MODEL COMPONENTS

External factors, such as local government requirements and concerns, market conditions, unforeseen events and conditions - acting separately or in combination with others - can and do exert significant influences on building development costs (Shane et al., 2009). The research model development has been drawn from the literature. It was found from a review of the literature – and verified during pilot interviews - that building development cost comprises seven major components: project component cost factor (PCC), project

character related factor (PCR), project stakeholders’ influences (PSI), property market and

construction industry factor (PMCI), statutory and regulatory factor (SRF), national and global dynamics (NGD), and socio-economic factor (SEF). The empirical study measured the indicators for each set of factors. The measured indicators were the observed variables. The factor-sets are latent constructs. The seven latent constructs and their indicators numbering up to 45 comprise the research model. These are listed in Table 3.1.

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Table 3.1 Latent constructs and corresponding indicators [Source: varied sources]

Factors Indicators Source Reference

Project component cost factor (PCC)

Procurement cost (PCC1) Construction cost (PCC2) Design cost (PCC3)

(Crompton & Howard, 2013); (Griffis & Choi, 2013)

Project characteristics factor (PCF) Project location (PCF1) Project complexity (PCF2) Procedures methods (PCF3) Contract types (PCF4) Technological innovations (PCF5)

(Love et al., 2005); (Harbuck, 2004); (Qureshi & Kang, 2015) Project stakeholders’ influences (PSI) Clients (PSI1) Consultants (PSI2) Contractors (PSI3) Suppliers (PSI4) Building officials (PSI5)

(Iyer & Jha, 2004); (Wright, 1997); (Naoum, 2003); (Ng et al., 2008)

Property market and construction industry factor (PMCI)

Material market (PMCI1) Labour market (PMCI2) Level of competition (PMCI3) Market structure & size (PMCI4) Boom and bust cycle (PMCI5) Supply and demand (PMCI6) Investment tendencies (PMCI7) Housing prices (PMCI8)

(Akintoye, 2000); (Chang, 2002);(Grimes & Hyland, 2013b); (Shane et al., 2009)

Statutory and regulatory Factor (SRF)

Building code & compliance (SRF1) Health & Safety regulations (SRF2) Political policies (SRF3)

Financial regulations (SRF4) Construction Contract Act (SRF5)

(Mayer & Somerville, 2000); (Myers, 2013); (Gundes, 2011);(Vincent &

Monkkonen, 2010); (Lyons, 2014); (Mumford, 2011); (Stephan & Crawford, 2016); (Titaya, 2016)

National and Global Dynamics (NGD)

Global political dynamics (NGD1) National forces (NGD2)

Global economic trends (NGD3) Global business sentiments (NGD4)

(Chang, 2002); (NZIER, 2014); (García, 2005); (Cesa- Bianchi, 2013); (Alagidede, 2016) Socio-economic factor (SEF) GDP(SEF1) CGPI (SEF2) CPI (SEF3) PPI (SEF4) PI (SEF5) LCI (SEF6)

Net Migration (SEF7) Employment rate (SEF8) House prices (SEF9) Building consents (SEF10) Energy prices (SEF11) Exchange rate (SEF12) Monetary policies (SEF13) Investor confidence (SEF14) Fiscal policies (SEF15)

(Myers, 2013);(Xu et al., 2015); (Kosla, 2015); (Kaklauskas et al., 2011); (Balló, 2016); (Wier, 2000); (Akintoye et al., 1998)

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3.2.1 Influences of project component costs factor on BDC

The project component cost includes design, document and tendering cost, construction cost and procurement cost (Crompton & Howard, 2013). While linking the project component cost to building development cost, many studies have identified high design cost at the pre-tender stage as one of the key indicators driving up the total project component cost (Turner&Townsend, 2016). Moreover, construction and procurement costs have been identified as key contributors to project component costs in New Zealand (MBIE, 2013b; Page, 2008).

The construction industry is a multi-disciplinary sector that comprises varied stakeholders, so project component cost can be influenced by a large number of stakeholder-related factors. The key factors might change with different types or locations of the projects. However, the project component costs as investigated in this study did not discriminate based on the underlying factors such as locations and types of projects.

Hypothesis 1

Based on the above insights gained from the literature, the study hypothesized as follows: H1: Project component cost factor (PCC) significantly contributes to the

building development cost in New Zealand.

3.2.2 Influences of project characteristics factor on BDC

Project characteristics involve project location and project complexity, procedures methods, contract types and technological innovations. These vary for different projects (Auer et al., 2006). Many types of research have been done to investigate the relationship between the project characteristics factor and the building development cost. A study conducted by Akintoye (2000), describing the factors influencing building development cost in the UK, surveyed 84 UK contractors. The result stated that the project

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characteristics factor is a main factor that has impacts on the building development cost. Moreover, other published research has also indicated that project characteristics factor play an important role in the construction projects (Love, 2002).

Hypothesis 2

Based on the above literature, this study hypothesized as follows:

H2: Project characteristics factor (PCF) significantly influences the building development cost in New Zealand.

