The Australian Built Environment Sector 2023

 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.

 

 

Getting a Broad View of Constructing the Built Environment

A Satellite Account for Built Environment Industries

 

 

How the built environment is created and maintained through project initiation, design, fabrication and construction to operation, repair and maintenance is an ongoing process. The network of firms involved includes construction contractors and subcontractors, property management and real estate services, manufacturers of fittings, finishings, plant and equipment, suppliers of building materials, and professional services. All these firms belong to industries that are part of the process of producing and maintaining the built environment. 

 

National agencies collect data and present it in tables following the format given in the System of National Accounts (SNA) published by the UN. The national accounts present highly aggregated estimates of expenditure, output and income based on the detailed data collected on the economic activities of households, firms, non-profits and government. That data is collected using the methods, definitions and categories provided in the SNA, ISIC and other publications. Firms and other organizations are assigned ISIC codes on the basis of common characteristics in products, services, production processes and logistics, and collects companies and other organizations into groups with similar characteristics.

 

Industries as defined by SIC classifications cannot capture all their associated economic activities, and when economic activities involve a range of different industries the contribution of a sector is not obvious, despite its importance. Because the ISIC system puts strict boundaries around an industry, what is included or left out of the definition of an industry determines its extent. However, inclusions and exclusions vary greatly between industries and there are many anomalies. Examples are:

·      Health insurance is included in Insurance not in health expenditure

·      Retail sales by chemists is included in Pharmaceutical expenditure as well as manufacturing and R&D

·      Research is classified to industries not by purpose, and often done by institutions

·      Automobile manufacture includes design, Construction does not 

 

The solution to the issues raised by narrow SIC industry definitions is a satellite account that reclassifies expenditures from different industry groupings into a single sector. Satellite accounts have been produced for many sectors that are made up of several industries, such as health, the digital economy, the environment, R&D, the space industry, and infrastructure. They have also been produced for non-profit institutions, volunteering, education and training, and unpaid household activities. They are used to provide more detail on sectors that are not visible in current statistics, following guidelines provided by the SNA for their preparation. The most widely found satellite account is for tourism, so far produced at various times for over 50 countries. This brings together the contributions of industries like travel, accommodation, hospitality, tour operators and entertainment to estimate their total output and employment.

 

The primary purpose of satellite accounts is to improve policy-making by providing better, more granular data, and demand for satellite accounts has increased as their usefulness has been shown. A 2019 survey by the UN found 80 countries had produced 241 satellite accounts covering over 20 different topics, with 148 of those done since 2000, mainly on health, tourism and the environment. The number produced by country varied from one to 15, the median number of satellite accounts in production was 2 and the average was 4. As a result, there are many guidelines for producing a satellite account available, usually produced through international collaboration, and the methodology has been adapted to a wide variety of sectors. 

 

 

Figure 1. Number of satellite accounts by sector

Source: Conference of European Statisticians, 2019: 11. In-depth review of satellite accounting, Paris: UNECE.

 

 

Preparation of a satellite account requires significant research and development. Different data sources have to be harmonized and measurement challenges met. The OECD published A System of Health Accounts in 2000 (updated 2011) after 15 years of development of the concepts and methods needed for a health satellite account, and the US Bureau of Economic Analysis (BEA) worked on their R&D satellite account for over a decade. However, the research is being done and more satellite accounts are being produced, such as the 2020 estimates for The Small Business Economy, and the Space Economy. In 2021 the OECD published the first Working Paper on a Transport satellite account.

 

A built environment sector satellite account would restrict its scope to relevant activities, and would therefore remain within the production, consumption and asset boundaries of the SNA framework, a type of satellite account known as a thematic account. Some examples of thematic accounts are agriculture, tourism, culture, and sport and recreation. Developing a sector based thematic account involves regrouping, re-arranging and re-packaging existing national accounts data by creating definitions of the economic activities, products, suppliers and users involved.[i] In some cases the national accounts data is supplemented by other sources, such as surveys of household activities or expenditure, that collect data on the use of products and supply of services not otherwise available. 

 

Despite issues of data quality and availability, bringing together the range of industries that contribute to the production, maintenance and management of cities, infrastructure and buildings in a satellite account would improve our understanding of both the sector and the wider economy. For example, urban development and city policies involve significant infrastructure spending, which is often their main focus. However, it is the associated induced industrial, commercial and residential development around the new infrastructure that drives longer-term growth. A satellite account captures that activity. 

