An academic dissertation, with due permission of KTH Royal Institute of Technology, is submitted for public examination for the degree of Doctor of Technology in Real Estate Economics on the 15th of December 2009 (at 10.00) at L1, Drottning Kristinas väg 30, Stockholm. Supervisor: Professor Stellan Lundström, Division of Building and Real Estate Economics, Royal Institute of Technology (KTH), Stockholm. Co-Supervisor: Docent Kurt Psilander, Division of Building and Real Estate Economics, Royal Institute of Technology (KTH), Stockholm. Opponent: Professor Magnus Söderlund, Department of Marketing and Strategy, Stockholm School of Economics, Stockholm. Scientific committee: Professor Klaus Grunert, Department of Marketing and Statistics, Aarhus University, Denmark. Professor Göran Cars, Department of Urban and Regional Studies, Royal Institute of Technology, Stockholm. Professor Lars Hallén, Department of Social Science, Mid-Sweden University, 651 70 Sundsvall. KTH Royal Institute of Technology School of Architecture and the Built Environment Department of Real Estate and Construction Management SE – 100 44 Stockholm, Sweden Printed by Tryck och Media, Universitetsservice US-AB, Stockholm © Berndt Lundgren, 2009 ISSN 1104-4101 ISRN KTH/BFE/M-09/89-SE ISBN 978-91-977302-6-6 www.kth.se Abstract This doctoral thesis ‘Real Estate Development: a Customer Perspective’, mainly concerns questions that are related to why consumers make a choice and what they are looking for. The first part of this thesis is the result of the research project ‘Models for the Construction Sector’ (MoPo) and the second part is the result of a collaborative project between KTH Royal Institute of Technology, the Construction Sector Innovation Centre (BIC), five private companies1 and four municipalities in Stockholm County. Since the Latham report (Latham, 1994), there has been considerable debate about the need for an increased focus on the end customer in the construction process. The housing sector in Sweden has a strong tradition in focusing on construction and project management issues and less on customer satisfaction. Similar findings have been reported in ‘Skärpning gubbar’ (Swedish Government Official Report, 2002) and recently, ‘Sega gubbar’ (Byggkommisionen, 2009), which show that attitudes and processes in the housing sector in Sweden have not really changed since the initial report in 2002. From the perspective of consumer-oriented research in residential development, this issue concerns the ability to understand why customers buy (cognition), what they want (the product) and how the message, relating the product to the consumer, should be formulated (marketing). Investment decisions could be improved if developers ask what kind of values have proved to be important for residents and buyers for a specific type of residential development, what the functional and psychological consequences they are looking for are, and then ask what kind of product attributes can be provided, given economic constraints. Paper one shows the main activities in how to provide needed facilities and their relationship to the end users’ core business. Paper two shows how the laddering technique can be used to elicit buyers’ beliefs about the built environment, according to the means-end chain theory. The means-end chain theory postulates that buyers purchase a product because it satisfies personal values and desired consequences, which from their perspective are more important than product attributes. Paper three shows the development of a multi-item attitude scale. This scale identifies five key dimensions that are important for the customer when deciding to purchase an apartment in a residential development. The dimensions are: urban environment, architecture, safety, relaxation and liveliness. Paper four shows structural modelling evidence supporting the theoretical assumption that personal values have an impact upon expectations and perceived performance. The structural sub-models show that if perceived performance is increased, customers’ satisfaction will be positively affected. During our research, we have not found any current knowledge in the construction industry in Sweden on how to investigate and measure customers’ values and their beliefs, or how to model customers’ evaluation of product performance using structural equations. Key words: Residential development, Customer satisfaction, means-end chain theory, laddering, Structural equation models. 