A Business Case for Flexible Housing

A Business Case for Flexible Housing

The Feasibility of Implementing Flexibility Measures in the Housing Market

Geraedts, Rob P.; Ruiterkamp, Joost

DOI

10.17265/1934-7359 Publication date 2017

Document Version Final published version Published in

Journal of Civil Engineering and Architecture

Citation (APA)

Geraedts, R. P., & Ruiterkamp, J. (2017). A Business Case for Flexible Housing: The Feasibility of Implementing Flexibility Measures in the Housing Market. Journal of Civil Engineering and Architecture, 11(10), 961-970. https://doi.org/10.17265/1934-7359

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Journal of Civil Engineering and Architecture 11 (2017) 961-970 doi: 10.17265/1934-7359/2017.10.007

A Business Case for Flexible Housing: The Feasibility of

Implementing Flexibility Measures in the Housing

Market

Robert Pierre Geraedts and Joost Ruiterkamp

Delft University of Technology, Faculty of Architecture, Department Management in the Built Environment, Delft 2600GA, The Netherlands

Abstract: Adaptive construction is already for decades on the agenda of the construction sector. The adaptive capacity of a building

includes all qualities that enable the building keeping its functionality during the technical life cycle, under altered conditions and needs [1]. Meanwhile, the interest in flexible building has increased significantly caused by the growing awareness of the need for sustainability. The Dutch construction sector is responsible for 35% of the national waste production. This number emerges from a sector that accounts for 5.1% of the gross domestic product [2]. This paper reports about a study that was executed in collaboration with a Dutch real estate developer [3]. The purpose was to develop a successful business case for a flexible row house concept that could show the market under what conditions flexibility measures for future adaptations can be implemented. One of the main conclusions affirms that a long-lasting collaboration between a developer and the investor could result in a feasible business case if the developer stays involved during the use phase of the dwellings. Through many additional interviews, this research was able to let the real estate market reflect about the business case of flexible row housing.

Key words: Business case, flexible, adaptable, sustainable, feasible, housing, developer.

1. Introduction

The choice for the research subject of a flexible housing concept arises from three important aspects. The Dutch construction sector accounts for 35% of the national waste production in Holland. This number emerges from a sector that accounts for 5.1% of the gross domestic product [2]. This inefficiency motivates for research to make the sector more efficient; flexibility can provide a solution.

A changing demand and market trends result in buildings that are already obsolete before they are taken into operation [4]. A flexible dwelling can be adjusted to the changing market and user demand in the

Corresponding author: Robert Pierre Geraedts, associate

professor design and construction management; research fields: flexibility and adaptability of buildings, the flexibility of the design and construction process, the reuse and transformation of vacant buildings into new functions. E-mail: R.P.Geraedts@tudelft.nl.

future. One of the trends that cause a changing demand is the aging of the population. It is predicted that 20% of the Dutch population is 75 or older in 2040 [5]. Demands will change due to this fact, but will also evaluate after the aging period is over.

2. Problem Framing

The building real estate developer for this research—Heijmans Vastgoed—focuses on the development of a product and completes his task when the product is finished and can be handed over to the customer [6]. Flexibility offers benefits during the use phase of the dwelling. The wish for a broader scope of Heijmans is in line with the need to utilize the advantages of flexibility during the use phase of the dwelling. The question is if this offers chances for a win-win situation for a business case with a long lasting collaboration between the developer and the investor? Basic idea is that a long lasting collaboration

D

gives an ex flexibility m future. 2.1 Flexibil Account the Flexibility adjustments plot are chan a building changes. In changing ne extension of an increase materials wi The Durb forms the b adaptability organization flexibility [1 end user w environment not result in demand of th to cope wit Fig. 1 Adap xtra incentive measures when

lity and the Consumer R

y focuses on when the con nging. Ref. [7 that can be this way, a d eeds of the o f the lifespan of sustaina ill have an inc an paper “Ad basis for this in three way n flexibility, p 1]. Organizati who will adju

t instead of th n a living en he end user, b h the bound ptive capacity, t e to make u n demands ar Importance equirements n the easy nditions for th 7] defines a fle adjusted wh dwelling is ab occupant wha of the dwelli ability becau crease in lifes daptive Capac s research. It ys. A distinc process flexib ion flexibility

