Forecasting construction demand : a vector error correction model with dummy variables

Modelling the level of demand for construction is vital in policy formulation and implementation as the construction industry plays an important role in a country’s economic development process. In construction economics, research efforts on construction demand modelling and forecasting are various, but few researchers have considered the impact of global economy events in construction demand modelling. An advanced multivariate modelling technique, namely the vector error correction (VEC) model with dummy variables, was adopted to predict demand in the Australian construction market. The results of prediction accuracy tests suggest that the general VEC model and the VEC model with dummy variables are both acceptable for forecasting construction economic indicators. However, the VEC model that considers external impacts achieves higher prediction accuracy than the general VEC model. The model estimates indicate that the growth in population, changes in national income, fluctuations in interest rates and changes in householder expenditure all play significant roles when explaining variations in construction demand. The VEC model with disturbances developed can serve as an experimentation using an advanced econometrical method which can be used to analyse the effect of specific events or factors on the construction market growth.

The effects of the late 2000s global financial crisis on Australia's construction demand

An accurate measurement of the impacts of external shocks on construction demand will enable construction industry policymakers and developers to make allowances for future occurrences and advance the construction industry in a sustainable manner. This paper aims to measurethe dynamic effects of the late 2000s global financial crisis on the level of demand in the Australian construction industry. The vector error correction (VEC) model with intervention indicators is employed to estimate the external impact from the crisis on a macro-level construction economic indicator, namely construction demand. The methodology comprises six main stages to produce appropriate VEC models that describe the characteristics of the underlying process. Research findings suggestthat overall residential and non-residential construction demand were affected significantly by the recent crisis and seasonality. Non-residentialconstruction demand was disrupted more than residential construction demand at the crisis onset. The residential constructionindustry is more reactive and is able to recover faster following the crisis in comparison with the non-residential industry. The VEC model with intervention indicators developed in this study can be used as an experiment for an advanced econometric method. This can be used to analyse the effects of special eventsand factors not only on construction but also on other industries.

Econometric techniques for estimating construction demand in Australia

This study aims to develop reliable demand estimation models, at both national and regional levels, for the Australia’s construction market. The developed models would benefit the industry by serving as a reliable aid to policy in the areas of tendering, pricing, resource allocating, labour and workload planning.

A panel vector error correction approach to forecasting demand in regional construction markets

Reliable forecasting as to the level of aggregate demand for construction is of vital importance to developers, builders and policymakers. Previous construction demand forecasting studies mainly focused on temporal estimating using national aggregate data. The construction market can be better represented by a group of interconnected regions or local markets rather than a national aggregate, and yet regional forecasting techniques have rarely been applied. Furthermore, limited research has applied regional variations in construction markets to construction demand modelling and forecasting. A new comprehensive method is used, a panel vector error correction approach, to forecast regional construction demand using Australia’s state-level data. The links between regional construction demand and general economic indicators are investigated by panel cointegration and causality analysis. The empirical results suggest that both long-run and causal links are found between regional construction demand and construction price, state income, population, unemployment rates and interest rates. The panel vector error correction model can provide reliable and robust forecasting with less than 10% of the mean absolute percentage error for a medium-term trend of regional construction demand and outperforms the conventional forecasting models (panel multiple regression and time series multiple regression model). The key macroeconomic factors of construction demand variations across regions in Australia are also presented. The findings and robust econometric techniques used are valuable to construction economists in examining future construction markets at a regional level.

Identifying determinants of demand for construction using an econometric approach

Economic variation and its effects on construction demand have received a great deal of attention in construction economics studies. An understanding of future trends in demand for construction could influence investment strategies for a variety of parties, including construction developers, suppliers, property investors and financial institutions. This paper derives the determinants of demand for construction in Australia using an econometric approach to identify and evaluate economic indicators that affect construction demand. The forecasting contribution of different determinants of economic indicators and their categories to the demand for construction are further estimated. The results of this empirical study suggest that changes in consumer’s expectation, income and production, and demography and labour force are closely correlated with the movement of construction demand; and 14 economic indicators are identified as the determinants for construction demand. It was found that the changes in construction price, national income, size of population, unemployment rate, value or export, household expenditure and interest rates play key roles in explaining future variations in the demand for construction in Australia. Some “popular” macroeconomic indicators, such as GDP, established house price and bank loans produced inconclusive results.

