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Titolo:
Permits, starts, and completions: Structural relationships versus real options
Autore:
Somerville, CT;
Indirizzi:
Univ British Columbia, Fac Commerce & Business Adm, Vancouver, BC V6T 1Z2,Canada Univ British Columbia Vancouver BC Canada V6T 1Z2 uver, BC V6T 1Z2,Canada
Titolo Testata:
REAL ESTATE ECONOMICS
fascicolo: 1, volume: 29, anno: 2001,
pagine: 161 - 190
SICI:
1080-8620(200121)29:1<161:PSACSR>2.0.ZU;2-6
Fonte:
ISI
Lingua:
ENG
Soggetto:
PRICING-MODELS; INVESTMENT; MARKET; UNCERTAINTY; DYNAMICS; LAND;
Tipo documento:
Article
Natura:
Periodico
Settore Disciplinare:
Social & Behavioral Sciences
--discip_BC--
Citazioni:
35
Recensione:
Indirizzi per estratti:
Indirizzo: Somerville, CT Univ British Columbia, Fac Commerce & Business Adm, Vancouver, BC V6T 1Z2,Canada Univ British Columbia Vancouver BC Canada V6T 1Z2 2,Canada
Citazione:
C.T. Somerville, "Permits, starts, and completions: Structural relationships versus real options", REAL EST EC, 29(1), 2001, pp. 161-190

Abstract

Real estate development from raw land to completed structures is a multistage process. Given the current view of development as the exercise of a real option, the question arises whether development should be modeled as a compound option. This paper tests the validity of the compound option characterization by determining whether builders start units for which they have permits and then complete units started consistent with the predictions of the real options model. To do so, I first identify a reduced form relationship between permits and starts and then between starts and completions. The parameters of this relationship indicate how well permits proxy for starts and starts for completions. Then, I determine whether controlling for this structural relationship, new information, and uncertainty in returns affectpermit exercise and completion rates, as in the exercise of real options. I find that current and previous quarter permits forecast current single-family starts, while multifamily starts require more quarterly lags of permits. More than one and two year's worth of lagged starts numbers are needed to estimate current quarter completions for single-and multifamily buildings, respectively. The principal result is that once building permits have been obtained, the development process proceeds to completion. While there is no evidence that completion is the exercise of an option embedded in a start. some aspects of permits are consistent with builders treating them as anoption for starts. However, even if they do, given permits obtained, it takes large changes in market conditions to affect small changes in starts.

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Documento generato il 30/03/20 alle ore 10:13:25