Employment Trends in Australian Built Environment Industries

 Record High in Built Environment Employment

The number of people employed in the 16 industries that make up the Australian Built Environment Sector reached 2.23 million in 2020-21, an increase of nearly 10 percent over the previous year, contributing 17 percent to total employment in Australia. 

Figure 1

The largest industry is Construction, which employed 1.2 million people (54%), followed by Property and real estate with 333,000 (15%), Professional services 269,000 (12%) and Building services 206,000 (9%). These four industries include a dozen smaller industry groups, and account for 90 percent of persons employed in construction and maintenance of Australia’s built environment. 

 

Figure 2

The big increase in 2021 was a rebound after the 1.3 percent fall in total BES employment in 2019-20. In all industries, with the exception of Water and Waste, employment fell in 2020, and by over three percent in Property and real estate services. In the post-lockdown recovery employment growth in 2020-21 was strong, at over eight percent in Construction and over six percent in both Building services and Professional services. 

 

Figure 3

In the decade from 2007 to 2017 there was a small increase in total built environment employment, however the rate of employment growth since 2018 has been much stronger. The only industry that has not increased employment is Property and real estate services, but in 2020-21 the other industries all had record numbers of people employed after a significant increase in employment. However, this was an unusually large upturn and much larger than the annual increase in output for these industries. 

 

Figure 4

The average growth rate of total employment in the five years to 2021 has been one percent higher than the 15 year average, at 2.5 percent a year. The highest 5 year average rates of growth in employment were five percent a year in the combined Water supply, sewerage and drainage services and Waste collection, treatment and disposal services, and over four percent a year in Professional services. Also of note is the growth in manufacturing employment after a decade of decline. 

 

Figure 5

The Australian Built Environment Sector

 

The Australian Built Environment Sector uses data provided in the Australian Bureau of Statistics annual publication Australian Industry, produced from a combination of directly collected data from the annual Economic Activity Survey conducted by the ABS, and Business Activity Statement data provided by businesses to the Australian Taxation Office. The data includes all operating business entities and Government owned or controlled Public Non-Financial Corporations. Australian Industry excludes the finance industry and public sector, but includes non-profits in industries like health and education and government businesses providing water, sewerage and drainage services. The industries included account for around two-thirds of GDP. Industries are groups of firms with common characteristics in products, services, production processes and logistics.

 

Figure 6

Data on the construction industry captures the onsite activities of contractors and subcontractors. However, onsite work brings together suppliers of materials, machinery and equipment, products, components and other inputs required to deliver the buildings and structures that make up the built environment. Consultants provide professional services such as design, engineering, urban planning, cost planning and project management as inputs into building and construction projects. There are also inputs from transport, finance and legal services, although data for these services is not available. 

 

Other industries like tourism and defence are structured around such value chains and production networks, and when firms from different industries share sufficient characteristics they are described as an industry cluster or sector. In the case of tourism an annual satellite account that combines the industries involved is produced by the ABS.

 

Table 1. Industries included in the Australian Built Environment Sector

Supply industries	Demand industries	Maintenance industries
Non-metallic mining and quarrying	Residential property	Water, sewerage and drainage
Building construction	Non-residential property	Waste collection, and disposal
Heavy and civil engineering	Real estate services	Building and industrial cleaning
Construction services		Building pest control services
Architectural services		Gardening services
Surveying and mapping services
Engineering design and consulting
Manufacturing industries

 

 

Fewer Large Contractors in Australia

Long-run Changes in the Number and Size of Firms in the Australian Construction Industry 

There have been five Construction Industry Surveys (CIS) by the Australian Bureau of Statistics (ABS), the most recent for 2011-12.  All five surveys found the construction industry is overwhelmingly made up of small firms which contribute most of the industry's output and account for almost all of the number of enterprises. Table 1 shows the breakup between contractors in Building and Engineering and the subcontractors in Construction services (which were called trades in the earlier surveys). The 2002-03 survey used different categories of businesses (not establishments) in residential, non-residential and non-building, and trade services and is not comparable with the other surveys. In 2002-03 there were 339,982 businesses of which 269,228 were trade services and 70,753 were residential, non-residential and non-building businesses.

How the size of firms is measured in the CIS has changed twice. The three surveys in 1996-97, 1988-89, and 1984-85 divided firms into three sizes: employ less than 5, employ 5-19, and employ 20 or more. The 2011-12 survey divided firms into small 0-19, medium 20-199 and large with over 200 employees. The 2002-03 survey divided firms by income and the data cannot be compared to the other surveys however, although income was used to classify firms, the 2002-03 survey produced a similar result, finding 90% of firms were small or very small. Here the 1996-97 survey and the 2011-12 survey data is presented. The breakup of firms by size is in Table 2.