Economic fluctuations and productivity in the Malaysian construction sector

Growth in productivity is the key determinant of the long-term health and prosperity of an economy. The construction industry being one of major strategic importance, its productivity performance has a significant effect on national economic growth. The relationship between construction output and economy has received intensive studies, but there is lack of empirical study on the relationship between construction productivity and economic fluctuations. Fluctuations in construction output are endemic in the industry. In part they are caused by the boom and slump of the economy as a whole and in part by the nature of the construction product. This research aims to uncover how the productivity of construction sector is influenced in the course of economic fluctuations in Malaysia. Malaysia has adopted three economic policies – New Economic Policy (1971-1990), National Development Policy (1991-2000) and the National Vision Policy (2001-2010) since gaining independence in 1959. The Privatisation Master Plan was introduced in 1991. Operating within this historical context, the Malaysian construction sector has experienced four business cycles since 1960. A mixed-method design approach is adopted in this study. Quantitative analysis was conducted on the published official statistics of the construction industry and the overall economy in Malaysia between 1970 and 2009. Qualitative study involved interviews with a purposive sample of 21 industrial participants. This study identified a 32-year long building cycle appears in 1975-2006. It is superimposed with three shorter construction business cycles in 1975-1987, 1987-1999 and 1999-2006. The correlations of Construction labour productivity (CLP) and GDP per capita are statistically significant for the 1975-2006 building cycle, 1987-1999 and 1999-2006 construction business cycles. It was not significant in 1975-1987 construction business cycles. The Construction Industry Surveys/Census over the period from 1996 to 2007 show that the average growth rate of total output per employee expanded but the added value per employee contracted which imply high cost of bought-in materials and services and inefficient usage of purchases. The construction labour productivity is peaked at 2004 although there is contraction of construction sector in 2004. The residential subsector performed relatively better than the other sub-sectors in most of the productivity indicators. Improvements are found in output per employee, value added per employee, labour competitiveness and capital investment but declines are recorded in value added content and capital productivity. The civil engineering construction is most productive in the labour productivity nevertheless relatively poorer in the capital productivity. The labour cost is more competitive in the larger size establishment. The added value per labour cost is higher in larger sized establishment attributed to efficient in utilization of capital. The interview with the industrial participant reveals that the productivity of the construction sector is influenced by the economic environment, the construction methods, contract arrangement, payment chain and regulatory policies. The fluctuations of construction demand have caused companies switched to defensive strategy during the economic downturn and to ensure short-term survival than to make a profit for the long-term survival and growth. It leads the company to take drastic measures to curb expenses, downsizing, employ contract employment, diversification and venture overseas market. There is no empirical evidence supports downsizing as a necessary step in a process of reviving productivity. The productivity does not correlate with size of firm. A relatively smaller and focused firm is more productive than the larger and diversified organisation. However diversified company experienced less fluctuation in both labour and capital productivity. In order to improve the productivity of the construction sector, it is necessary to remove the negatives and flaws from past practices. The recommended measures include long-term strategic planning and coordinated approaches of government agencies in planning of infrastructure development and to provide regulatory environments which encourage competition and facilitate productivity improvement.

Recent global trends in the Chinese construction industry and its market

The rapidly increasing construction demand in China, particularly spurred by the coming 2008 Beijing Olympic Games and the 2010 Shanghai Expo, provides challenging opportunities for overseas construction enterprises. Therefore understanding the structure and dynamics of construction industry in China is crucial, particularly the potential changes of the market after the China's entry into the World Trade Organization. This paper analyses the development of construction economics and institutional regulations in the construction market, and provides a comprehensive image on the Chinese construction sector in the global environment.

