The economic role of construction and related industries
This post combines data from the annual Australian Bureau of Statistics publication Australian Industry for fifteen industries that have a direct relationship with construction and the built environment. These industries make up the Australian Built Environment Sector and in 2022-23 they employed 2.3 million people and produced $348 billion in output. The Built Environment Sector includes industries involved in construction of buildings and structures, management and maintenance of the built environment, suppliers of materials, manufacturers of machinery and components, and professional services providers.
The analysis is based on Industry value added (IVA) and Industry employment (in June for each year). IVA is the estimate of an industry’s annual output and its contribution to gross domestic product (GDP), and is broadly the difference between total income and total expenses. IVA is given in current dollars in Australian Industry, therefore changes in IVA reflect changes in both prices paid for goods and services and the quantity of output.
Table 1. Built Environment Sector Contribution to the Australian Economy 2022-23
Employment IVA $bn
Total Australian Built Environment Sector 2,266,000 348
Total Australian employment and GDP 15,369,000 2,564
BES Percent of total employment and GDP 14.7% 13.6%
Source: ABS 8155, ABS 5206, ABS 6202.
The IVA of the fifteen industries contributed 13.6 percent to nominal Australian GDP in 2022-23, within their long-run range between 13 and 14 percent of GDP since 2006-07. Over that period the BES share of total employment fluctuated between 14 and 16 percent of total employment, and was 14.7 percent in 2022-23.
Figure 1. Built Environment Sector Contribution to the Australian Economy 2007-2023
Source: ABS
The Built Environment Sector
Onsite construction work links suppliers of materials, machinery, equipment, products and components. Consultants provide design, engineering, cost planning and project management services. Once produced, buildings and structures 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, sewerage and waste disposal, provided by yet more industries. he collective significance of these industries is obscured by their diversity, ranging from architecture to waste disposal, and their geographic distribution. Of the fifteen industries included in the Australian BES, three are from Construction.
Table 2. Industries included in the Australian Built Environment Sector.
Supply industries | Demand industries | Maintenance industries |
Non-metallic mining & quarrying | Residential property | Water, sewerage & drainage |
Building construction | Non-residential property | Waste collection & disposal |
Heavy and civil engineering | Real estate services | Building & industrial cleaning |
Construction services | Building pest control services | |
Architectural services | Gardening services | |
Surveying & mapping services | ||
Engineering design & consulting | ||
Manufacturing industries |
Comparing the shares of employment and IVA for each BES industry in Figures 2 and 3 shows Construction and Building services have smaller shares of IVA than employment and are more labour intensive, while Water and sewerage, Professional services and Property and real estate services have larger shares of IVA than employment and are relatively more capital intensive.
Figure 2. Employment by industry
Source: ABS.
Figure 3. Output by industry
Source: ABS.
Since 2007 the combined share of BES employment for the three service industries of Property and real estate services, Professional services and Building services has increased from 34.2 percent to 36.1 percent, and their share of IVA increased from 33.7 to 38.5 percent. Manufacturing’s share of BES employment fell from 8.9 percent in 2007 to 6.5 percent in 2023, and the IVA share went from 10.7 to 6.3 percent.
Missing from the industries included in the BES are transport and distribution. Materials, components and builders’ suppliers have to be supplied to site by the transport industry, and there are thousands of hardware stores and builders’ merchants that maintain stock, manage logistics and extend credit to customers. Like their contractor and subcontractor customers, much of the supply chain for building supplies and materials is highly fragmented. A further complication is manufacturers who not only sell to distributors like the hardware chains, but also sell direct or act as their own distributors.
The Construction Industry is the Core of the Built Environment Sector
The Construction industry is divided into three sub-divisions: Building construction; Heavy and civil engineering construction; and Construction services (the trades). Of these, Construction services is by far the largest, employing 867,100 people in 2023 compared to 250,800 in Building and 142,400 in Engineering. In 2022-23, Construction accounted for 54.5 percent of BES employment, and that share has been between 54 and 55 percent since 2007.
However, over time the Construction share of BES IVA has been gradually falling, from 50.3 percent in 2007 to 46.9 percent in 2023. The share of BES employment is higher than the share of IVA, mainly due to the labour-intensive nature and lower productivity of Construction Services, where the share of Construction employment is much larger than the share of Construction IVA. Within Construction, internal dynamics have seen the employment and IVA shares of Construction services decline since 2007.
In 2007 Construction services accounted for 74 percent of Construction employment and 67 percent of IVA, and in 2023 these shares were 69 percent of Construction employment and 60 percent of Construction IVA. In 2007 the share of Building was 21 percent of Construction IVA and 17 percent of employment, and in 2023 these were 23 percent of IVA and 20 percent of employment. For Engineering, in 2007 the share was 12 percent of Construction IVA and 9 percent of employment, in 2023 the shares were 17 percent of IVA and 11 percent of employment.
The much larger share of IVA than employment for Engineering reflects the higher capital intensity of engineering work with its extensive use of heavy machinery like excavators and road making equipment. Although to a lesser extent than Engineering, this is also the case for Building because the use of cranes and other equipment makes it more capital intensive than Construction services, where hand tools are used.
Figure 4. Building, Engineering and Construction services shares of employment
Source: ABS.
BES Manufacturing
In Australian Industry data for Manufacturing is provided at the level of industry class, where broad categories like Wood products or Metal manufacturing are divided into specific industries based on their products. At that level it is possible to identify seventeen manufacturing industries that are primarily associated with the built environment. For industries like Concrete products, Clay bricks or Structural aluminium inclusion is straightforward.
