eres2010_130_Henneberry_MODELLING_THE_RELATI(16)

The paper describes the development and application of physical-financialmodelling techniques to the analysis of relations between development design –covering the broad characteristics of a scheme, such as land use mix, developmentdensity and built form – and financial viability. It is divided into two parts

(constant apartment prices)

a) Total Value, Cost and Residual

b) Average and Marginal Revenue and Cost

If the assumption regarding the relation between the price of an apartment and its height is altered, then the optimum height/development density will change. Were price to increase by +2% per floor (following Chau et al (2007) in principle, rather than empirically), then the results would be as in Figures 9a and 9b. Construction cost no longer diverges from development value and the highest residual occurs at 13 storeys.

Figure 9: The Relation between Building Height and Financial Viability (apartment prices increase at +2% per floor)

a) Total Value, Cost and Residual

b) Average and Marginal Revenue and Cost

In circumstances where price decreases by -2% per floor (following the assumptions of mainstream economics), then the results would be as in Figures 10a and 10b. There is a sharper divergence between value and cost; and positive residuals only occur for buildings of less than six storeys. A feature of Figures 8-10 is their marked difference from the smooth curves of general theory depicted in Figure 4.