Cost Engineering Assignment 1: Feasibility Analysis of Housing Project

This report presents a feasibility analysis of the Housing Choices Association, evaluating the financial viability of a proposed housing project. The analysis incorporates financial modeling, sensitivity analysis to assess the impact of various factors, and life cycle cost analysis. The financial analysis examines project costs and revenue streams, highlighting the profitability of the project. The sensitivity analysis explores the effects of independent variables on project outcomes, while the life cycle cost analysis assesses overall costs over the project's lifespan. Recommendations are provided, including the incorporation of inflation, cost escalation, and tax structures to enhance the accuracy of the analysis. The report concludes that the project is viable with the recommended changes, offering valuable insights for architects, development managers, and other professionals involved in new housing projects.

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Executive Summary
The aim of this report is to conduct a feasible analysis of Housing Choices Association. The
report has used various models for feasibility analysis which includes financial analysis,
sensitivity analysis, and life cycle cost analysis. In financial Analysis the report has computed
cost and income earned from the project. The income of the project was majorly comprised of
rental income while in case of cost; dwelling expenditure was the major component for it. The
result for financial analysis suggested that the project is profitable. In case of sensitivity analysis,
the report has shown the impact of independent variables over dependent variables. The report
has provided theoretical analysis in sensitivity analysis; in this the report has assumed some
independent variables for example rental income earned from the project, dwellings sold by the
association, etc as independent variables. However in case of dependent variables, the report has
considered the profit earned from the dwelling project. In case of life cycle cost analysis, the
report had computed the overall cost analysis which can be possible during the tenure of the
project as per the assumption assumed for the report. For such analysis, the report had provided
some assumptions like ignore the effects of cost of escalation, inflation in computing the cost and
revenue for the association. The report has provided some recommendation, in which the report
had emphasized the use of inflation factors, cost of escalation, tax structure, etc. The report
concludes that after following recommendations recommended by the report the analysis will
depict a true picture for the housing project. The main reason behind the recommendations was
the huge time period involved which increased the use of recommendations as suggested in the
report such as inflation factor.

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Table of Contents
Executive Summary.........................................................................................................................1
Introduction......................................................................................................................................3
Assumption......................................................................................................................................4
Discussion........................................................................................................................................7
Recommendations............................................................................................................................8
Financial Analysis.........................................................................................................................10
Sensitivity Analysis.......................................................................................................................11
Life Cycle Costing Analysis..........................................................................................................14
Conclusion.....................................................................................................................................17
References......................................................................................................................................18

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Introduction
The following report is about the Housing Choices Association which is an Australian housing
company which provides houses to the citizens of Australia. The report provides a reference for
architects, development managers and other professionals who are involved in new housing
stock for Housing Choices Australia. The report follows case study in which it is mentioned that
the association has maximum 30 housing projects to sell to different customers which are
single/couple, disable person/elder persons and low-income persons. The report will be
providing some assumptions like no inclusion of cost of escalation, etc which will be considered
while doing analysis of the association. After considering the assumptions and discussion made
by the report, some recommendations have been given for the housing project. The
recommendations given are inclusion of the independent variable factors into analysis. The
report will also do sensitive analysis which will identify the effects of independent variables over
dependent variables. At last, the report also provides a life cycle cost analysis which includes all
kind of cost that is incurred by the association from beginning to the disposable of property.

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Assumption
Housing Choices Australia is a non-profit housing association that provides safe, affordable and
quality housing for people who are struggling to find a home in Australia. The rent charged by
this association is set at 25% of a person’s income and not more than 75% of market rent. It has
been assumed in the case study that in Australia, one and two-bedroom units are high in demand
in inner-city (Li, et al., 2016). The association has 1300 properties and 2400 tenancies in
Australia region. Approximate 1200 tenancies of the association prefer to live independently. In
case of disabled persons, the association has reserved 25% of its stock to accommodate them
flexible model housing. In absence of information it has been assumed that the rent charged is on
weekly basis, while basic facility charges and additional cost on monthly basis. Besides this the
report has assumed the purpose of making contingency that is to meet the requirements of
changes in independent variables this amount is reserved so that there will be no major effect on
the association’s operations (Koschinsky and Talen, 2016). However, while calculating the costs,
factors like inflation, cost escalation has been ignored. The association has assumed following
house allocations which are mentioned below:
Particulars No. of Bedroom Quantity Meter Sq Total Met Sq Cost
Independent Living
Units
1 7 50 350 17500
Independent Living
Units
2 8 65 520 33800
DDA Units 2 5 80 400 32000
Family Units 3 10 85 850 72250
Total Cost 155550