Construction supply chain economic policy implementation for sectoral change : moving beyond the rhetoric

Construction sector policy makers have the opportunity to create improvements and develop economic, social and environmental sustainability through supply chain economics. The idea of the supply chain concept to improve firm behaviour and industry performance is not new. However there has been limited application and little or no measurement to monitor successful implementation. Often purchasing policies have been developed with sound strategic procurement principles but even these have had limited penetration in to the processes and practices of infrastructure agencies. The research reported in this paper documents an action research study currently being undertaken in the Australian construction sector which aims to explore supply chain economic policy implementation for sectoral change by two government agencies. The theory which informs this study is the emerging area of construction supply chain economics. There are five stages to the project including; demand analysis, chain analysis, government agency organizational audit, supplier strategy and strategic alignment. The overall objective is towards the development of a Supplier Group Strategy Map for two public sector agencies. Two construction subsectors are examined in detail; construction and demolition waste and precast concrete. Both of these subsectors are critical to the economic and environmental sustainability performance of the construction sector and the community as a whole in the particular jurisdictions. The local and state government agencies who are at the core of the case studies rely individually on the performance of these sectors. The study is set within the context of a sound state purchasing policy that has however, had limited application by the two agencies. Partial results of the study are presented and early findings indicate that the standard risk versus expenditure procurement model does not capture the complexities of project, owner and government risk considerations. A new model is proposed in this paper, which incorporates the added dimension of time. The research results have numerous stakeholders; they will hold particular value for those interested in regional construction sector economics, government agencies who develop and implement policy and who have a large construction purchasing imprint and the players involved in the two subsectors. Even though this is a study in Australia it has widespread applicability as previous research indicates that procurement reform is of international significance and policy implementation is problematic.

Incorporating sustainability measures in life-cycle financial decision making for highway construction

Public awareness and the nature of highway construction works demand that sustainability measures are first on the development agenda. However, in the current economic climate, individual volition and enthusiasm for such high capital investments do not present as strong cases for decision making as the financial pictures of pursuing sustainability. Some stakeholders consider sustainability to be extra work that costs additional money. Though, stakeholders realised its importance in infrastructure development. They are keen to identify the available alternatives and financial implications on a lifecycle basis. Highway infrastructure development is a complex rocess which requires expertise and tools to evaluate investment options, such as environmentally sustainable features for road and highway development. Life-cycle cost analysis (LCCA) is a valuable approach for investment decision making for construction works. However, LCCA applications in highway development are still limited. Current models, for example focus on economic issues alone and do not deal with sustainability factors, which are more difficult to quantify and encapsulate in estimation modules. This paper reports the research which identifies sustainability related factors in highway construction projects, in quantitative and qualitative forms of a multi-criteria analysis. These factors are then incorporated into past and proven LCCA models to produce a new long term decision support model. The research via questionnaire, model building, analytical hierarchy processes (AHP) and case studies have identified, evaluated and then processed highway sustainability related cost elements. These cost elements need to be verified by industry before being integrated for further development of the model. Then the Australian construction industry will have a practical tool to evaluate investment decisions which provide an optimum balance between financial viability and sustainability deliverables.

