Entry, Exit and Insolvencies in Australian Construction

 The number of businesses is at a record high

 

 

There has been a lot of attention on the increase in insolvencies of Australian construction businesses. In 2023-2024 the number of insolvencies was 3,882, which was the highest number across all industries, and the construction share of total insolvencies was 26 percent. However, the reporting of these numbers usually does not include any context, and therefore lacks perspective, and focusing on the number of insolvencies can be misleading if industry characteristics are not also considered. 

 

This post compares the insolvencies data from the Australian Securities and Investment Commission (ASIC) with the data available from the Australian Bureau of Statistics publication Counts of Australian Businesses. The ABS data gives the number of businesses that enter and exit each quarter, and the number of businesses operating at the end of each quarter, and is published quarterly with data that goes back to June 2020 in its current format.

 

The ABS data is based on Australian Business Number (ABN) registrations and sourced from Australian Tax Office records of businesses that file a business activity statement and pay Goods and Services Tax (GST). An entry is an ABN that starts paying GST or restarts after a break of more than five quarters. An exit is an ABN that is no longer actively trading because the business has cancelled their ABN, ceased remitting GST, or the ABN has changed due to a merger or acquisition. Therefore exits occur when a business has closed, has been sold, has significantly changed structure, or is no longer operating in Australia. Importantly, insolvencies are only a small proportion of the number of exits. 

 

 

Insolvencies

 

Data on insolvencies comes from the Australian Securities and Investment Commission (ASIC). There are three data sets: insolvencies where an external administrator is appointed for the first time; for any later appointment of an administrator to that business; and for voluntary liquidations where a solvent business reports it is no longer operating. Figure 1 shows this data for three years to 2024. In those years there were only 185, 213 and 170 voluntary liquidations of insolvent construction firms that ceased operating.

 

Construction insolvencies where an administrator or controller was appointed for the first time went from 1,284 in 2021-2022, to 2,213 in 2022-2023, then up to 2,977 in 2023-2024. This was a significant increase, and is the number that is typically used in media reports on construction insolvencies (e.g. Australian Financial Review, Macrobusiness). 

 

A better number includes businesses failing for a second time, or more, after a restructuring and agreement with creditors that allowed a business to continue. There were 355, 599 and 905 of these in the three years, so there was a big increase in construction businesses going into administration again in 2023-2024. Adding repeat insolvencies to first insolvencies and voluntary liquidations gives the total for all insolvencies.

 

Figure 1. Australian construction 2022-2024

 

Source: ASIC

 

 

Construction does have the highest number of insolvencies compared to other industries, but the construction share of total insolvencies has not been increasing, and was 25, 27 and 26 percent in those years. This is higher than the construction share of the total number of Australian businesses, which is 17 percent, but construction also has a higher proportion of micro and small businesses than other industries. 

 

Two of the reasons why construction businesses are more likely to become insolvent are this prevalence of micro and small firms and the knock-on effects on subcontractors when a contractor goes under, where many of the unsecured creditors will be subcontractors on their projects. Most subcontractors are micro or small businesses, and many are extremely vulnerable to a contractor’s insolvency. Businesses employing less than 5 people account for 65 percent of all construction businesses, and these businesses have little capital and few resources. Micro and small businesses have a much higher insolvency rate than larger businesses. 

 

Because of measures put in place to support industry during the Covid pandemic there were fewer insolvencies than usual in 2021-22, with a total of 1,639 construction businesses going into administration. The numbers for 2023 and 2024 are more typical, and these show a substantial increase in total insolvencies from 2,812 to 3,882.

 

However, in June 2024 there were 452,626 operating construction businesses, so the insolvency rate was less than one percent. Further, there are many more businesses in Construction than any other industry. The industry with the second highest number is Professional, Scientific and Technical Services with 344,311 businesses, the third is Rental, Hiring and Real Estate Services with 298,764 businesses, and the fourth is Transport, Postal and Warehousing with 237,326 businesses.

