26/02/2022 1 BLDG4003 Construction Economics Module 05 – Construction Economics (Economic Problem) • School of Engineering, Design and Built Environment • Western Sydney University 26/02/2022 2 Learning Outcomes At the end of the session, you will be able to describe: 01 What is Construction Economics? 03 What is Construction Economics? 05 Introduction to the Basic Concepts 26/02/2022 3 WHAT IS ECONOMICS? The social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices. (Encyclopedia.com, 2021) 26/02/2022 4 Big Economic Questions • What should we produce? • How should we produce it? • For whom should we produce it? (Encyclopedia.com, 2021) 26/02/2022 5 Factors of Production 26/02/2022 6 What is Construction Economics? • Construction economics is the application of the techniques and expertise of economics to the construction industry. • Construction economics investigates issues and topics associated with the construction and maintenance of the built environment by firms, industries and projects, using economic theory, concepts and analytical tools. • Construction economics is also concerned with the macroeconomic role of the construction industry and its relationship with associated manufacturing, professional services and materials industries. (constructioneconomicsresearch.com, 2021) 26/02/2022 7 Development of Construction Economics • Construction economics as a concept was originated in the 1970s by Patricia Hillebrandt. • Construction economics is a distinct form of industry economics and a branch of economics, and a major contributor to the macroeconomic economics. • Patricia Hillebrant (1974) analyse the demand and supply sides of the construction industry. She identified four characteristics of demand and supply of the construction industry as: 1) the physical nature of the product 2) The structure of the industry and organization of the construction processes 3) the characteristics of demand 4) the method of price determination, either by tendering or some form of negotiation. She concluded that there is a need for the development of a new theoretical economic analysis to assist in the understanding of the workings of the construction process, the construction industry and the construction firm. (constructioneconomicsresearch.com, 2021) 26/02/2022 8 Construction Economics and Built Environment • The sixteen built environment industries directly related to the construction industry, including the employment of over 2 million people and producing $270 billion in output in 2018-19. • Overall, they contributed 14.2 percent to Australian GDP. • Over the years, the GDP contribution of the built environment is between 14 and 15 percent of GDP since 200607. The share of total employment has fluctuated between 16.5 and 17.5 percent. Construction of the Built Environment Quarrying of Materials Manufacturing of plant, machinery & equipment Assembly & integration, fit out & commissioning Production of brick, concrete, steel & glass Manufacturing of components, fixtures & fittings 26/02/2022 Site preparation & structural work Buildings & structures Refurbishment & recycling Project management & cost planning Operation & management Design & engineering Sales, logistics & delivery Deconstruction & removal (Construction Economics Research, 2020) 9 Construction Economics – Key Actors • • • • • • • • Suppliers of basic materials, e.g. sand, cement, aggregate and bricks Manufacturers of site equipment, such as cranes and bulldozers Manufacturers of building components, e.g. windows, doors, pipes and radiators Site operatives who bring together components and materials Project managers and surveyors who co-ordinate the overall assembly Facility managers who manage and maintain property Property developers who initiate new projects Providers of complementary services, such as demolition, disposal and cleanup (Bevort, 2020) 26/02/2022 10 Construction Economics – Basic Concepts • Construction Economics is also concerned with the allocation of scarce resources. • Scarcity & Choices: Many of the world’s resources (factors of production such as land, labour, capital and enterprise) are finite, yet need are infinitive. Choices in construction are about what investments are made, how these are constructed and on whose behalf. • Basic economic concept: Opportunity Cost – the value of the alternative forgone by choosing a particular activity. In other words, choosing one thing inevitably requires giving up something else. An opportunity has been missed or forgone. (Bevort, 2020) 26/02/2022 11 • Reference • • • th Encyclopedia.com (2021), “Three Economic Questions: What, How, and Whom”, accessed 30 October 2021, https://www.encyclopedia.com/finance/encyclopedias-almanacs-transcripts-and-maps/three-economic-questions-whathow-whom. th Constructioneconomicsresearch.com (2021), “What is Construction Economics”, accessed 20 October 2021, https://www.constructioneconomicsresearch.com/what-is-construction-economics. th Bevort (2020), “Construction Business as Project Business: Project Business Automation”, 9 September 2020, https://www.acppubs.com/articles/construction-business-as-project-business-project-business-automation-160. 26/02/2022 12