However, some industries will supply others outside the BES. Therefore, BES manufacturing data requires some give and take, so industries like Textile floor coverings (employs 1,622) and Reconstituted wood products (chipboard and particleboard manufacturing, employs 2,222) are excluded, while Mining and construction machinery (employs 9,556) is included.
In 2023 there were 147,776 people employed in construction related manufacturing industries. As Table 3 shows, the three largest industries are Wooden structural fitting and components with 27,908 employees, Structural steel fabricating with 21,521 employed, and Architectural aluminium products with 16,703. There are several industries that employ around 10,00 people, including Other structural metal products, Glass and glass products and Ready-mixed concrete. At the other end of the scale Veneer and plywood, Clay bricks, Plaster products, and Metal roof and guttering each employed less than 2,000 people.
Table 3. Built Environment manufacturing industries: persons employed 2023
Prefabricated wooden building manufacturing 1,412
Wooden structural fitting and components 27,908
Veneer and plywood manufacturing 1,268
Paint and coatings manufacturing 7,128
Glass and glass product manufacturing 9,374
Clay brick manufacturing 1,310
Cement and lime manufacturing 4,204
Plaster product manufacturing 1,435
Ready-mixed concrete manufacturing 9,213
Concrete product manufacturing 8,133
Structural steel fabricating 21,521
Prefabricated metal building manufacturing 8,636
Architectural aluminium product manufacturing 16,703
Metal roof and guttering manufacturing 2,162
Other structural metal product manufacturing 10,315
Fixed space heating, cooling and ventilation equip. 5,488
Mining and construction machinery manufacturing 9,556
Total Built Environment Sector 147,766
Source: ABS.
Figure 5. Australian Built Environment Sector manufacturing industries
Source: ABS. Includes construction related industries.
Since 2007 the share of BES Manufacturing in total manufacturing IVA has risen from 15 percent to 16 percent in 2023. The large increases in 2022 and 2023were due to the rise in input costs, as prices for materials and labour increased by around 40 percent.
Macroeconomic Role
The Australian BES has a significant macroeconomic role, firstly as a major source of employment, and second through the strong backward linkages in the supply chain to local manufacturing industries and materials suppliers. The effectiveness of economic policy often relies on the timing and extent of the BES response to changes in policy settings, seen in the 6.2 percent rebound of construction employment after the pandemic in 2020.
Two other examples are the BES response to increased government expenditures in the fiscal policy response to the global financial crisis in 2008, and the increase in residential building from monetary policy loosening as interest rates were lowered to cushion the transition after the end of the mining boom in 2014.
During the financial crisis following the collapse of the US sub-prime mortgage market in 2008, there was a rapid and large increase in Commonwealth government expenditure on building work over 2009 and 2010, focused on schools. This fiscal policy stimulus was intended to maintain employment and economic activity at a time when the economy was slowing after the rate of GDP growth in 2010 dropped to half the rate of 2009. The increase in public expenditure led to an increase in BES employment of 5.3 percent, from 1,834,000 in 2010 to 1,932,000 in 2011.
After 2016, as Engineering construction work dropped from the record highs of the mining boom between 2013 and 2015, the Reserve bank of Australia lowered interest rates to boost other parts of the economy. The subsequent increase in residential building work during the apartment boom between 2016 and 2019 prevented a recession during the transition period after mining investment was no longer driving growth. That increase in residential building led to an increase in BES employment of 6.7 percent, from 1,918,000 in 2016 to 2,046,000 in 2019.
Figure 6. Australian Built Environment Sector employment
Source: ABS.
Conclusion
When a dense network of many different firms from different industries are too geographically distributed to be a cluster, they are an economic sector. There is no specific definition of an industrial sector, as it is a broad collection of firms with one or more common characteristics, like ‘agriculture’ or ‘the business sector’, though firms in these sectors come from many different industries. This is also the case with the diverse collection of firms and industries involved in constructing and maintaining the built environment.
There are fifteen industries with data available from the annual ABS publication Australian Industry that can be classified as contributing to the built environment. The industries included in the Australian Built Environment Sector form one of the largest and most important industrial sectors in the economy. The BES includes industries involved in construction of buildings and structures, maintenance of the built environment, and related suppliers of materials and professional services. The collective significance of these industries is obscured by their diversity, ranging from architecture to waste disposal, and their geographic distribution. Viewing them as an industrial sector provides perspective on their role and significance in the economy.
The analysis is based on Industry value added (IVA) and Industry employment. In 2022-23, the BES employed 2.3 million people and produced $348 billion in output, their IVA contributed 13.6 percent to nominal Australian GDP and their share of total employment was 14.7 percent. The construction industry is the core of the sector, making up 55 percent of BES employment, and 47 percent of BES IVA. Seventeen manufacturing industries are included in the Australian Built Environment Sector, and in 2023 there were 147,776 people employed in these construction related manufacturing industries.
The Australian Built Environment Sector has a significant macroeconomic role as a major source of employment, and through its links in the supply chain to local manufacturing and materials suppliers. The effectiveness of economic policy often relies on the BES response to changes in policy settings, like the 6.2 percent rebound of construction employment after the pandemic in 2020. Two other examples were BES employment growth in response to increased government expenditures in the fiscal policy response to the global financial crisis in 2009, and to the increase in residential building from monetary policy loosening as interest rates were lowered to cushion the transition after the end of the mining boom in 2014.
In the same way Manufacturing is not itself an industry, but a collection of industries that make up an industrial sector of the economy where firms have similarities in products and processes, industries that contribute to the construction and maintenance of the built environment can also be collected and their contribution to output and employment measured. The economic role of the BES is important and better data on its structure and role can contribute to policy decisions that significantly affect both its own performance and macroeconomic outcomes.