 

Construction Industry Entry and Exit

 

How does the number of ASIC insolvencies compare to the ABS Count of Businesses data?

The ABS numbers for annual business exits are much larger than the number of insolvencies, and were 69,972 in 2021-2022, 78,667 in 2022-2023, and 81,354 in 2023-2024. Again, there was a substantial increase between 2022 and 2023 as pandemic measures were unwound, but the increase between 2023 and 2024 was not as great. 

 

Clearly, insolvency is not the main driver of exits from the construction industry, as the cumulative total was only 8,333 insolvencies over the three years. Some unknown proportion of exits will be businesses that have paused operation, and stopped paying GST for a couple of years, probably because of market conditions. 

 

The ABS data is quarterly, and for exits in particular there is a marked seasonal pattern, with a cycle that peaks in the December quarter and has a low in the March or June quarters. As Figure 2 shows, there is a different cycle for entry, which peaks in the September quarter. What is driving these regular cycles of entry and exit is a matter for speculation. Entries can be births (new ABNs) or other (an ABN that has been reclassified or restarted GST payments). For Construction, in most quarters there are more births than others, for example in the June 2024 quarter there were 12,229 births and 10,753 other entries. 

 

There are, over time, more entries than exits, except for the December quarter. The average quarterly number for exits since 2020 was 17,886 and for entries was 21,574. The net result is that the number of construction businesses has been increasing steadily since 2020, rising from 397,920 in June 2020 to 452,626 in June 2024, a 14 percent increase in the number of businesses. If the number of businesses is representative of industry capacity and the supply side of construction, these numbers suggest industry capacity has been increasing.

 

Figure 2. Australian construction 

 

Source: ABS 8165

 

The ABS also has overall entry and exits by employment size, although this is not given for individual industries. In 2023-2024 Non-employing businesses had an exit rate of 17.7 percent, and businesses employing 1 to 4 people an exit rate of 9.5 percent. These rates are much higher than those for larger businesses, those employing 5 to 19 people was 5.5 percent, businesses employing 20 to 199 people 3.1 percent, and those employing over 200 has an exit rate of 3.2 percent. As noted above, exit rates are not the same as insolvencies, but this is good evidence of a higher rate of insolvencies in the micro and small businesses that are the great majority of construction firms. 

 

The ABS calculates industry entry and exit rates as percentages, and Construction does not have the highest rates. As table 1 shows, there are many industries with higher entry and exit rates, although no other industry has a larger number of businesses than Construction. In the 2023 December quarter the exit rate was higher than the 5.8 percent for Construction in five industries, and around the same rate in five others. In the 2023 September quarter the entry rate was higher in six industries, and around the same in seven others. In those quarters for all Australian businesses the exit rate was 5.3 percent and the entry rate was 5.5 percent, so the exit rate for Construction was slightly higher and the entry rate exactly the same. 

 

Table 1. Number of businesses, entry and exit rates in peak months, by industry

 

 

Construction industry sub-divisions

 

The ABS also provides this data for the three industry sub-divisions. The numbers for operating businesses are of particular interest. In June 2024 there were 10,542 Engineering construction businesses, 108,764 Building construction businesses, and 332,320 Construction services businesses. These sub-divisions had 2.3, 24 and 73.7 percent of the total number of construction businesses.

 

The same pattern of a December quarter high for exits and a September quarter high for entries also holds for the sub-divisions, with December 2022 having the largest number of exits for all three sub-divisions. The March 2023 quarter was the low for entries for Building construction and Construction services, and March 2024 the low for entries in Engineering construction. Figures 3, 4 and 5 have this data.

 

Figure 3. Australian Building construction 

 

Source: ABS 8165

 

 

Figure 4. Engineering construction

 

Source: ABS 8165

 

 

Figure 5. Construction services

 

Source: ABS 8165

 

For all three sub-divisions the total number of businesses has been increasing. Between June 2020 and June 2024 the number of Engineering construction businesses went from 10,052 to 10,542, Building construction businesses from 90,722 to 108,764, and Construction services businesses from 296,246 to 332,320. As percentage increases over four years these were 5, 20, and 13 percent respectively. The average quarterly number of exits and entry between 2020 and 2024 for Engineering were 363 and 395 businesses, for Building were 4,666 and 5,837 businesses, and for Construction services were 12,858 and 15,543 businesses. 