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[i] In selecting a number of industries of special interest ‘It is common practice to refer to such groupings of industries as “sectors” even though they do not constitute institutional sectors as the term is used in the SNA. The SNA does not try to provide specific and precise criteria for the definition of what identifies a key sector or activity….. in some important cases, such as tourism and environmental protection activities, the process of identification of characteristic and connected products is complex because not all the relevant activities and products appear in the central framework classifications.’ OECD, 2000. A System of Health Accounts, OECD Publishing, Paris. 

     Characteristic products are those that are typical of the field, for construction characteristic products are buildings and structures, project management and other professional services. Connected goods and services includes expenditure on products that are not typical and are classified to other product categories.  In construction quarrying, manufactured products and transportation of materials and components may be considered connected.

Australian Built Environment: Output and Employment

 

Industries are groups of firms with common characteristics in products, services, production processes and logistics, subdivided by the SIC 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 organized into two-digit subdivisions, three-digit groups, and four-digit classes. SIC codes are therefore two, three and four-digit numbers representing industries, defined as firms with shared characteristics.

The SIC definition of the construction industry captures the onsite activities of contractors and subcontractors, and this data on building and construction work is taken to represent the industry. However, onsite work brings together suppliers of services, materials, machinery and equipment, products, components and other inputs required to deliver the buildings and structures that make up the built environment. When enough firms share sufficient characteristics they are often described as an industry cluster or sector.

The data used here is provided in the Australian Bureau of Statistics annual publication Australian Industry (ABS 8155), produced using a combination of data from the annual Economic Activity Survey and Business Activity Statement data provided by 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 sectors, 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 and the data is presented at varying levels for industry divisions, subdivisions and classes. The most recent issue is for 2020-21.

There is data at the two digit subdivision level for the Construction services and Property operators and real estate services industries. For the subdivisions in Professional, scientific and technical services and Building cleaning, pest control and other services the data includes contributions from other classes outside the built environment. Therefore, for these industries the two digit subdivision estimates have to be weighted using the four digit class data for the built environment component. These proportions are released as supplementary tables and provide data at the class level. Professional, scientific and technical services were included in 2015-16, and in 2016-17 this data was provided for two divisions: Rental, hiring and real estate services, with subdivisions Rental and hiring services (except real estate), and Property operators and real estate services; and Administrative and support services, with subdivisions Administrative services and Building cleaning, pest control and other support services.

The data is not complete because some industries cannot be separated into the relevant classes from Australian Industry. For example, rental of heavy machinery and scaffolding (class 6631) is in subdivision 66 but the data is not available to separate it from the other classes. Also, services such as marketing, legal, insurance and financial are important inputs, but again are not identifiable. Government spending on infrastructure and investment in departments like health and education is included through supply industries, although any maintenance and work done internally will generally not be included. That also applies in industries like retailing and transport where some unknown proportion of work is done in-house.

There is also leakage around the boundaries of industry statistics: some glass is used in mirrors, some in car windscreens; textiles are used in buildings; architects design furniture; engineers repair machines as well as structures, and so on. Because Australian Industry uses tax and business register data, it is the self-classification of firms to SIC industry classes that fundamentally determines the structure and scope of that data. Needless to say, such classifications are not perfect, particularly in regard to large multi-unit or multi-divisional organisations. The data here includes sixteen industries that together form one of the largest and most important industrial sectors in the economy.

Table 1. Australian Built Environment Industries

Supply industries Demand industries              Maintenance industries

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

Figure 1.

Table 2. Economic Contribution of Australian Built Environment Industries 2020-21

                                                Employment IVA $billion

Total Australian Built Environment Industries 2,228,000 282

Total Australia Employment and GDP              12,369,000 2,069,178

Built Environment share of Australia total          16.9% 13.6%

Sources: ABS 8155, ABS 5206, ABS 6202.

Figure 2.

Figure 3.

Figure 4.

Figure 5.

The IVA of the sixteen built environment industries contributed 13.6 percent to Australian GDP in 2018-19, within a long-run range between 13 and 15 percent of GDP since 2006-07. The sixteen built environment industries share of total employment was 16.9 percent, and its long-run range was between 16.5 and 17.5 percent of total employment.

Figure 6.

Figure 7.