In the 1996-97 survey businesses with less than five employees accounted for 94% of all businesses and over two-thirds of all employees. Less than 1% of businesses employed 20 or more. Businesses with less than five employees accounted for slightly less than half the total income and expenses, whereas businesses with employment of 20 or more accounted for almost one-third of these. The data in Table 3 is percentages, showing the importance of the 0.62% of large firms. Their 13.6% of employees earned 32.3% of salaries and wages, generated over 28% of income and nearly 25% of gross output.

The survey in 2011-12 classified firms by the number of employees into small 0-19, medium 20-199 and large with over 200. The same data for the 2011-12 survey is in Table 4. The changes between 1996 and 2012 are revealing. The total number of firms has increased marginally from 195,000 to 210,000, but the share of small firms has increased from 94% to 98% as the number of medium and large firms fell from 12,300 to less than 5,000. There was a trend with the number of medium sized firms decreasing to less than half, while slightly increasing their share of industry employment.

In 2011-12 less than 0.1% of firms were large, employing 18.6 % of the workforce, paying 32% of wages and salaries and generating 27% of industry income and 25% of output. 

 

These are remarkably similar to the 1996-97 CIS numbers, however, the 186 large firms in 2011-12 had almost the same share of employment, income and output that 1,200 firms had in 1996-97. This was a significant increase in industry concentration. In the 1996 survey the 1,200 firms employing 20 or more had a total of 66,000 employees and accounted for 13.6% of employment and 24.4% of industry output. 

 

In 2012 there were 186 firms employing 200 or more with 177,000 employees, accounting for 18.6% of employment and 25.5% of IVA. These long-run changes in industry structure can not only be the result of business failures, which are common with SMEs but less so for large firms. Instead, there has been a long wave of mergers and acquisitions reducing the number of large firms and increasing industry concentration. 

A stylized representation of construction industry firms by market type is in table 8, showing how concentrated markets can be the outcome of either firm size or specialization. Figure 5 relates market type to contract size. As a firm gets larger it takes on bigger projects and compete with fewer other firms. How construction economists sought to reconcile theoretical and conceptual models of construction firms with the messy reality of the construction industry is discussed in the next section.

Construction Tech on the Move

 Startups are Starting to Come to Market

Over the last few months there has been a series of capital raises and an IPO for Australian construction technology companies. This is a highly competitive landscape that is developing quickly with a focus on large scale procurement platforms. The table does not include the many local startups with products for site inspections and defects, safety and compliance and so on.

In a nice example of spillover effects, after the sale of Aconex founders Rob Phillpot and Leigh Jasper set up Xenoca and Significant Capital Ventures as VC funds for joint investments, and have invested in one IPO and four startups that have disclosed capital raises. Leigh Jasper has also invested with Ian Beatty and Salta Capital’s Andrew Sypkes and David Tarascio in venture fund SecondQuarter, which has raised $50m+ and has invested in Propeller (3D mapping), and ActivePipe (real estate marketing).

Leigh Jasper is also on the board of Salta Properties. Salta and Smorgon backed the modular Tribe Hotel designed by Mark and Melissa Peters and built in Perth in 2018 by Probuild, with Mantra as operator. Mantra was acquired by Accor, who announced in March 2019 plans to develop more than 50 of the modular hotels.

Taronga Ventures

Taronga Ventures “invests in emerging innovation, technology and business models shaping the future of the built environment. We offer direct venture investment, as well as programs and advisory services to support the growth of our portfolio companies and their impact on the traditional real estate sector.” They also have a few construction tech investments. Their RealTech fund was launched last year, the program director is Julian Kezelman. Their startups are:

Procurement platforms are looking like the next big thing in construction tech. In the UK Pagabo launched a procurement platform in February, mainly for the public sector, using framework agreements. Here is their relevant page which says:“Benefit from streamlined procurement and best value on all your mid-sized construction projects through our National Framework for Medium Works.Running until December 2022, this fully OJEU compliant Framework can be used to commission a full range of building works, valued between £250k to £10m.Providing real value and competition, it includes 46 regional and national contractors, split across 3 project value bands. And there’s complete flexibility in how you award your contract - either Direct Award your preferred contractor or go through a Further Competition with a selected few.”

Production of the Built Environment

Industries, Clusters and Sectors

Parts of the economy that involve many different contributors and participants are often called an industrial or economic sector, an example is the non-profit sector with its wide variety of organisations. Although the idea of an industrial sector has no precise meaning, it is often used to describe a loose collection of firms with one or more common characteristics, like ‘manufacturing’ or ‘the business sector’, though firms in these sectors come from many different industries.

The starting point is the concept of an industry, which is defined in the Standard Industrial Classification (SIC) used by national statistical agencies as a group of firms with common characteristics in products, services, production processes and logistics. These firms are classified into a four-level structure. The highest level is alphabetically coded divisions such as Agriculture, forestry and fishing (A), Manufacturing (C) and Information and communication (J). The classification is then organised into two-digit subdivisions, three-digit groups, and four-digit classes.