Conclusion

 

ASIC data shows a total of 3,882 construction businesses becoming insolvent in 2023-2024, and the industry had the highest number of failures with 26 percent of all insolvencies. However, this needs to be kept in context, because Construction by far the largest number of businesses compared to other industries, and in 2024 had 17 percent of all businesses, and with over 450,000 businesses has a failure rate of less than one percent. It is misleading to claim Construction has an exceptionally high number of insolvencies. 

 

The ABS numbers for annual business exits are much larger than the number of insolvencies, and were 69,972 in 2021-22, 78,667 in 2022-23, and 81,354 in 2023-24. There was a substantial increase between 2022 and 2023 as pandemic measures were unwound, but the increase between 2023 and 2024 was not as great. Clearly, the insolvency of a few thousand businesses is not the main driver of exits from the construction industry.

 

The ABS data for exits has a marked seasonal pattern, with a cycle that peaks in the December quarter and a low in the March or June quarters. There is a different cycle for entry, which peaks in the September quarter. What is driving these regular cycles of entry and exit in Construction is a matter for speculation. 

 

Many industries have higher entry and exit rates than Construction, although no other industry has a larger number of businesses. In the 2023 December quarter the exit rate in five industries was higher than in Construction and around the same rate in five others. In the 2023 September quarter the entry rate was higher in six industries, and around the same in seven others. 

 

There are more entries than exits, except for the December quarter. The average quarterly number for exits since 2020 was 17,886 and for entries was 21,574, so the number of construction businesses has been increasing steadily since 2020, rising from 397,920 in June 2020 to 452,626 in June 2024, a 14 percent increase in the number of businesses. If the number of businesses is representative of industry capacity and the supply side of Construction, these numbers suggest industry capacity has been increasing.

 

For all three sub-divisions the total number of businesses has been increasing. Between June 2020 and June 2024 the number of Engineering Construction businesses went from 10,052 to 10,542, Building Construction businesses from 90,722 to 108,764, and Construction Services businesses from 296,246 to 332,320. These sub-divisions had 2.3, 24 and 73.7 percent of the total number of construction businesses, and their percentage increases over four years were 5, 20, and 13 percent respectively. 

 

Construction businesses are more likely to exit or become insolvent because two thirds are micro or small businesses employing less than 5 people, which have a higher rate of insolvency than larger businesses. Subcontractors are also vulnerable to the knock-on effects on their capital and cash flow of a contractor’s insolvency, where many of the unsecured creditors will be subcontractors. Although exit rates are not the same as insolvencies, the ABS data is good evidence of a much higher rate of insolvencies in the micro and small businesses that are the great majority of construction firms. This is an important piece of context that should be taken into account when considering insolvencies. 

 

How to Research the Construction Industry?

Recent additions to the Construction Economics library

 

 

The construction industry is not like the typical industry found in economic textbooks, due to the physical nature of the product, the variability of demand, the method of price determination by auction, the contractual relationships between clients, contractors and suppliers. These characteristics require adjusting economic principles to adequately reflect the industry. Further, those four characteristics of construction vary between countries, as do the regulatory systems in different places. 

 

So, given this diversity of industry participants, products and process, how should research into the structure and performance of the construction industry and the management of firms and projects be done? Obviously, a variety of perspectives and a multi-disciplinary approach are required, and this is where Construction Economics (CE) contributes.

 

CE is the application of economic principles to the construction industry. However, because of the distinctive characteristics of the organisation of construction processes, the structure of construction markets, and the management of construction firms, this is not a straightforward process. Therefore, CE research uses a broad range of approaches to research the construction industry, its firms and projects. These include industrial organization and other management studies, financial and behavioural economics, econometric analysis and modelling, cost modelling, legal and institutional research, and transaction cost economics.

