10.2190/JQF9-GU46-0RAY-AY5D JQF9GU460RAYAY5D 5 Calculating the Effect of Delay and Inflation on Project Costs 255 268 20020509 20020509 20020509 20020509 JQF9GU460RAYAY5D.pdf http://baywood.metapress.com/link.asp?target=contribution&id=JQF9GU460RAYAY5D 3 Seymour I. Schwartz Division of Environmental Studies, University of California, Davis Environmental and safety regulations have been criticized for causing excessive delays in construction projects of various types, and for adding greatly to their cost. However, most studies of the costs of regulating housing development calculate the costs of delay incorrectly, usually because of careless treatment of the time dimension and improper treatment of inflation. This article examines the sources of confusion in treating inflation and delay, and presents a model for determining the effect of delay and inflation in terms of the discounted present value of construction costs. The model is applied to the case of housing construction, and the results show that the present value cost of a delayed project can be smaller than the costs of an undelayed project. D. E. Dowall, <i>The Suburban Squeeze</i>, University of California Press, Berkeley, pp. 122-129, 1984. R. A. Johnston, S. I. Schwartz, and W. S. Hunt, <i>The Effect of Local Development Regulations on the Cost of Producing Single-family Housing</i>, University of California, Institute of Governmental Affairs, Davis, California, April, 1984. Construction Industry Research Board, Cost of Delay Prior to Construction, Los Angeles, April 1975. S. R. Seidel, <i>Housing Costs and Government Regulations</i>, Center for Urban Policy Research, Rutgers University, New Brunswick, New Jersey, 1978. T. Muller, <i>State-mandated Impact Evaluation: A Preliminary Assessment</i>, The Urban Institute, Washington, D. C., April 1976. Urban Land Institute and Rice Center, <i>The Delay Costs of Government Regulation in the Houston Housing Market</i>, Urban Land Institute, Washington, D. C., pp. 27-31, 1979. S. B. Hanke and J. B. Anwyll, The Discount Rate Controversy, <i>Public Policy, 28</i>, pp. 171-183, Spring 1980. A. Ray, <i>Cost-benefit Analysis: Issues and Methodologies</i>, Johns Hopkins Press, Baltimore, 1984. S. H. Hanke, P. H. Carver, and P. Bugg, Project Evaluation During Inflation, <i>Water Resources Research, 11</i>, pp. 511-514, August 1975. G. Smith, <i>Engineering Economy</i>, Iowa State University Press, Ames, 1979. M. Thompson, <i>Benefit-cost Analysis</i>, Sage Publishing Company, Beverly Hills, 1980.