ust its lifesty he other way

nvironment t but the end us ary condition

the types of fle

use of the ta re changing in e of Taking way of mak he building or exible buildin hen the dem ble to answer at results into ing. This lead use the buil

span [7]. city of Buildin

t focuses on ction is made bility and pro y is focused on

yle to its liv around. This that satisfies ser will learn ns that its liv

exibility related aken n the into king r the ng as mand r the o the ds to ding ngs” n the e for duct n the ving will s the how ving env In [1]. buil the proj P ada rese ada T imp resu proj proj mea rese requ con 2.2 G are Hei bec d to the differe vironment is g n Fig.1, the d Process flex lding process design phas ject. Product flex aptability duri earch project aptability of a The outcome plementation ult in the c ject [8]. Mean ject that actu asures during earch is need uirements of ncept [9]. Dwelling Typ Ground floor constructed a ijmans has m

ause this type

ent life cycle ph

giving. different form xibility focuse s, the processe se and the c xibility is ing the use ph

is focused o a dwelling in t of previous of flexibility completion o ningful in this ually uses the g the use pha

ded to be ab f the target pe dwellings are as row-dwelli much experie e of dwelling hases at three ms of flexibilit es on the flex es during the construction p the actual hase of the dw on product fl the future. studies show measures doe of a meaning s case is chara e implemente ase. In-depth ble to forese group for e most feasib ings. Real esta ence with ro g is commonly different levels ty are showed xibility of the initial phase, phase of the degree of welling. This lexibility, the wed that the es not always gful flexible acterized as a ed flexibility target group ee the actual the flexible

ble when they ate developer ow-dwellings y used in the s [1]. d e , e f s e e s e a y p l e y r s e

A Business Case for Flexible Housing: The Feasibility of Implementing Flexibility Measures in the Housing Market

963

Netherlands. Row-dwellings will be the focus of this research project. The complete database from Heijmans has been used as a starting point for the right information about materialization, costs and measurements. Another focus of this research project is the rental sector. The main reason for this is the construction of a new business case for the flexible row-dwelling concept. The business case will consist of collaboration between the developer and the investor. Rental income will provide the revenues for the joining parties so that a feasible business case can be generated. Therefore this research focuses on the rental sector.

2.3 Target Group

The geographical focus of the research will be the western part of the Netherlands. This is caused by the expected shortage for housing in this area in the near future. Because the middle-income households of the private rental sector show a prolonged shortage, this research will focus on the target group with a middle income [10]. Also, from the target group analysis can be concluded that the age category is an important variable for the life-stage of the target group [11]. For this research, the age categories will consist of the groups 18-29 years, 30-49 years, 50-64 years and 65 years or older.

2.4 Business Case Development

A business case is a recommendation for policymakers to choose for a certain direction of the organization. This is supported by the analysis of advantages, costs and risks compared to realistic alternatives [12]. A business case focuses on the strategic advantages, indirect costs and organizational factors [13]. The business case in this research will consist of the following aspects [12]:

 Actor analysis; 


 Organizational framework; 
  Company policy integration; 


 Financial framework, with a focus on a cost-benefit analysis; 


 Goals and performance framework; 
  Management platform.


Overall this business case can be typed as feasible when the intended return is reached with a net present value of 0 for rent prices, which are in line with the market.

2.5 Problem Definition

It is currently unknown under what conditions meaningful flexibility measures can be implemented in a flexible row-dwelling concept to ensure that the dwelling is adjustable for the different life-stages of the target group and whether this implementation delivers a feasible business case for a long-lasting collaboration between the developer and the investor.

The objective of this research project is to construct an innovative row-dwelling concept that shows the market under what conditions flexibility measures can be implemented in dwellings. The focus is on the financial feasibility of the concept through a life-cycle costs approach in the development of a business case.

3. Research Questions

The research project provides answers to the two main research questions:

 How can a new flexible row-dwelling concept be designed for the western part of the Netherlands? 


 Does a long-lasting collaboration between the developer and the investor for this flexible row-dwelling concept result in a feasible business case?

The flexible row-dwelling concept is based on the existing dwelling of real estate developer Heijmans called the Heijmans Huismerk dwelling (Fig. 2).