3.2.3 The impacts of stakeholders’ influences factor on BDC

Influence from clients, consultants, contractors, suppliers and building officials all contribute to the stakeholders' influence factor. As far as the stakeholders are concerned, their influences are the key factors affecting building development cost. Research has studied 69 cases generating the result that the stakeholders' influence factors can significantly affect the building development cost (Olander & Landin, 2005). All the project work conducted is ultimately for the benefit of the stakeholders, so their importance cannot be overemphasized (Cunningham, 2013). The stakeholders' influences contribute much to the building development cost as they are involved from the pre-design stage to the final usage of the building. Every decision they made during the building’s progress might have significant effects on the building development cost. Moreover, a study conducted in Kenya that collected both qualitative and quantitative data, stated that stakeholders' influences are the paramount factors for a project’s cost performance (Nyandika & Ngugi, 2014).

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Hypothesis 3

Based on the information provided from the literature, the study hypothesized as follows:

H3: Project stakeholders’ influence factor (PSI) has a significant effect on the

building development cost in New Zealand

3.2.4 Influences of property market and construction industry factor on BDC

The indicators including material market, labour market, the level of competition, market structure and size, boom and bust cycle, supply and demand relationship, and investment tendency are all considered as the measured variables for the property market and construction industry factor (PMCI). Any one of these indicators can have a significant effect on the property market and the construction industry due to the fact that they are able to impose a strong influence on resource allocation in the property market and construction industry (Watson, 2013). The fragmented nature and the restricted access to material and labour both hamper the growth of the construction industry in New Zealand (Vaughan, 2016). A low level of technological demand in the private building sector has led to the easy entry which exists in the construction industry, and then the intense competition between contractors imposes risks on the construction industry (Ball, 2006). Moreover, construction is always considered as a cyclical industry which is highly influenced by the boom and bust cycle, the relationship between supply and demand, and investment tendencies (Parke & Warren, 2014). In addition, the relationship between supply and demand is also a key determinant of the property market (RBNZ, 2013).

An analysis of the questionnaire survey that has been conducted in the UK identified that the property market and the construction industry factor both significantly affect building development cost (Elhag et al., 2005). Moreover, other research also indicated that property market and construction industry factor can impose significant effects on building

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development cost - after analysis of a questionnaire conducted in Malaysia ranking 79 indicators (Toh et al., 2012).

Hypothesis 4

Therefore, based on the above existing literature the study hypothesized as follows:

H4: Property market and construction industry factor (PMCI) has a significant effect on the building development cost in New Zealand

3.2.5 Influences of statutory and regulatory factor on BDC

The indicators, which include building code and compliance, health and safety regulations, political policies, financial regulations and construction contract acts, are considered to be statutory and regulatory factor (SRF). The statutory and regulatory regime composed of these indicators imposes the restriction on the projects operated by them; these can significantly influence the building development cost of the project (Grimes & Mitchell, 2015). Existing research also explored the fact that the regulation regime, including a wide range of government, state and local regulations, building codes, land use laws, and regulations related to fees, places lots of pressure on the projects and generates substantial costs (Schill, 2005).

Hypothesis 5

Therefore, according to the above explanation, the study hypothesized as follows:

H5: Statutory and regulation factor (SRF) has a significant effect on the building development cost in New Zealand

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3.2.6 Influences of national and global dynamics factor on BDC

National and global dynamic factor includes indicators such as global political dynamics, natural forces, global economic trends, and global business sentiments. The global influence sources that can affect New Zealand's building development cost are largely from overseas financial markets and global commodity prices (The Treasury, 2009). If the demand for New Zealand's commodities remains weak or there is a tightening of credit conditions in overseas financial markets, both businesses and households will be adversely affected. These factors will also have significant effects on the building development cost (Grimes & Hyland, 2013a).

A drought occurred in the summer of 2007/2008 causing a sharp decrease in dairy production in the first half of 2008 (DBH, 2009). Subsequent high prices for food and fuel along with high-interest rates and falling housing prices dampened domestic consumption. The situation deteriorated with the arrival of the GFC in September 2008; the local banking sector had limited access to overseas funding. This GFC lasted around 15 months and, until now, the economy in New Zealand has been in a slow recovery with a moderate increase in GDP (Richardson, 2015). Unexpected events occurring nationally and internationally will pose lots of risks to the construction industry, and these, in turn, yield substantial costs.

Hypothesis 6

According to the above existing research, the study hypothesized as follows:

H6: National and global dynamic factor (NGD) has a significant effect on the building development cost in New Zealand

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3.2.7 Influence of socio-economic factor on BDC

The socio-economic factor includes GDP, CGPI, CPI, PPI, PI, LCI, net migration and population growth, employment rate, house prices, building consents, energy prices, exchange rate, monetary policies, investor confidence, and fiscal policies. All of these can have significant effects on the whole socio-economic situation. Construction projects conducted within socio-economic environments will be influenced on many levels, and these generate high costs. A study stated that the socio-economic factor has a significant effect on building development cost, as highlighted by questionnaire analysis (Iyer & Jha, 2004). Moreover, research also considers that socio-economic factor can significantly influence building development cost after correlation analysis (Akanni et al., 2014).

Hypothesis 7

According to the above existing literature, the study hypothesized as follows:

H7: Socio-economic factor (SEF) has a significant effect on the building development cost in New Zealand