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Overcapitalization and cost escalation in housing renovation

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  • Ti-Ching Peng

Abstract

This paper aims to show how housing renovation projects, for example such infamous projects as the Sydney Opera House or Euro Tunnel, may take considerably more time and money than budgeted. The author presents empirical results based on the primary data collected from 280 survey-recruited renovators in 2006 and 2007, in Brisbane, Australia. The paper examines what makes renovators end up with overcapitalization (i.e. spending more than what can be recouped via the value of property) and cost escalation (i.e. keeping spending beyond the estimated expenditure) in a pluralistic approach combining the theories of mainstream economics and behavioural economics.

Suggested Citation

  • Ti-Ching Peng, 2011. "Overcapitalization and cost escalation in housing renovation," New Zealand Economic Papers, Taylor & Francis Journals, vol. 45(1-2), pages 119-138.
    • Handle: RePEc:taf:nzecpp:v:45:y:2011:i:1-2:p:119-138
    DOI: 10.1080/00779954.2011.556074
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    References listed on IDEAS

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    3. H. Leibenstein, 1950. "Bandwagon, Snob, and Veblen Effects in the Theory of Consumers' Demand," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 64(2), pages 183-207.
    4. Arkes, Hal R. & Blumer, Catherine, 1985. "The psychology of sunk cost," Organizational Behavior and Human Decision Processes, Elsevier, vol. 35(1), pages 124-140, February.
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    Cited by:

    1. Ti-Ching Peng, 2013. "An Institutional Economic Analysis of the Decision to Do-it-yourself in Housing Renovation," Urban Studies, Urban Studies Journal Limited, vol. 50(9), pages 1796-1816, July.

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