Australia

HPLGM

Housing, Planning and Local Government Ministers

IRR

Internal rate of return

LGA

Local Government Area

NHS

National Housing Strategy

NHSC

National Housing Supply Council (Australia)

NSW

New South Wales

PCA


Property Council of Australia

PIA

Planning Institute of Australia

PIP

Priority Infrastructure Plans (Queensland)

PV

Present Value

RDC

Residential Development Council

QHAS

Queensland Housing Affordability Strategy

QLD

Queensland

SEQRP

South East Queensland Regional Plan


UDA

Urban Development Area, as administered by the ULDA

UDIA

Urban Development Institute of Australia

ULDA

Urban Land Development Authority (Queensland)

UK

United Kingdom

US

United States

VG

Valuer-General

xviAn Analysis of Holding Cost Impact on Housing Affordability in Relation to Midsized Greenfield Residential
Property Developments in South East Queensland


xvii


Statement of Original Authorship
The work contained in this thesis has not been previously submitted to meet
requirements for an award at this or any other higher education institution. To the
best of my knowledge and belief, the thesis contains no material previously
published or written by another person except where due reference is made.

Signature:

_________________________
GARY OWEN GARNER

Date:

_________________________

An Analysis of Holding Cost Impact on Housing Affordability in Relation to Midsized Greenfield Residential
Property Developments in South East Queensland
xvii


xviii

Acknowledgments
Primarily, I wish to acknowledge the invaluable assistance and mentoring
provided by my Principal Supervisor, Professor Chris Eves, and Associate
Supervisor, Professor Douglas Baker. I also acknowledge assistance provided by
other colleagues and staff of Queensland University of Technology (QUT), including
Confirmation of Candidature Panel members (comprising Principal and Associate
Supervisors, and Associate Professor Bambang Trigunarsyah), as well as staff of

QUT‘s Built Environment & Engineering Research Portfolio Office and in particular
the Higher Degree Research (HDR) Student Support team. Such persons have
provided an amazing array of helpful support over the years. I have also appreciated
feedback and counsel from a number of colleagues within the Property Economics
discipline of QUT‘s School of Urban Development: they have been an important
―sounding‖ board for many of the ideas and concepts contained in this thesis.
A number of external organisations have also proven very helpful. Special
mention is made in relation to extensive cooperation and assistance provided by staff
of the Housing Affordability Programme in Queensland, in particular Mr Todd
Wellard. In addition, this research could not have been undertaken without the
support of a number of property development organisations who during the course of
this investigation participated in surveys, and / or kindly provided an array of internal
confidential company records including case study data and other material. Their
names and organisational details must remain anonymous for reasons of
confidentiality; however their contribution has been invaluable.
I thank my wife Nicole for her incredible support throughout; also, the support
and encouragement of my good friend and confidant Reverend Dr Apichart
Branjerdporn.
Finally, this thesis is dedicated to the memory of Jamie-Lee Belinda Garner,
Adam Timothy Garner, and Danielle Lyn Garner.

xviii
An Analysis of Holding Cost Impact on Housing Affordability in Relation to Midsized Greenfield
Residential Property Developments in South East Queensland


Chapter 1: Introduction
This thesis investigates the impact of holding costs on housing affordability.
Holding costs can take many forms, but they invariably revolve around an
assessment of ―carrying costs‖ related to capital outlays. The cost of carrying is

determined over that period existing until a yield can be fully realised (and therefore
costs recovered) at a future point in time. Capital outlays in this instance relate to
amounts expended in the course of undertaking a midsized (15-200) lot, residential
greenfield property development in South East Queensland. Therefore, the findings
in this study are limited to those parameters even though it is possible that the
outcomes have application outside this specification.
Identifying and understanding the elements or components of holding costs
facilitates the ability to develop a model that enables quantification of the impact of
holding costs on housing affordability. Aside from obvious linkages with elements
such as interest rates and inflation, this process involves quantifiably connecting with
other related aspects such as the length of regulatory assessment periods. Ultimately,
this provides a suitable foundation for exploring whether or not these costs, either in
total or in part, are actually passed on, and to whom.
Despite the quantum and high economic impact of related statutory
intervention by policy makers, the extent and importance of these of effects are either
not well understood, or at the very least a better understanding is required (Gurran et
al., 2009, p. 41; 2010; Gurran et al., 2008b, pp. 39,70,79; Matthew et al., 2010, p. 16;
Randolph, 2007; UDIA, 2010c; ULDA, 2010). One of the major reasons for this is
because conducting research in this area is typically difficult due to the lack of baseline information – i.e. highly sensitive commercial-in-confidence data that is tightly
held by major industry players (a problem well documented by researchers, e.g.
Gurran et al., 2009, p. 22). Furthermore, there has been little evidential material
identifying to whom the burden of these effects are passed (Gurran et al., 2009, pp.
9,51,59; Matthew et al., 2010, p. 9; UDIA, 2010c, p. 17). This research fills an
information void that exists in relation to these matters, ultimately assisting strategic
intervention by policy-makers concerned the issue of housing affordability and
various aspects related to development holding costs.