During the design of the concept research has been carried out to the meaning of flexibility and which consumer requirements need to be taken into account. With the use of so called “practical reports”, flexible measures can be distinguished which will be connected to the consumer requirements and trends for the target group by the “flexibility triangle”. The flexibility

Fig. 2 Flexib Fig. 3 The f measures [3]. triangle giv row-dwellin constraints f focus on the case and the constraints, potential in t meetings w row-dwellin ble row-dwellin flexibility tria

ves the flex ng concept

for the busine e company po

financial fram the busines the client base with differen ngs in the Net

ng concept is b

ngle; the chan

ibility requir (Fig. 3). ess case are e olicy, the acto

mework. Wit s case is te e of Heijmans nt types o therlands. based on the ex nging demand rements for The diffe elaborated wi ors in the busi

th the use of th ested for ma s. This resulte f investors xisting Heijma for flexibility the erent ith a ness hese arket ed in for

4. F

T stan is tr of con mea foun ns so-called H y measures, m

Flexible Ro

The flexible r ndard Heijma ransformed in the construc nnection betw asures and tr nd in Fig. 3. uismerk dwell market trends a

ow-Dwellin

row-dwelling ans Huismerk nto a flexible cted flexibilit ween dwelli rends. The f ling [17].

and the supply

ng Concept

g concept is b k dwelling. T row dwelling ty-triangle th ing functions flexibility-tria y of flexibility based on the This dwelling g with the use hat makes a s, flexibility angle can be y e g e a y e

The total general dwe research on [14] and th obtained fro results into t the flexible r  Sleep fu  Residen  Eat fun  Univers  Outdoo  Persona  Extensi  Rearran  Rejecti Flexibility implement dwelling to measures Table 1 Sum table are the d

Table 2 14 d A B amount of d elling functi activities in he flexible om the adapt the following row-dwelling function; 
 nce function; nction; 
 sal function; ors function; 
 al care functi ion function; nge function; on function. 
 y measures ca in a dwellin the changing are separat mmary of the i design implem different adapt Business Case Fle dwelling func ions that are dwellings by dwelling fun ive capacity g main dwell g concept: 
 
 on; 
 
 
 an be typed a ng to be ab g user deman ted into s implemented fl mentations for t tability option e for Flexible exibility Meas ctions consist e obtained f y the target gr nctions that study [15]. T ling functions as the measure le to adjust d. The flexib spatial-functi lexibility meas the spatial req

s for the flexib

e Housing: Th sures in the H ts of from roup are This s for es to the bility ional mea Fur in t tren The give wid  dwe  but F mad Thi and mor at le use ada T sures of flexibil uirements. ble row-dwellin he Feasibility Housing Mar asures and rthermore, the the evolution nds became a e developmen es an incentiv dth sizes for th  5,400 mm elling, as wel  7,500 mm, more expens For both dwel de to ensure t is pre-investm d will cost ar re detailed ca east 14 differe phase of the aptability opti To be able to lity measures p ng concept. y of Implemen ket construction-e trconstruction-end of agi n of the hou a third aspect nt based on th ve for the con he flexible ro m, strongly ll width as lay

ideal for flex sive. 


lling types, a s the future ada ment consists

ound €11,00 alculation. Be

ent adjustmen dwelling. Th ions and can b o construct t per dwelling fu nting -technical m ing is an imp using sector. in the flexib he flexibility nstruction of ow-dwelling c based on t yout; 
 xibility of rea standard pre-aptability of t of the elemen 0. See also T ecause of this nts can be ma hese adjustme be found in T the flexible r unction; not pr 965 measures [1]. portant factor This is why ility-triangle. requirements f two types of concept: the standard arrangements, investment is the dwelling. nts of Table 1 Table 4 for a s investment, ade during the nts are called Table 2. row-dwelling resented in the 5 . r y . s f d , s . a , e d g e

concept in th to be taken precondition life-stages o situation has of the width-Thirdly, the creation of adjust the dw to be found of the dwelli

5. Creatio

The actor main actors row-dwellin developer, th and investor case, althoug for the end-u

