The $1.28 rule

The most common way small infill schemes fail is not a collapse in the market. It is specification creep: a better kitchen, a third bathroom, stone instead of laminate, an extra 15 m² because the plan looked tight.

Each of those decisions feels like it pays for itself. Almost none of them do.

Why a dollar of build costs more than a dollar

Add $1 to the build and you also add:

• Contingency — typically 5%, calculated on the build and the site works together.
• Finance — that dollar is borrowed and carried for the whole programme.
• Agent commission on the extra revenue it generates.
• GST on the extra margin, at one eleventh.
• Your target margin, which is a percentage of total cost — so a bigger cost base demands a bigger absolute profit.

Pulling the other way: the dollar is GST-inclusive, so one eleventh of it comes back as an input tax credit. That softens the coupling without coming close to cancelling it.

Run the arithmetic through the residual model and the coupling ratio comes out around 1.24 to break even and about 1.50 to preserve a 20% margin. Spend $50,000 upgrading three kitchens and you need roughly $75,000 of extra sale price to be no worse off. The page computes both figures against your own assumptions rather than these.

How to use it

Before agreeing to any specification change, ask what it adds to the achievable price. Not what it adds to the appeal — what a valuer or a buyer would pay for it. If the honest answer is less than 1.28 times the cost, it is a gift to your purchaser funded by your margin.

The same ratio works in reverse and is the reason value engineering is so powerful: every dollar taken out of the build is worth about $1.28 of price you no longer need to achieve.