 

The library of CE research has been growing recently. The nine books below share an economic perspective that focuses on firms and industries rather than individual projects, which differentiates them from other books on specific topics like procurement, estimating, cost management, and life cycle costs, although all these topics are included in the CE books. This combining of economic theory and techniques with industry specific knowledge is a distinctive characteristic of CE research, and although most of the authors are academics, many of them have industry experience. 

 

In these recent publications the range of topics covered include the roles of participants and processes, productivity and value for money, environmental performance and sustainability, the delivery process and procurement, the financing, viability and competitiveness of construction firms and projects, technological and institutional development, construction statistics and measurement, international construction, regulation, decarbonisation, and government policies affecting the industry. Across the books there are differences in emphasis, sometimes marked. 

 

These books should become standard references for researchers and people working on policy issues related to construction and the built environment. They cover an extremely wide range of topics, many of which overlap related areas like business and project management, industry development and policy, innovation, sustainability and data quality. Some of the topics and issues discussed are extremely difficult to nail down, and there are a few general themes that weave through all the books.  

 

As these books show, when researching construction a variety of perspectives are required, some of which come from outside the neoclassical model of firms and markets, such as institutional or development economics. Therefore, CE has developed a distinctive research agenda on the production, delivery and management of the built environment in a wide range of conditions and countries. The five edited volumes have a total of 70 chapters, 10 of which are introductions and conclusions. The remaining 60 chapters demonstrate the current state of CE research and represent the range and diversity of that research. 

 

There are eight books from academic publishers. The five edited volumes, and three textbooks. Included at the end are links to the publishers’ websites where the table of contents, authors and descriptions for their books can be found. As academic publications they are not cheap, which unfortunately limits the potential readership, and the books will therefore be read mainly by academics and researchers through their institution’s library. Perhaps future collections could republish some of this work as in cheaper ebook and paperback options. 

 

Declaration of interest: I contributed one or more chapters to the edited volumes, two as co-author with Jim Meikle, and the Foreword to Christian Brockmann’s Construction Microeconomics. There is a ninth book, my one on technology and construction, at the end. 

 

 

Ofori, G. (ed.) 2022. Research Companion to Construction Economics, Edward Elgar

 

The book has 24 chapters in a collection that ‘represents a relatively complete work on the field of construction economics.’ And that’s right, there is a bit of everything: costs, markets, history, data, procurement, ESG, developing countries and so on. The table of contents are well worth a look, with the multi-disciplinary nature of CE on full display. The book gathers several decades of research in an overview of CE in 2022. 

 

It is thus a heavyweight academic publication, the chapters are comprehensive, dense and detailed and, as you would expect in a handbook, meticulously referenced. Intended as a library resource, it will be the starting point for researchers on many topics in CE and related fields for many years to come. 

 

Edited by George Ofori, the book makes the case for CE as an alternative to other approaches to researching construction that focus on issues such as culture or project management. His Introduction on the development of CE and review of the chapter topics can be downloaded from the e-elgar site by going to the link for a sample chapter under the Add to basket button. He started with this definition:

 

‘Construction Economics applies economic theory, concepts and analytical tools to the construction industry, the companies and organisations comprising it, and the projects it undertakes. Over time, the field has been extended beyond the minimisation of capital cost on projects to include life-cycle cost considerations, the idea of value, sustainable construction and climate change, and applications of technology. Attention has also been extended to include consideration of companies and organisations; and the strategic, industry-level considerations involving the economy and construction markets, changing government policy, and international finance and economics.’ 

 

Not only is this an excellent definition of CE, it also makes clear the range of topics and issues CE can make a contribution to. The book is a significant milestone in the development of CE.

