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The influence of uncertainty on house builder behaviour and residential land values

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  • Chris Leishman
  • Colin Jones
  • Will Fraser

Abstract

House builders are the interface between the land and housing markets, determining present land values by forecasting future house prices and construction costs. The literature establishes that land values are derived from house prices and construction costs but that this relationship may be altered by uncertainty, yet very little analysis has been provided to establish this empirically. A model of house builder behaviour is proposed and tested through detailed empirical analysis of a sample of private house building projects. Methods of estimating the development values and costs associated with individual sites are set out and rates of achieved profit are estimated. Using simulation methods, the paper demonstrates the effects of house builders' forecasting behaviour on land values, and evidence is presented that house builders' behaviour in the land and housing markets depresses the price of land. It is concluded that house builders tend to forecast conservatively with the result that land is undervalued.

Suggested Citation

  • Chris Leishman & Colin Jones & Will Fraser, 2000. "The influence of uncertainty on house builder behaviour and residential land values," Journal of Property Research, Taylor & Francis Journals, vol. 17(2), pages 147-168, January.
    • Handle: RePEc:taf:jpropr:v:17:y:2000:i:2:p:147-168
    DOI: 10.1080/095999100367967
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    References listed on IDEAS

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    1. Alan W. Evans, 1995. "The Property Market: Ninety Per Cent Efficient?," Urban Studies, Urban Studies Journal Limited, vol. 32(1), pages 5-29, February.
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    Cited by:

    1. Nicholas R Magliocca & Daniel G Brown & Virginia D McConnell & Joan I Nassauer & S Elizabeth Westbrook, 2014. "Effects of Alternative Developer Decision-Making Models on the Production of Ecological Subdivision Designs: Experimental Results from an Agent-Based Model," Environment and Planning B, , vol. 41(5), pages 907-927, October.
    2. Ali Azadeh & Mohammad Sheikhalishahi & Ali Boostani, 2014. "A Flexible Neuro-Fuzzy Approach for Improvement of Seasonal Housing Price Estimation in Uncertain and Non-Linear Environments," South African Journal of Economics, Economic Society of South Africa, vol. 82(4), pages 567-582, December.
    3. O’Brien, Philip & Lord, Alex & Dembski, Sebastian, 2020. "How do planners manage risk in alternative land development models? An institutional analysis of land development in the Netherlands," Land Use Policy, Elsevier, vol. 91(C).

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