Property depreciation in Government

Abstract

Purpose

To examine the way the Government accounting and capital charging system allows for depreciation. Like the private sector, it is designed as an accounting measure of the consumption of assets. Unlike the private sector, it has no tax implications. Beyond accounting for asset consumption it does not seem to be a particularly useful tool of asset management. This professional paper examines the role of depreciation in the public sector, notes some shortcomings and asks whether its role could usefully be developed.

Design/methodology/approach

It examines the existing professional standards and guidelines within which public sector property managers work and looks at a selection of the literature on depreciation generally with a view to shedding light on public sector asset management.

Findings

Currently the utility of the measures of depreciation for asset managers is limited. With extra work and research, economic measures of depreciation could be devised which might provide a broad measure of the consumption of assets or the deterioration of larger portfolios of property that can be valued on a market basis.

Research limitations/implications

Further research should focus on the stability of the model when other portfolios are used and for different periods of the real estate cycle. It would also be fruitful to dig deeper in the relation between capital expenses and property values.

Practical implications

With further work measures of economic depreciation may be designed to provide broad indicators of the deterioration of large public sector portfolios of assets such as offices or housing.

Originality/value

Of interest to asset managers, public sector finance managers and researchers in this sphere who have to deal with the long‐term investment in non‐specialised public sector property portfolios.

Citation

Andrew, A. and Pitt, M. (2006), "Property depreciation in Government", Journal of Property Investment & Finance, Vol. 24 No. 3, pp. 259-263. https://doi.org/10.1108/14635780610659955