 

 

Gruneberg, S. (ed.) 2019. Global Construction Data, Taylor & Francis

 

In his Preface Stephen Gruneberg, the editor of Global Construction Data, says the ‘book covers several theoretical and practical aspects of global construction statistics and their use. It demonstrates the diversity of approaches and points in the direction of a need to co-ordinate the measurement of national construction industries’. The diversity of approaches is the great strength of the book, which demonstrate both the range of CE and its application.

 

The ten contributions include three with detailed discussion of construction statistics, two on international comparisons, two use residential cost data for life-cycle costing and energy use respectively. The other three cover innovation and BIM, the global market for architectural services, and international contractor’s make-buy decisions. Taken together these chapters cover construction data at the international, national and project levels. 

 

The way we see and understand an industry starts with the data provided by national statistics agencies. How data on Construction is collected and how the categories within Construction are defined is clearly important. The former determines the quality and the latter the credibility of the statistics produced. In the title the book made explicit the importance of this as a specific topic in CE research. The reliability and quality of construction statistics is a well-known issue, going back to the 1960s, and the shortcomings of the SNA and SIC have not been overcome in the revisions since then. 

 

 

Best, R. and Meikle, J. (eds.) 2023. Describing Construction: Industries, projects and firms, Taylor & Francis

 

The last in a series of three CE books edited by Rick Best and Jim Meikle, Describing Construction addresses the question ‘What exactly is the ‘construction industry’? Research on defining and measuring construction at many different scales is a distinctive characteristic of CE, as this is not done elsewhere. The scales range from firms to projects to the broad construction industry, which includes all participants in the supply chain. The book has contributions at the three scales of industry, project and firm.

 

The chapters on industry definitions and boundaries, which includes one on construction in developing countries, argue for a new perspective on construction and for better data. At the project level, there are chapters on estimating, procurement and contracting. The chapters on firms cover characteristics and financial failure, strategic planning, innovation and industry transformation. The book combines several chapters that are analytical and empirical (using or about data) with some more general chapters that provide an overview of their topics. 

 

All the contributors to the 36 chapters in this series of books have extensive industry experience, which is apparent in the depth of discussion and awareness of the issues involved. The books will be used by researchers investigating construction and related industries for many years to come.  

 

 

Best, R. and Meikle, J. (eds.) 2919.  Accounting for Construction: Frameworks, productivity, cost and performance, Taylor & Francis

 

The second book from Rick Best and Jim Meikle was Accounting for Construction: Frameworks, productivity, cost and performance. The dozen contributions again look at different ways of measuring and comparing construction. With chapters on construction statistics, productivity, costs and data, the book both reviewed and extended previous studies. An ‘important thread’ was the lack of consistency in the way construction industry data is collected and how it is aggregated. 

 

Several chapters look at national construction statistics and their many peculiar characteristics in detail, explaining how data is collected and processed in national statistics. Issues affecting productivity performance and measurement are also discussed in several chapters, such as the building cycle, capital stock, innovation and the relationship between input costs and the technology used. 

 

The book is dense with information, with key topics that reappear across the chapters in different contexts with different perspectives. It is a starting point for construction economists and others who want to understand how industry data is compiled and can used, more about the nuts and bolts of construction data compared to the previous book on Measuring Construction, which was more of a toolkit. 

Best, R. and Meikle, J. (eds.) 2015.  Measuring Construction: Prices, Output and Productivity, Taylor & Francis

 

In Measuring Construction: Prices, output and productivity Rick Best and Jim Meikle put the focus on data sources and quality. As the introduction makes clear ‘there are standard methods for measurement of physical building work, but the same cannot be said for the characteristics of the construction industry’. The three broad topics addressed are costs and prices, activity and internationalisation, and construction productivity. Their conclusion was ‘there is no ‘correct’ answer to any of the questions this book explores … It is perhaps only by applying a variety of techniques to the various problems and comparing the results that we obtain that we will know if we are getting closer to developing an acceptable set of tools and methods.’