Chapter 1: Introduction

1



2

This chapter outlines the background (section 1.1) and context (section 1.2) of
the research, and its purposes (section 1.3) which also contains detail of the research
questions addressed by the remaining chapters of the thesis. Finally, Section 1.4
describes the significance and scope of this research and provides definitions of
terms used.

1.1

BACKGROUND
The author‘s current main research interests and involvement cover a wide

range of topics, including: displacement of industries, and industry change in rural
areas; population demographic analysis, particularly older age cohorts and propensity
for rural exodus; large scale (―state significant‖) projects; rural valuation practice and
methodologies; and housing affordability. However, it is the latter research topic
mentioned that is a matter of significant current social concern, obviated, inter alia,
by the substantial volume of related literature and political / social commentary that
abounds. Therefore, an investigation into aspects of this is considered a worthy
undertaking based on its apparent obtrusiveness into mainstream Australian society.
This has been the primary motivation behind selecting the research program for this
dissertation.
Housing affordability issues essentially revolve around increasing disparities
between incomes and housing costs. The significance of housing affordability in an
Australian context is not new – it can be traced back several decades. However, its
recurrence as a major concern is gaining increasing prominence in the Australian
socio-economic landscape (Allmendinger et al., 2005, pp. 5,25-26; Berry, 2002a;

Burke, 2004; Cox, 2007; Department of Families Housing Community Services and
Indigenous Affairs, 2010a; Eagles, 2008; Earl et al., 2008; Gurran et al., 2007;
Harris, 2009; HIA, 2003, 2007; HIA & Commonwealth Bank, 2007; Housing
Affordability Fund Consultation paper, 2008; Lawson & Milligan, 2008;
Macroplan/PCA, 2007; Making housing affordable again, 2008, pp. 4, 8-9; Milligan
et al., 2007; PCA, 2006; Queensland Housing Affordability Strategy, 2007, pp. 1-2;
Randolph, 2007; Rudd, 2008; Small, 2009; UDIA, 2008b; Wood & Ong, 2009b;
Yates, 2007c; Yates et al., 2007). This is despite a lengthy period of relatively strong

2

Chapter 1: Introduction


3

economic growth and prosperity, and more recently, a manoeuvring through the
Global Financial Crisis (GFC) (Stevens, 2010). Its importance has captured the
attention of the wider population, with the issue ranking highly across the broader
political agenda. The need to provide affordable housing to meet the expectations of
burgeoning populations, particularly young people, first home owners and the
socially disadvantaged is fundamental to maintaining stability of families and
households and supporting an acceptable standard of living. Aside from maintaining
essential structures that support social networks (Berry, 2002a), there are many other
reasons that lie behind addressing the issue. It is, for example, widely acknowledged
as an important consideration for any new development, playing a vital role in
fostering industry and employment (Burke et al., 2007, pp. 1, 13, 21, 42, 51, 63, 103;
Forster, 2006, pp. 174, 177; Macklin, 2008; PCA, 2010; Small, 2009; Solutions,
2007, pp. 3, 31, 35, 38-39; UDIA, 2008a, pp. 1, 7-8; "What is 'affordable housing'?,"
2007). This aligns with the converse situation, whereby, as well stated by Burke

(2007, p. 112), even modest rises in unemployment…―will have significant
ramifications‖ and ―has the potential to affect the housing market and economy‖.
Other commentators (e.g. PCA, 2010) go even further by suggesting that a major
reduction in economic output (Gross State Product) would be considerably
exacerbated by the social consequences of higher unemployment, because of the
impact on the property and construction industry sectors ―so vital to our social and
economic wellbeing‖.
Although there is a considerable body of literature evolving in relation to
welfare aspects and various theories and concepts related to housing affordability
(examples include Burke, 2004; Burke et al., 2007; Commonwealth Bank & HIA,
2003; Cox & Pavletich, 2010; Department of Families Housing Community Services
and Indigenous Affairs, 2010a; Department of Infrastucture & Planning, 2008; Earl
et al., 2008; Forster, 2006; Harris, 2009; Jones et al., 2007; Karantonis, 2009; Katz et
al., 2003; Lawson & Milligan, 2008; Making housing affordable again, 2008;
Milligan, 2007; Milligan et al., 2007; PCA, 2006, 2007, 2008; Powell & Stringham,
2004; Schwarten, 2007; Small, 2009; Stewart, 2008; Tanton et al., 2008; UDIA,
2007; Wood & Ong, 2009b, 2010; Yates, 2007a, 2007b, 2007c; Yates et al., 2007;
Yates et al., 2006a; Yates et al., 2006b), there has been limited work completed on
the delivery side of the equation. This includes holding costs, a facet hitherto given

Chapter 1: Introduction

3


4

less attention in the literature. It is of particular interest given the volatility of
property markets, where the expectations of property developers and property owners
do not always align very easily. The determination of aspects related to this may

prove enlightening – i.e. which, if any, are real, and which, if any, are just
perceptions?