5.1 Four Sce The scen Table 3 Fou he proper wa n care of. T n; it needs to of the target s to be suitable -types of the f municipality flexible dw welling to futu in extension ing or rejectio

n of the Bu

r analysis lead s for the bus ng concept, th he investor an r have the m gh it has a m user. enario’s for th

arios are app

ur different sce

ay, various pr The location o be suitable

group. Seco e for the imple flexible row-d y has to be su ellings with ure demands. s of the dwel on of (part of

usiness Cas

ds to the rela siness case. he three mai nd the end-use most influence major impact i he Business C proached fro

enarios for the

reconditions n n gives the

for the diffe ondly, the u ementation of dwelling conc upportive for a possibility Adjustability lling, rearran f) the dwellin

e

ation between For the flex in actors are er. The devel e at the busi in day-to-day Case om four diffe business case. need first erent urban f one cept. r the y to y has ging ng. n the xible e the oper iness y life erent ang type pos Fur life dwe scen 5.2 T still prec eco fina T flex mea flex that pote pote the of t .

gles and are es. Also, th sible flexib rthermore, the -stage appro ellings resea nario’s can b Precondition The business l preconditio condition is nomic clima ancial framew The functiona xibility of the asures that ar xibility in the t had to be ential has a ential remain market can h the business c applied on ey anticipate bility option e fourth scen oach obtained arch [14]. A e found in Ta ns comes up fr ons need to that the busi ate to creat work gives. al preconditi e dwelling is re taken. The e dwelling d made. Furth a preconditio ns to be calle have a big in case.

the two dif e on trends ns of the nario is fully d from the A short summ able 3. rom validated be drawn. T iness case ne te the resu on is that th s limited to th ere will not b due to the co

ermore, also on. The test ed positive bu nfluence on th fferent width and on the dwellings. based on the activities in mary of the d aspects but The financial eeds a stable ults that the he functional he flexibility be an endless onsiderations o, the market for market ut changes in he feasibility h e . e n e t l e e l y s s t t n y

5.3 Real Est The flexi with the cu relation can row-dwelling Broadening collaboration where Heijm and the adju

5.4 Managem The mana the start of e similar to th developmen specific tar Also, the bu main risk a Table 4 Det A B tate Develope ible row-dwe urrent compan n be found g concept bro the scope n between mans is resp ustments to th ment Platform agement platf executing the he steps that nt projects; rget-group an usiness case aspect can b

tailed costs calc

Business Case Fle er Policy elling concep ny policy of d in the w oadens the sc is done by the investor ponsible for he dwelling. m and Goals form gives th business case have to be t determine nalysis, attra comes with be found in culations of ne e for Flexible exibility Meas pt has a rela f Heijmans. T way the flex

ope of Heijm the long-las r and Heijm the maintena he steps to tak e. These steps taken for reg land positi acting inves some risks. the long-las ecessary flexibi e Housing: Th sures in the H ation This xible mans. sting mans ance ke at s are gular ions, tors. The sting coll situ dep T ada dwe feas dwe 5.5 T exte dev mad ada 5.6 T life ility measures he Feasibility Housing Mar laboration wi uation, you ar pendent on the The five main aptability, co ellings, effici sibility and th elling. Extra Costs f Together with ernal compa veloper Heijm de of the nec aptations (see Financial Fr The calculate cycle cost app

for future ada

y of Implemen ket ith another c re dependent eir choices. n goals of the ounteract to ient use of bu he extension for Future Ad h two financ any [18] and mans [19], cos cessary flexib Table 4). ramework d cash flow proach. With aptations (refer nting commercial p on the other c e business cas the static uilding materi of the total li daptability cial experts, d one from sts calculatio bility measur models are b these models

rence date Nov

967 party, in this company and se are: future character of ials, financial ifetime of the one from an m real estate ns have been res for future

based on the s, the different vember 2014). 7 s d e f l e n e n e e t

Fig. 4 Basic adding dorme scenarios ha can be made the concept dwelling (se more feasib concept whe Investments less expensi afterwards d 5.6 Viability The evalu practice sho architectural choices hav The financia to test the m test showed approach a c Scenario 2: di er and bathtub

ave been calc e between th t and the st ee Fig. 4). It c ble to invest en the adjust in these kin ve during the during the use

