Dwelling prices are determined in the long run by the total costs of a development, where costs include regulatory costs, including costs of delay and uncertainty.
We outline a conceptual framework for the development process and then develop a real options model of housing development that indicates more formally how regulatory policies and regulatory practices affect development decisions. We apply these insights to the design of a survey of property developers active in the Auckland market, with an emphasis on the "affordable" part of the market.
In surveying developers, we aim to elicit their views regarding the impacts that planning rules and regulations have on total development costs. We do not attempt to value the corresponding benefits of the planning rules and regulations, so this study is not a cost: benefit analysis of council planning approaches; rather it documents the costs of the rules and regulations - as perceived by developers - to provide a basis for benefits to be compared.
Almost 90% of surveyed developers have been affected by delays or uncertainties related to regulation. Regulations that have had major effects on the actual building costs of apartments include:
building height limits,
conforming to Council's desired mix of apartment typologies and
minimum floor to ceiling heights.
Major cost effects on developing residential sections and standalone dwellings include:
infrastructure contributions not related to the specific development,
section size requirements,
extended consent processes and
urban design considerations stemming from Council's urban designers.
Reserve and development contributions and Watercare levies affect the costs of both types of development.
Excluding the cost of Watercare and reserve and development contributions, the typical cost range of the total impact of regulations is estimated to vary between $32,500 and $60,000 per dwelling in a subdivision. In terms of affordable apartments, assuming the total internal floor area remains the same and no deck is built, the impact on total cost typically is estimated to range between $65,000 and $110,000 per apartment.