1.2

CONTEXT – RESEARCH PROBLEM
It is widely held that strong relationships exist between housing, economic

status, and well being (Australian Industry Group, 2010; Bourassa, 1988; Burke et
al., 2007; Claessens et al., 2010; Cunningham, 2005; Eccles et al., 1999; Ellis, 2010;
Forster, 2006; Glaeser et al., 2008; Gurran et al., 2007; Haslam-McKenzie et al.,
2009; Himmelberg et al., 2005; Johnston et al., 2003; Karantonis, 2009; PCA, 2010;
Renne, 2005; Richards, 2009; Riddell et al., 2011; Small, 2009; UDIA, 2010b;
Walker et al., 2008; Wood & Ong, 2009b). This is exemplified by widespread
housing stock surpluses in many countries which threaten to destabilise numerous
aspects related to individuals and community. However, housing demand and supply
varies from region to region, and in the case of Australia the reverse scenario exists:
an overall shortage of housing in many capital and regional cities underpins
relatively buoyant residential housing prices (Haslam-McKenzie et al., 2009;
Macklin, 2008; Rollins, 2010). Nonetheless, the ultimate effect of this can be the
same as surplus housing stocks – that is, the destabilisation of individuals and
community (Bell, 2007; COMSEQ, 2008; Johnston et al., 2003; Making housing
affordable again, 2008; "What is 'affordable housing'?," 2007). Furthermore, if
incomes cannot keep pace with buoyant or rising residential property prices and / or
rental values, a strong housing demand level can have the effect of exacerbating
problems related to housing affordability since there is an increasing gap between
private earning levels and the price of residential accommodation.
The issue of housing affordability is multi-dimensional. The growing body of
literature on the subject (refer to various examples in the previous section - 1.1
Background) has identified many factors associated with housing affordability.

These include macro structural / micro-behavioural variables such as interest rates,
construction cost, income levels, buyer‘s decision, intentions, land supply, housing

4

Chapter 1: Introduction


5

prices, and a range of other factors. The matter has many facets, is complex, and
interwoven.
It is emerging that an important factor impacting housing affordability, having
particular application in the case of new housing ―greenfield‖ development, is that
relating to holding costs. Although perhaps in some ways less transparent than other
factors, holding costs have been widely held to impact housing affordability (Barnes,
2007; Bourassa, 1992; Brown et al., 1986; Çorbacıoğlua & van der Laan, 2007;
Department of Families Housing Community Services and Indigenous Affairs,
2010a, 2010b; Eagles, 2008; Gurran et al., 2008a, pp. 42, 58, 128; Gurran et al.,
2009, pp. 30-31, 63-64; Gurran et al., 2008b, pp. 2, 5-6, 29, 40, 52-53, 56-57, 71-72;
Housing Affordability Fund Consultation paper, 2008; Marshall, 2010; Set, 2007;
Tse, 1998, pp. 1, 6-7; ULDA, 2009, 2010; Yardney, 2007): it may be readily seen
that this assertion, over time, is well established in the literature. Crucially, whilst
acknowledged to be only one contributor to the problem of housing affordability, the
scope and nature of its impact requires clarification. Although related to land banking
behaviour often exercised by both the public and private sector, it is much more
multifarious than simple calculation of the interest cost, or opportunity cost, of long
term land holding.
There are potentially a multitude of significant costs associated with ―holding‖
that inevitably act to drive up prices, and therefore impact housing affordability.

These costs cannot always be easily identified, however ultimately the real impact is
felt by those whom can least afford it - new home buyers who obtain finance: their
mortgage repayments can be relatively easily pushed into the realms of unaffordability.
One of the problems in examining holding costs is that they cannot always be
easily identified. Perhaps this may in part be explained by their nature: 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 typically incorporated as a
part of overall cost categories, or even excluded especially where capital outlays are
derived from invested, rather than borrowed, funds. In this sense they can be a
―hidden‖ component. In its simplest form, it commences with a calculation of the
interest or opportunity cost of land holding. However, there is significantly more

Chapter 1: Introduction

5