 

The chapters survey issues in the collection and use of construction data. The twelve contributions cover measurement of construction work, productivity measurement methods, and construction costs and prices at the global, national, industry and project levels. On each of these topics the research is detailed and focused, there are useful analytical and methodological insights, and a few chapters have models that could be applied and developed. 

 

There is a great deal of data in the book, as you’d expect from the title, and good empirical work showing how comparisons can be made and data used. One of the chapters on productivity argued for the use of artificial neural networks (i.e. AI) for construction estimating and management, a particularly forward-looking contribution in 2015.

 

 Brockmann, C. 2023. Construction Microeconomics, Wiley Blackwell

This is the first book to focus on microeconomic aspects of construction, and that focus allows an extended discussion of topics than found in previous CE books. Microeconomics studies the interaction of producers and consumers of goods and services in specific industries and markets, and the tools and techniques used are well-known. In a simple exchange market, where the transaction is complete, the analysis of demand and supply is relatively straightforward, but construction markets are not like that. Christian Brockmann introduces the idea of contract goods that are delivered over time and priced by bids from contractors, and the analysis of how those characteristic features of construction affect the behaviour of owners and contractors in Construction Microeconomics is both original and insightful.

 

Chapters 2 to 9 cover micro basics: principles, consumers, producers, perfect markets, imperfect markets, factor markets, information, and game theory/auctions. Part II contains the adaptation of microeconomics to construction, with chapters on the construction sector, owners, contractors, construction goods, construction markets, contracting, imperfections, government policy, and public goods.

 

This book discusses the behaviour of firms and the nature of construction products and processes in detail. In particular, bidding for work in auctions and contracting under uncertainty for owners and clients who are risk adverse raises complex issues around marginal costs and prices, incentives and behaviour, and information asymmetry and bargaining power. The analysis draws on developments in industry economics to support the points made and the approach taken. 

 

This micro focus of the book provides a deeper understanding of the complex relationships between construction industry participants, and has been deeply informed by the author’s industry experience. It demonstrates how economic principles can be applied to a market that uses auctions and tenders to set prices, essential knowledge for regulators and management in industry. 

 

Christian Brockmann has built on previous work and brings a new perspective to issues and topics that are fundamental to CE. The book will be of interest not just to academic researchers but also to industry, regulators and policy makers. His Construction Microeconomics focuses on the operation and organisation of construction from a micro perspective, and is an important addition to the CE library. A companion volume is in the works: Construction Macroeconomics, by Horst Brezinski, Christian Brockmann, Kira Coleman and Huojin Xiong.

 

 

Gruneberg, S. and Francis, N. 2019. Economics of Construction, Agenda Publishing

Stephen Gruneberg and Noble Francis’ The Economics of Construction provides ‘a game theory account of the behaviour of firms’, the approach typically taken in other branches of industry economics. The Gruneberg and Francis book does not have much discussion on macroeconomic matters, however they discuss innovation and productivity, aspects of firms’ business models and financing, and contractual disputes and power relations in construction. 

 

There are case studies of the collapse of UK contractor Carillion in 2018, the Grenfell Tower fire, construction for the London Olympics, and manufactured housing in the UK. These are used to illustrate how the business environment a construction firm faces has become significantly more complex over the decades as the traditional turnover and profit maximizing contractor or supplier has evolved into one primarily concerned with growth and survival. While that may be a matter of degree, it is not insignificant. 

 

Gruneberg and Francis argue contracting markets compete profits down to the point firms cannot invest in productivity improvements, the outcomes of a business model that tends to focus on the volatility of demand and managing risk at the expense of improving efficiency. Construction firms operate in an industry Gruneberg and Francis describe as ‘a highly fragmented project-based industry, with very low profit margins and a high risk of failure for the many firms operating in a very complex supply chain’. This is a widely held view, however many large construction firms are over 50 years old and there are significant barriers to entry for major projects. It is an industry with a majority of small firms and relatively few large multinational contractors and manufacturers, some of which have substantial bargaining power in the supply chain. 

