Challenges in Delivering Green Building Projects: Unearthing the Transaction Costs (TCs)

Queena Qian,Edwin Chan,Abd Khalid

doi:10.3390/su7043615

Abstract

Delivering green building (GB) projects involve some activities that are atypical in comparison with conventional buildings. Such new activities are characterized by uncertainty, and they incur hidden costs that have not been expected nor are they readily appreciated among the stakeholders. This paper develops a typology and chronology to examine the new activities that are associated with transaction costs (TCs) in the real estate development process (REDP) of green building. Through in-depth interviews with representatives from the major developers in Hong Kong who have experiences in GB practice, this study aims to unearth TCs involved at the critical stages of the REDP. Apart from reconfirming the early project planning stage as the most critical in the consideration of TCs, the study results also identified “extra legal liability risk of the GB product” as the major concern for any GB developer in Hong Kong. The key additional activities that bring significant TCs in developing GB are identified and compared to their traditional counterparts. In turn, project managers not only have to pursue overall cost management whilst winning more business, but they also have to pay particular attention to sustainability in order to minimize hidden societal costs. The study also provides a reference for governments and professionals that will aid in forming policy as well as advance the practice of the GB market by optimizing the societal costs.

Highlights

Greater business efficacy of the building industry could contribute significantly to the sustainability of future development
This study provides a better picture of green building (GB) market development relating to a specific institution in the case of Hong Kong, and it gives a reference for designing rational policy for GB promotion
The results show that additional tasks are more likely to arise during the early period of a GB project than at other stages

Summary

Introduction

Greater business efficacy of the building industry could contribute significantly to the sustainability of future development. Compared to conventional buildings, GB projects are often perceived as having higher initial design and construction costs. Without a well-informed picture of benefits and costs, the comparably higher initial costs and transaction costs (TCs) with their associated extra risks, still discourage potential stakeholders from entering the GB market voluntarily. The problem comes from the TCs involved, which are costs hidden as “unintended consequence”, such as byproducts and unforeseen repercussions. The problem comes from the hidden costs in terms of TCs involved, which are costs hidden as “unintended consequence”, such as byproducts and unforeseen repercussions. The barrier to the GB market is higher due to uncertainties, such as greater capital costs, new information, new technology, financial risks, risk of delay with government approvals, and so forth [7]

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