Holding costs: the meter running on a stalled site

A development accrues cost every month it exists, whether anybody is on site or not.

Most developers know the build cost precisely and have never added up what a month of delay costs them.

Six lines make up the monthly figure

• Interest, on land and on drawn construction funds.
• Rates and land tax, which continue regardless of progress.
• Insurance, on the land and on the works.
• Security and site maintenance, higher on a stalled site than an active one.
• Project management, whether internal or engaged.
• Professional retainers, which keep running while approvals sit with somebody else.

Added together, that figure turns a three month delay from a scheduling annoyance into a measurable loss.

Approvals are usually the longest holding period

A site waiting on a planning decision accrues everything except construction interest, and it does so for months with nothing to show.

That is why early lodgement and complete applications repay themselves many times, and why chasing a determination is worth somebody's time.

A stalled site costs more than an active one

Security, weed control, fencing and vandalism repair all rise once work stops. A site with nobody on it invites attention.

Developers usually budget site costs against the construction period and not against the quiet months, which is exactly backwards.

Delay compounds through the sales market

Six months of delay is six months of holding cost and a settlement into a different market. The second effect is often larger.

A feasibility testing only the cost of delay understates it. Our guide to sensitivity covers running the timeline against revenue at the same time.

Know the daily rate, not just the monthly

A daily figure changes behaviour in a way a monthly one does not. It prices a week of indecision in a number anybody can weigh.

Decisions that look careful at a monthly rate often look expensive at a daily one, which is usually the honest view.

Hold the figure against every extension request

A builder asking for two weeks and a consultant asking for one are both asking the developer to spend money.

Pricing the request makes the answer rational rather than relational. It frequently changes what the other party requests.

Update it as the facility draws

Holding cost rises through the build as more of the facility is drawn. A figure calculated at the start understates the back half.

Recalculating monthly keeps the number honest at the point it matters most, which is the end of the project.

A project that finishes early returns that carry to the bottom line directly, which is why programme incentives often pay for themselves.

Sunk professional fees are not holding costs

Design fees already paid belong in the project cost, not in the monthly carry. Mixing them overstates the cost of waiting and understates the cost of building.

Separating them keeps the delay decision clean, because only one of those two numbers changes when the project pauses.

A holding cost can justify paying for speed

An acceleration payment to a builder, or a fee to expedite a report, competes against the daily rate rather than against a sense of thrift.

Plenty of expensive looking decisions are cheap once the meter is visible, and plenty of patient ones are not.

It also prices patience honestly. A decision deferred for a fortnight to gather more information has a cost, and sometimes the information is worth it.

What to change first

• All six lines add into one monthly holding figure
• The figure converts to a daily rate, so delays price themselves
• Site costs get budgeted for quiet months as well as active ones
• Delay gets tested against revenue as well as cost
• Every extension request meets the daily rate
• The figure recalculates monthly as the facility draws