Construction, management and maintenance of the built environment
The built environment is important. We are surrounded both by it and by its construction, management and maintenance. Of necessity, there is an industry, in fact a collection of industries, that create, manage and maintain the built environment.
The building and construction industry, at around seven percent of gross domestic product (GDP), is responsible for on-site work, but with that work the construction industry brings together an extensive network of suppliers in production of the built environment.
This can be thought of as the difference between an industry cluster, made up of contractors and sub-contractors supported by plant and equipment suppliers, consultants, manufacturers, distributors and others, and the on-site work that is measured as ‘construction activity’. Then, once produced, buildings and structures need to be maintained.
A term which encompasses the large number and diverse range of participants and industries in the production, operation and maintenance of the built environment, from suppliers to those responsible for management and maintenance, is the Built Environment Sector (BES). The Australian BES combines data for 16 industries, in one of the largest and most important industrial clusters. All else equal, better data leads to better informed policy.
The Australian Built Environment Sector
The method used to measure the size and extent of the BES is to collect the data for output and employment for the relevant industries and sub-industries available from the Australian Bureau of Statistics (ABS). Economic activities are subdivided into industries, which are groups of firms with common characteristics in products, services, production processes and logistics.
Industry value added (IVA) is an estimate of an industry’s output and its contribution to gross domestic product (GDP), and is broadly the difference between the industry’s total income and total expenses. Employment and IVA in current dollars for industries is provided annually in Australian Industry (ABS 8155), with the most recent issue for 2017-18. The three largest contributors to BES output and employment are Construction (1,115,000 employed), Property operators and real estate services (341,000) and Professional, technical and scientific services (248,000).
Construction projects have many participants and extensive linkages with other sectors, measured through the industry’s high multiplier effect of close to 3. Through those linkages the impact of construction on other parts of the economy is much greater than the direct contribution, which gives the industry an important macroeconomic role, seen clearly in the effects of the Commonwealth Government’s fiscal response during the financial crisis in 2009-10.
Separating the BES from the other industries in the ABS data shows how that government spending on school buildings and infrastructure flowed through to the wider economy over the following year. Later, in the residential boom from 2013-17, the BES supported output across the economy during the transition at the end of the mining boom, as business investment fell from 18 percent of GDP to 8 percent.
Another factor that regularly emerges is capacity constraints, which strongly affects prices and is again becoming an issue with current infrastructure projects. The quantity of materials like gravel and concrete that can be produced in one year is limited, there are only so many engineers and project managers, and so on. The ABS data also shows a significant part of the 2009-10 spend went on increased prices and profits for building and construction projects, and the mining boom significantly increased wages in the engineering sector.
With over ten years of data measuring the BES its relationship to the business cycle can be identified, and the output and employment indicators used as a factor in the pipeline of planned infrastructure projects. The BES also appears to be a potentially useful leading indicator of activity in the wider economy.
Policies, Objectives and BES Metrics
In a time of rapid urbanisation and great social and environmental challenges, the built environment and city policies have become central issues in public policy. The quality of the built environment the BES delivers is a major determinant of our quality of life. Further, in a fundamental sense, how cities function depends on how well the BES can deliver the projects required, and the 37 capital and regional cities in Australia generate two-thirds of GDP.
There are many issues affecting the built environment, many of which are wicked problems of great complexity that range widely across industries, institutions and regulatory systems. How measuring the BES helps is by providing an overview of the value chain, from suppliers to end users, and offering a view of pathways to future policy goals. It does this by allowing possibilities for deeper integration between these participants. For example, contributions to reducing the carbon footprint across supply (particularly concrete), construction (transport) and commercial and industrial use (energy) could be allocated across the BES with targets for each sector. And if sufficient firms were to commit to the target, many of which are already investing in modular building, rooftop solar, improving energy efficiency and so on, this could be done by industry instead of government.
For government, an important area of application could be evaluating the effects of the City Deals and Smart Cities policies, with their focus on the built environment. There are now nine City Deals underway in Australia, bringing together federal, state and local governments in a long-term strategic plan, typically focused on transport infrastructure and economic development. The Western Sydney Airport deal is a good example. The BES is the transmission channel for turning that investment into infrastructure, communities and jobs. Similarly, the rollout of smart city technologies will involve
These City Deals and Smart Cities policies come under the Department of Infrastructure. A problem they identify is the lack of current data on the effectiveness of these policies:
It is important that we are able to measure the success of our Smart Cities Plan, particularly our City Deals which will outline defined development goals. For many of these goals, there is no baseline data readily available to determine and track a city’s performance. We will work with the states and territories, councils, communities and the private sector to identify key city metrics and the data required to assess performance. This data will be critical in the design of targeted policies, reforms and capital investments, and to measure the effectiveness of these actions.
The BES metric of most interest could be changes in employment, in both the number and composition of jobs. Over the ten years of a City Deal, jobs in the BES are created first in supply industries like materials, manufacturing and construction, then in the demand and maintenance industries like property, real estate and building services. From this data other metrics like industry value added per employee can be found. A significant part of the economic growth after the city deal will be from growth in the region’s BES.
In a similar way, the BES also allows a view of industrial development. Economies grow by upgrading the products they produce and export, but the technology, capital, institutions, and skills needed to make new products are more easily adapted from related products with common labour and capital requirements. This network of relatedness between products means that industries move through a product space by developing goods close to those they currently produce. The technological options available for an industry are strongly influenced by its current position in the BES product space and its ability to adapt to new products.
With the wide range of new production technologies currently emerging, such as 3D printing of concrete, automated machinery and buildings made with new materials like engineered wood, the BES is a laboratory for the fourth industrial revolution. Because it is not possible to know now, which of these technologies will work at scale, a role of policy as facilitator will provide opportunities for new methods of production, organisation and management to be tested on demonstration projects.
Another issue that has arisen is build quality and product safety. The recent Shergold Weir report -Building Confidence - highlighted how difficult policy-making in the built environment is. The report mainly addressed the issue of flammable cladding, and made 24 recommendations, but acknowledged these were the responsibility of state governments in Australia. There is a wide variety of legislation, and different parties are involved during design, construction and certification (professional services, contractors and suppliers, and public and private certifiers respectively).
In February the NSW Government announced the appointment of a Building Commissioner, following the report’s central recommendation, to act as a consolidated building regulator with responsibility for licensing and auditing designers, requiring their building plans to specify a building that will comply with the Building Code of Australia, and for builders, who will have to declare that buildings have been built according to their plans. Banks have risk compliance officers, the BES may need product compliance officers.
The Commissioner’s proposed role cuts across the BES, taking the objective of product safety and built quality and allocating responsibility across the supply chain by having the relevant compliance and certification required for all parties at each stage of design, construction and operation. Consolidating the data on the range of industries and firms involved supports that role, and could improve the effectiveness of policies.
Finally, taking a broader view of an industrial sector provides perspective on its role and significance in economic and technological development. When economic activities are spread across a wide range of individual industries the contribution of the whole is not obvious. This is why the tourism industry has an annual Tourism Satellite Account produced by the ABS. This brings together the contributions of a number of industries like accommodation, tour operators and entertainment, to estimate their total output and employment. The contribution of tourism to GDP was 3.1 percent in 2017-18, and the share of employment was 5.2 percent.