Show how time, uncertainty, and perceived risk increase cost through carry, contingencies, insurance, overhead, and required return. Identify 'certainty levers' that reduce priced-in risk.
Builds on: A2 (land), A3 (permits/fees) · Leads to: A10 (process reform), A11 (synthesis) · Cross-series: P9 Heat Flow
P/A bridge: Thermal/energy performance can reduce operating risk, but financing systems may not yet value it - what evidence would change that?
By the numbers
Energy-rated homes sell for 2.7-4.4% more than comparable unrated homes (n=72,464). Stretched borrowers (DTI ≥45%) with rated homes have 170 basis points lower delinquency. [Freddie Mac 2021]
FORTIFIED-designated homes had 55-74% fewer insurance claims and earned 20-55% wind premium discounts. In North Carolina, certified roofs had 63% fewer claims after wind and hail storms. [IBHS 2021]
Building codes save $11 for every $1 invested at only 1-2% added construction cost. Wildfire codes return $4-8 per $1 - directly relevant to NoCo. [NIBS 2019]
Core Concepts
Delay directly increases cost (carry + overhead). Treat duration as a primary cost variable.
Risk is priced into contingency and required return. Identify where risk premium enters the cost structure.
Predictability reduces required return. Prioritize changes that improve underwriting/approval certainty.
$400K project at 8% construction interest: each month of delay = ~$2,700 in carry cost alone.
A 3-month entitlement delay = ~$8,000 added before a single trade shows up. Add overhead ($2-4K/month) and the total approaches $15-20K.
Cost Elements
Finance (B10) - Construction carry: interest during entitlement and construction. Months matter; rates matter; timeline risk matters.
AF: B10 - CRO-UNDERWRITE
Overhead/Contingency/Return (B11/B12/B13) - How risk becomes price. Multiple small uncertainties compound into conservative pricing. Feasibility is the gate: if deals don't pencil, supply doesn't happen.
Barriers & Levers
CRO-UNDERWRITE
CONSERVATIVE_UNDERWRITE - Conservative assumptions not reflecting actual performance. Lenders
APPRAISAL_LAG - Conservative comps for new housing types inflate required returns. Appraisers