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In case of charging rent money as per week basis from the house seekers the association has
planned a structure which is as follows:
Income Received
Particular Weekly rent No. of weeks No of Dwellings Total Annual rent ($)
Market rent 1 bed 350 52 7 127400
Market rent 2 bed 390 52 13 263640
Market rent 3 bed 420 52 10 218400
Total Rent Charged 609440
In respect of charging basic facility charges on an annual basis, the association follows the
following structure:
Operating Assumption
Particular Charges Per Month Annual Charges
Council Rate 1200 14400
water rate 800 9600
Insurance 350 4200
Owner corporation 2500 30000
Responsive Maintenance 500 6000
Tenancy & Property Management 2000 24000
Total Maintenance Charges Received 88200

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The Association charges some additional cost from house owners related to facilities provided by
the association to the house owners that are as follows:
Additional Cost
Particulars Meter Sq Total
Met Sq
Cost Per Month Annual Cost
Entry Foyer 18 18 2000 24000
Office 24 24 1900 22800
Multi-Purpose Area 48 48 1800 21600
Store Room 30 30 1600 19200
Laundry 20 20 3000 36000
Residential Storage Units 2 60 1600 19200
Car Parking 200 2400
Plant & Utilities 60 60 60 720
Land 1200 5200 62400
Cost without design and contingency 208320
Design Fees 0.1 20832
Contingency 0.05 10416
Total Additional Cost 239568
Besides the above assumptions stated, for the sensitivity analysis, in absence of information, the
report has taken certain assumptions regarding independent variables which will affect the
dependent variables of the association. Here the independent variables in sensitivity analysis are
the variables which are outside the purview of the association, due to this the dependent variables

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got affected (Na, et al., 2017). The report has assumed independent variables like changes in
political factor, economic factor, environmental factor, etc.
Discussion
Funding
For the housing project, the association has been awarded $5.57 million from Federal Reserve to
provide houses in Melbourne. The remaining funds have to be invested by the association itself.
This has increased the budget housing to $7.4 million. The association also received $36000
from charitable organization Lord Mayor’s Charitable Foundation (Yuan, et al., 2018).
Number of Dwellings
The company has planned to provide maximum of 30 social housing units. These are divided as
5 units each for people suffering from mental health conditions and person suffering from
disability. The association has also planned to provide 10 units each for elder homeless tenants
and families. However, if any housing property left unsold, then it will be used for private
market dwellings (Sperling, et al., 2017).
Staff Member
In case of the housing project, the association will be required to appoint staff members
comprising at least 1 member each for supporting staff member, rotating housing staff member,
concierge during night hours, and hot desk (Gaber and Gaber, 2018).
Space Allotment
In respect of parking space, the association has planned to provide car space to 50% of its units
that is 15 units, 2 staff members, 5 visitor car spaces. In case of providing bedrooms as 1-2
bedrooms, 2-3 bedroom, the association has created customization for single, couples, elder
people (Gibb, 2016).

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Rent charged
In case of rent charged from the house seekers, as it is mentioned in the assumption above that
association charges rent 75% of market rent. Hence in case of rent charged for the 1-bed
dwelling is 47% of the market. In case of 2 beds dwelling rent charged is 57% of the market rent,
while in case of 3-bed dwelling rent is 64% of the market rent charged (Czischke, 2018).
Recommendations
After analyzing the discussions and assumptions, it has been recommended that the Housing
Choices Australia, have not considered anywhere tax structure, cost of capital, inflation rate, cost
of escalation, etc (Dewachter, et al., 2015). This will not provide a true picture of the financial
position of the association. Following are the various recommendations which will help in better
analysis of the association:
Time Value of Money: It has been mentioned in the case study that the project of the
association will be continued for 25 years. This time period is very long in nature, hence it is
recommended for the Housing Choices Association to include time value of money. This will
help the association in developing an understanding regarding the value of money that will be
earned in future. The time value of money is necessary for the association because the rental
income that would be earned by the association is based on weeks hence it is very necessary to
consider this factor (Lundin, et al., 2015).
Inflation Rate: It is the economic factor that should be considered in case of a housing
association, the reason behind this is involvement of long-time period. In case of 25 year time
period, there can be various economic changes and income distribution, etc which is totally
ignored by the housing association. Hence to have a better understanding of life cost analysis it is

