Applying quantitative techniques to evaluate residential development profitability

Within the property industry, research using regression analysis has focussed on the estimation of land value. Much of this research has been conducted in the United States where it is not uncommon for this technique to be employed as a primary method of property value estimation. Within Australia however, research has looked at the use of this analysis technique as an alternative method for mass statutory valuation assignments. The existing research has identified a number of physical property attributes critical to the assessment of property value. Recognition of the importance of consumer preference has been made in passing however, little attempt has been made to explicitly include these characteristics within valuation or price estimation models. This paper utilises quantitative techniques not as a conventional valuation or price estimation tool, but as a tool to understand the impact on net development profit of alternative urban design solutions within a residential development. It takes the present research a step further and extends it by applying Factor Analysis to derive variables representative of consumer demand for inclusion within conventional regression analysis. The results indicate that deriving consumer preferences through the techniques employed does contribute to a better understanding of demand criteria for residential housing lots. The factors extracted provide useful insights into buyer preferences. The factors are specific to a particular subdivision and may not be applied generally.