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).
Macroeconomic Significance
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.
Australia’s construction industry is one of the largest growing sectors in the country, with commercial construction work expected to increase by 9.3% in 2018 alone. With such rapid growth, the industry will continue to demand a larger share of the overall GDP, employ more people, and contribute to the larger economy of Australia.
ReplyDeleteIndeed. There is also the important role of the built environment in social welfare and wellbeing.
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