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recommended to include economic factors such as inflation in the cost structure (Fields and
Uffer, 2016).
Cost of Escalation: It has been mentioned in the given case study to ignore the concept of cost
of escalation which is not beneficial for the housing project which involves a huge time period of
25 years. Cost escalation refers to upward change in the cost of factors of production of the
project. In case of housing project there are various factors of production such as price of land,
labor wages, construction material, etc. In case of long time the price of these factors can be
changed either upward or downward. Hence to have a better financial analysis of the housing
choices association it is recommended to include cost of escalation into the analysis (Lee, et al.,
2018).
Tax Structure: In case of involvement of more than one year, the association must include tax
amount into its analysis. This is because in case of calculating solvency, liquidity of the company
tax payment plays a crucial role as regular payment of taxes gives a good image in the minds of
consumers (Yu, et al., 2017). As it has been mentioned in the case study that the association is a
nonprofit organization, hence it is not required to pay taxes however to make image in the minds
of customers it is recommended for the association to show the amount of tax that is saved
because of its non-profit structure.
Depreciation: It has been observed that the housing projects are considered as fixed assets. The
reason behind this the time involved in these projects is more than one year. Hence for a better
presentation of the project profitability, depreciation factor must be included. This will help the
association in determining the value of the dwellings of the association at the end of 25 years
while considering the improvements done if any (Schroeder, et al., 2019).

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Cost Structure: By analyzing the report it has been observed that the Housing Choices
Association has not bifurcated its cost into fixed, variable and semi variable cost. Hence it is
recommended for the association to have a bifurcation in its cost structure. This will benefit the
association in conducting financial analysis and sensitive analysis. The reason behind this
recommendation is fixed cost is the cost which will never change whatever the level of
production is. However in case of variable and semi variable cost, these cost changes according
to the change in production level. Hence to determine true picture of profit variable and semi
variable cost play a crucial role.
Financial Analysis
Under Financial Analysis, business or project is evaluated in terms of monetary transactions to
get an understanding of suitability and performance. The main purpose of financial analysis is to
know about the stability, solvency, profitability, and liquidity of the project or business
(Somerville, et al., 2019). To determine whether to invest in a certain project or not, financial
analysis plays a crucial role. This can be understood as in case the organization is getting profit
at determined level of operations, it is recommended to continue with the project. In contrast if
an organization is getting losses from a certain project, it is recommended to shut the project. In
context of Housing Choices Australia, the dwelling project will be critically evaluated by
comparing its income to its expenditures. In case of income, the report has included rental
charges (for each kind of dwelling), maintenance charges (like water rate, insurance, Tenancy &
Property Management, etc) (Robinson, et al., 2015). However in the case of expenditure, the
report has included expenses like dwelling cost, contingency cost, design cost, etc.)
Financial Analysis
Income Received

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Particular Weekly rent No. of weeks No of Dwellings Total Annual rent ($)
Market rent 1 bed 350 52 7 127400
Market rent 2 bed 390 52 13 263640
Market rent 3 bed 420 52 10 218400
Total Rent Charged 609440
Particular Charges Per
Month ($)
Annual Charges ($)
Council Rate 1200 14400
water rate 800 9600
Insurance 350 4200
Owner corporation 2500 30000
Responsive Maintenance 500 6000
Tenancy & Property Management 2000 24000
Total Maintenance Charges Received 7350 88200
Total Income received from Dwelling 697640
Cost of Dwelling
Cost Incurred Amount ($)
Dwelling Cost 155550
Cost without design and contingency 208320
Design Fees 20832
Contingency 10416
Total Cost 395118
Profit 302522