 

In the last two chapters they point to an emerging field of research on the economics of construction projects, combining project financial and feasibility studies with procurement strategies, using research applying transaction cost economics to construction. The book is an outstanding example of CE research as the application of economic principles to construction. It combines industry specific knowledge with insights from economic reasoning and shows how those insights improve our understanding of the industry.

 

 Myers, D. 2022. Construction Economics: A new approach (5^th ed.) Routledge

 

Danny Myers Construction Economics: A new approach is intended for undergraduate students in construction and other built environment courses who have a single economics subject included in the course. The new approach is sustainability. Although UK-centric, this is a readable and accessible introductory textbook that has a bit of everything.

 

It starts with the fundamentals of economic theory on firms and markets, and then analyses competition, demand, tendering, costs and prices. The main micro, macro and industry economics topics are covered, and the relevance to construction is maintained through breakout boxes with short examples and case studies from construction throughout the book, which are a feature. 

 

Myers emphasises environmental issues and sustainability, and this is another one of the reasons for its success as these topics have become embedded in university curricula. The book is now in its fifth edition, which is I think another milestone in CE, and Danny Myers is to be congratulated on the achievement. 

  

de Valence G. 2022. Creative Destruction and Constructing the Built Environment: From the first industrial revolution to the fourth, CER

 

This is my book about technological change, general purpose technologies (like steam power, IT and AI), and construction since 1800. Because I can set the price it is cheap, not expensive, and available from Amazon. The Introduction can be read here.

 

Creative destruction is the effect of technological progress on the economy as, over time, new technologies bring new industries and products to challenge established industries. Innovation and technology have restructured construction of the built environment in the past, and today powerful new technologies like digital twins, AI and 3D printing are leaving their development stage and finding their way into the design and delivery of buildings and structures. The book argues it might take a decade or more for these technologies to become central to construction of the built environment, but the development path taken will be distinct and different from the path taken in other industries. This path dependence varies from both industry to industry and between firms within industries. 

 

 

 

Publishers’ Pages 

 

Best, R. and Meikle, J. (eds.) 2023. Describing Construction: Industries, projects and firms, Taylor and Francis.

 https://www.routledge.com/Describing-Construction-Industries-Projects-and-Firms/Best-Meikle/p/book/9780367608903

 

Best, R. and Meikle, J. (eds.) 2919.  Accounting for Construction: Frameworks, productivity, cost and performance, Taylor & Francis.

https://www.routledge.com/Accounting-for-Construction-Frameworks-Productivity-Cost-and-Performance/Best-Meikle/p/book/9781032093246#

 

Best, R. and Meikle, J. (eds.) 2015.  Measuring Construction: Prices, Output and Productivity, Taylor & Francis.

 https://www.routledge.com/Measuring-Construction-Prices-Output-and-Productivity/Best-Meikle/p/book/9780367738341

 

Brockmann, C. 2023. Construction Microeconomics, Wiley Blackwell.

https://www.wiley.com/en-ie/Construction+Microeconomics-p-9781119831938

 

de Valence G. 2022. Creative Destruction and Constructing the Built Environment: From the first industrial revolution to the fourth, CER.

https://www.constructioneconomicsresearch.com/creative-destruction-book

 

Gruneberg, S. (ed.) 2019. Global Construction Data, Taylor & Francis. 

https://www.routledge.com/Global-Construction-Data/Gruneberg/p/book/9781032177472

 

Gruneberg, S. and Francis, N. 2019. Economics of Construction, Agenda Publishing. 

https://www.agendapub.com/page/detail/the-economics-of-construction-by-stephen-gruneberg/?k=9781788210157

 

Myers, D. 2022. Construction Economics: A new approach (5^th ed.) Routledge. 

https://www.routledge.com/Construction-Economics-A-New-Approach/Myers/p/book/9781032262611

 

Ofori, G. (ed.) 2022. Research Companion to Construction Economics, Edward Elgar.

https://www.e-elgar.com/shop/gbp/research-companion-to-construction-economics-9781839108228.html

 

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.