1 Besqab, JM, NCC, Stockholm municipality, Solna municipality, Sollentuna municipality, Swedbank, Upplands-Väsby municipality, Veidekkke. Acknowledgements There are many people who have contributed to this doctoral thesis and I am therefore in their debt and forever grateful for their support. First of all, my colleague at the Royal Institute of Technology for many years, Kurt Psilander, for his friendship and many constructive comments, especially on the lengthy second paper. I am also in debt to Stellan Lundström, my supervisor, for his faith and support in this research project. I am also in debt to the advisory board with which I have had a truly fruitful collaboration during many meetings at the institute. My sincere thanks go to: Ulf Brandt, Per Anders Hedkvist, Billy Holmberg, Ola Karlsson, Ellinor Lindström, Brita Lindquist, Gösta Norén, Anna Persson, Gunnar Swartling, Erik Westling and Johan Westring. Special consideration goes also to the late Professor Emeritus Hans Rahm for his kind support and thanks to Magnus Carlsson, Fastighetsbyrån in Frösunda. This research project would not have been possible without support from many colleagues at the Royal Institute of Technology, teaching on doctoral courses. My sincere thanks go to: Kent Eriksson at the Centre for Banking and Finance, Per Näsman at the Department of Security Research, Inga-Britt Werner at the Department of Urban and Regional Studies and fellow colleagues at the division of Building and Real Estate Economics. Last but not least, no one has been as patient and considerate as my wife, Liselotte, who has supported and witnessed both the licentiate thesis and the doctoral thesis being a reality. For financing this thesis, we acknowledge Formas (The Swedish Research Council for Environment, Agricultural, Sciences and Spatial Planning) and the Göran Collert Foundation and companies and municipalities participating for their economic support in the second research project Contents Summary of thesis Monograph Lundgren, Berndt (2002) Model Based Business Development – a case study of the communication of generic process models, Lic. Thesis, Department of Infrastructure, Division of System Analysis and Economics, Royal Institute of Technology, Stockholm, Sweden. TRITA-INFRA 02-025, ISSN 1651-0216. Paper 1 Lundgren, Berndt and Björk, Bo-Christer (2004) “A model integrating the facilities management process with the building end user´s business process (ProFacil)”, Nordic Journal of Surveying and Real Estate Research, 1 (2). Paper 2 Lundgren, Berndt (2009) “Customer perspectives on a residential development using the laddering method”, Journal of Housing and the Built Environment, 25 (1). Paper 3 Lundgren, Berndt (2009) “Measuring the perceived performance of a residential development” (Submitted to the Journal of Place Management and Development). Paper 4 Lundgren, Berndt (2009) “Modelling antecedents to customers’ satisfaction in a residential development”. Introduction The first paper written is based on the empirical result of the monograph only. Papers two to four stem from a collaborative project established in 2005 by KTH Royal Institute of Technology, Sweden and the Construction Sector Innovation Centre (BIC) and five private companies2 and four municipalities in Stockholm County. The mission declared by BIC is to support improvements in the construction sector through innovative processes that have staying power in a competitive market and target end-customer values, sustainable growth and profitability. Research method The monograph was a case study of the communication of generic process models made at Vattenfall AB, Stockholm. The collaboration between KTH and BIC resulted in an applied research project with a joint effort to find new working procedures that can improve how market analysis and studies of customers’ satisfaction are made in the residential sector. This case study was made in the residential development of Frösunda in Solna and was chosen due to its close location to the city of Stockholm. Another important reason was the relative isolation of Frösunda from other neighbourhoods, which gives it a clear identity. A research project in applied research is characterised, according to Patton (1990) by an attempt to understand the nature and the sources of human problems existing within a social setting. The focus of the research is deemed by society itself to be of use and the key assumptions made by this type of research are that the problems motivating the research can be solved by the use of knowledge. The desired result is a contribution to theories that can be used as a means of formulating problem-solving programmes. The standard procedure for this type of research is to apply in-depth theoretical insights into the problem. What we can conclude from Patton’s discussion is that applied research promotes both the use of theory and the need for practice. An applied research project aims both at practical benefits as well as a theoretical contribution. The empirical research was performed as case studies (Yin, 1994). Such a