The boundaries around an industry are tightly defined by the SIC, to allow identification of individual industries as producers of goods and services and measurement of their contribution to output and employment in the economy. However, to produce something supplies are needed, purchased from other producers, and these relationships between industries are also important. For example, bricks are manufactured products supplied to property developers to provide buildings for their customers. Many industries are structured around such supply chains and production networks, and when enough firms share sufficient characteristics they are often described as an industry cluster.

 

An industry cluster brings together a group related firms, and was originally applied in the 1990s to specific locations like the wine industry in California’s Napa Valley or Bordeaux in France. Over time, the concept itself broadened as different types of clusters were identified, such as creative industry hubs or knowledge centres. Two types of industry cluster are: 

      1.      Geographical – industries using the same resources in a specific location

·        Movies – Hollywood US, Bollywood India;

·        IT – Silicon Valley CA., Silicon Alley NY., Silicon Glen Scotland, Bangalore India;

·        Leather goods, spectacles and glasses – Italy;

·        Health – Boston US, Oxford England, Chennai India;

·        Electronics – Guadalajara Mexico, Cordoba Argentina, Guangdong China;

·        Finance – London England, New York US, Geneva Switzerland; and

2.      Vertical – a hub and spoke value chain from suppliers to end products

·        Automotive – Detroit US, Dusseldorf Germany, Turin Italy, Curitiba Brazil

·        Aerospace – Toulouse France (Airbus), Seattle US (Boeing)

·        Smart phones – Guangdong China (Apple), Hanoi Vietnam (Samsung)

Some industries do not have central locations like the clusters in IT, wine, finance etc., or major hubs where production is concentrated like automobiles and aerospace. These industries are built around decentralised production, distribution and delivery networks that make their products widely available to clients and customers. Four examples are:

·        Pharmaceuticals – a globally distributed industry, with countries combining some form of domestic production and imported supplies;

·        Shipbuilding – brings many suppliers together in a few locations;

·        Electricity generation – brings many suppliers together in many locations;

·        Building and construction – the world’s most ubiquitous industry, sharing the most widely used materials of wood, clay, glass, steel and concrete. Is this really a cluster?

 

Building and construction, in fact, is only one of the many industries involved in the production of the built environment. There is a diverse collection of industries that create, manage and maintain the built environment. On-site work links suppliers of materials, machinery and equipment, products and components, and all other inputs required to deliver the buildings and structures that make up the built environment. Consultants provide design, engineering, cost planning and project management services. Once produced, buildings and structures then need to be managed and maintained over their life-cycle, work done by another group of related industries. The built environment also needs infrastructure and services like water and waste disposal, provided by yet more industries.

A dense network of many different firms and participants such as this is often called an industrial or economic sector, because it is too diverse and distributed to be a cluster. There is no definition of an industrial sector, beyond a broad collection of firms with one or more common characteristics, like ‘manufacturing’ or ‘the business sector’, though firms in these sectors come from many different industries. There are also sectors based around a definable market, two examples being:

1.      Defence - there is no defence ‘industry’ because suppliers come from many different industries like IT, aerospace and shipbuilding, but as a sector share resources and clients; and

2.      Tourism - which brings together the contributions of industries like accommodation, tour operators and entertainment. This is why the tourism sector has an annual Tourism Satellite Account produced by the ABS each year.

If the built environment encompasses the entirety of the human built world, then the built environment sector (BES) is the collection of industries responsible for producing, managing and maintaining the buildings and structures that humans build. To be included in the BES an Industry needs a direct physical relationship with buildings and structures. Those industries can be divided into those on the demand side and those on the supply side, like materials or specialised tradesmen, Demand side industries like property developers and facility managers pull output from the supply side, both for new output and for servicing and managing existing assets. Therefore the BES is a sector more like defence than tourism, because it also produces long-lived assets for clients outside the sector (governments and owners respectively) that require repair and maintenance, and that R&M generates significant ongoing revenue for firms across the broad industry sector that produces those assets.

A final requirement is that data on the industries included in the BES needs to be available at a level of detail that separates out BES components of industries like manufacturing and professional services. Generally, this excludes industries such as transport, legal and financial services. These industries clearly play a role in the BES, but that role is hard to identify in Industry statistics because of the level of aggregation in the data. Another complicating issue is that industry-level statistics can vary greatly across different releases by an agency, due to the different data sources and methodology used, and also between countries, whose national agencies typically use their own version of the SIC.

The concept of the BES is broad and extensive, so cannot be precise and exact. While the boundaries of industries and markets are important, in practice the data and SIC definitions are the starting point for the data used. The industries included are selected because they clearly have a relationship with construction, management and maintenance of the built environment. This may not capture every last contribution to the BES, but it does allow the development of a profile of the sector. Measuring the BES provides data on its relationship to the wider economy, and is relevant to a wide range of policies and issues currently facing the built environment.