y of the Busine

uation of the c ows that the l viable. Onl ve an influen al framework market prices that different an aspect li ivorce after 5 y b, in Year 9 thr culated so th he two flexibl tandard Heij can be conclu in the flexib tments are b nd of possible e first constru e phase. ess Case concept with s e concept i ly the structu nce on the fin k is consulted

and the mark t parties have ike mainten

years and sepa ree new wall so

hat a compar le width type jmans Huism uded that it w

ble row-dwel big and comp e adjustments uction phase several exper s structural ural-architect nancial viabi d with the ma ket potential. different way ance costs aration into tw ockets. rison es of merk ould lling plex. s are than rts in and tural ility. arket The ys to and ther infl diff the The imp deg futu 5.7 S fina euro Rea tells five toge qua B wo dwellings, in refore it can b luenced by th ferent sources four scenario e uncertaint plementation gree that the

ure.

Influence on

Some externa ancial feasibi os. One of the al Estate sco s something a e sustainabilit ether with e ality. Because of the n Year 10 addi be concluded he assumption s. Overall it os attain the n ty still fol of the flex flexibility m Financial Fe al factors ca ility but cann ese factors is ore (GPR-Geb

about the sust ty themes; fu energy, envir e increase of

ng a roof terra

d that the feas ns that have b can be concl needed financi lows from xibility optio measures are easibility an have influ not only be the Green Pe bouw) [16], tainability of uture value is ronment, hea

the future val

ace, in Year 15

sibility is also been made by luded that all ial feasibility. the actual ons and the used in the uence on the expressed in erformance of a score that f a building in one of them alth and use lue, an aspect 5 o y l . l e e e n f t n m e t

A Business Case for Flexible Housing: The Feasibility of Implementing Flexibility Measures in the Housing Market

969 like the GPR-Gebouw score will increase and that will

have a positive effect on the market value of the dwelling. Also, for example in Amsterdam, there is a possibility for a subsidy for adaptable houses.

6. Conclusions

The main research questions of this research were: how can a new flexible row-dwelling concept be designed for the western part of the Netherlands, and does a long-lasting collaboration between the developer and the investor for this flexible row-dwelling concept result in a feasible business case?

6.1 Design of a Flexible Row-Dwelling Concept

The design of the flexible row-dwelling concept has been executed with the use of the flexibility triangle (Fig. 3). The demand for a flexible dwelling will originate from the general demand and the flexibility demand for dwellings. Together this will result in the needed supply, the needed dwelling functions. The link in the flexibility triangle between dwelling functions, flexible measurements and market trends result in the flexibility requirements. These requirements function as a guideline during the development of the flexible row-dwelling concept.

6.2 Feasibility of the Business Case

It can be concluded that a long-lasting collaboration between the developer and the investor will result in a feasible business case. An important aspect is the degree and complexity of the future adjustments. For example, it is financially more attractive to implement an extension at the ground floor for the flexible row-dwelling concept compared to the regular Heijmans Huismerk dwelling. The implementation of, for example, a skylight will not result in a financially more attractive situation for the flexible row-dwelling concept. 
When the situation is approached from real estate developer Heijmans’ point of view, the involvement in the use-phase of the dwellings will result in an increase of income for that specific project.

This increase follows from the extra income of maintenance and the future adjustments.

6.3 Goals of the Flexible Row-Dwelling Concept

When the goals of the flexible row-dwelling concept are reached and when the dwelling actually gets a longer meaningful total lifespan, this will result in an increase of income for Heijmans for that specific project but does not have to result in a total benefit for Heijmans. The construction of dwellings is one of the main businesses of Heijmans. When the lifespan of houses will be increased, this could result in a decrease of the number of houses that have to be built and that will have a negative effect on the main business of developer Heijmans.

6.4 The Opinion of the Market

By many additional interviews, this research was able to let the real estate market reflect about the business case of flexible row housing.1 All approached market parties defined the concept as customer-oriented, the business case successful and were highly interested in the concept.

Changes start with initiatives and people that can carry the load. This research was able to let the real estate market reflect on flexible row-dwellings. All market parties characterize the concept as customer-oriented. It can be concluded that market parties are interested in the concept. They see the added value of flexibility, only they are not sure of the way to implement it. The flexible row-dwelling concept does not have to be the only suitable answer for this.

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