Economic Analysis: Theory and Practice

Construction of standard and comfort class housing: Functionality of costs and their use in the interest of developers

Vol. 17, Iss. 7, JULY 2018

Received: 19 April 2018

Received in revised form: 15 May 2018

Accepted: 25 May 2018

Available online: 27 July 2018


JEL Classification: D24, Е31, L74

Pages: 1318–1336

Grushina O.V. Baikal State University, Irkutsk, Russian Federation

ORCID id: not available

Shelomentseva N.N. Baikal State University, Irkutsk, Russian Federation

ORCID id: not available

Importance The article addresses State affordable housing program implementation through increasing the investment appeal for the low-cost housing developers.
Objectives We reveal the specifics of costs in the construction of economy and comfort class housing and their impact on financial performance of the developer.
Methods The study draws on methods of margin analysis, operational analysis, the method of higher and lower points of linear function output.
Results The use of mathematical tools for linear function output and the margin analysis enabled to reveal that in practice investment companies solve the problem of low profitability of economy-class housing by the construction of more expensive comfort class housing thus manipulating the distribution of fixed costs. As a result, the possibility of covering the general management costs of the investor from one meter of any housing is equalized.
Conclusions The problem may be solved by creating a database of standard economy class housing projects with mandatory allocation of variable and fixed costs of construction of each type of facility per square meter of finished housing. The data will permit construction companies to widely employ the opportunities of margin analysis, in particular, to define the lower limit of price per square meter, breakeven production volume and financial result of one object and of the entire organization for the given period. However, the problem cannot be solved by using only market approach. The State support through government program financing will ensure low cost of housing.

Keywords: housing, affordable housing, housing costs, housing financing, margin analysis


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