Innovation in construction : a case study of the Australian context

The dominant economic paradigm currently guiding industry policy making in Australia and much of the rest of the world is the neoclassical approach. Although neoclassical theories acknowledge that growth is driven by innovation, such innovation is exogenous to their standard models and hence often not explored. Instead the focus is on the allocation of scarce resources, where innovation is perceived as an external shock to the system. Indeed, analysis of innovation is largely undertaken by other disciplines, such as evolutionary economics and institutional economics. As more has become known about innovation processes, linear models, based on research and development or market demand, have been replaced by more complex interactive models which emphasise the existence of feedback loops between the actors and activities involved in the commercialisation of ideas (Manley 2003). Currently dominant among these approaches is the national or sectoral innovation system model (Breschi and Malerba 2000; Nelson 1993), which is based on the notion of increasingly open innovation systems (Chesbrough, Vanhaverbeke, and West 2008). This chapter reports on the ‘BRITE Survey’ funded by the Cooperative Research Centre for Construction Innovation which investigated the open sectoral innovation system operating in the Australian construction industry. The BRITE Survey was undertaken in 2004 and it is the largest construction innovation survey ever conducted in Australia. The results reported here give an indication of how construction innovation processes operate, as an example that should be of interest to international audiences interested in construction economics. The questionnaire was based on a broad range of indicators recommended in the OECD’s Community Innovation Survey guidelines (OECD/Eurostat 2005). Although the ABS has recently begun to undertake regular innovation surveys that include the construction industry (2006), they employ a very narrow definition of the industry and only collect very basic data compared to that provided by the BRITE Survey, which is presented in this chapter. The term ‘innovation’ is defined here as a new or significantly improved technology or organisational practice, based broadly on OECD definitions (OECD/Eurostat 2005). Innovation may be technological or organisational in nature and it may be new to the world, or just new to the industry or the business concerned. The definition thus includes the simple adoption of existing technological and organisational advancements. The survey collected information about respondents’ perceptions of innovation determinants in the industry, comprising various aspects of business strategy and business environment. It builds on a pilot innovation survey undertaken by PricewaterhouseCoopers (PWC) for the Australian Construction Industry Forum on behalf of the Australian Commonwealth Department of Industry Tourism and Resources, in 2001 (PWC 2002). The survey responds to an identified need within the Australian construction industry to have accurate and timely innovation data upon which to base effective management strategies and public policies (Focus Group 2004).

Leveraging R&D to advance digital modelling practice in Australian construction

This paper describes a lead project currently underway through Australia’s Sustainable Built Environment National Research Centre, evaluating impacts, diffusion mechanisms and uptake of R&D in the Australian building and construction industry. Building on a retrospective analysis of R&D trends and industry outcomes, a future-focused industry roadmap will be developed to inform R&D policies more attuned to future industry needs to improve investment effectiveness. In particular, this research will evaluate national R&D efforts to develop, test and implement advanced digital modelling technologies into the design/construction/asset management cycle. This research will build new understandings and knowledge relevant to R&D funding strategies, research team formation and management (with involvement from public and private sectors, and research and knowledge institutions), dissemination of outcomes and uptake. This is critical due to the disaggregated nature of the industry, intense competition, limited R&D investment; and new challenges (e.g. digital modelling, integrated project delivery, and the demand for packaged services). The evaluation of leading Australian and international efforts to integrate advanced digital modelling technologies into the design/construction/asset management cycle will be undertaken as one of three case studies. Employing the recently released Australian Guidelines for Digital Modelling developed with buildingSMART (International Alliance for Interoperability) and the Australian Institute of Architects, technical and business benefits across the supply chain will be highlighted as drivers for more integrated R&D efforts.

Public participation in infrastructure and construction projects in China: From an EIA-based to a whole-cycle process

Many governments world-wide are increasingly encouraging the involvement of interested individuals, groups and organisations in their publicinfrastructure and construction (PIC) projects as a means of improving the openness, transparency and accountability of the decision-making process and help improve the projects’ long-term viability and benefits to the community. In China, however, the current participatory mechanism at the project level exists only as part of the environmental impact assessment (EIA) process. With an increasing demand for PIC projects and social equality in China, this suggests a need to bring the participatory process into line with international practice. The aim of this paper, therefore, is to identify the weaknesses of EIA-basedpublicparticipation in China and the means by which it may be improved for the whole lifecycle of PIC schemes. To do this, the results of a series of interviews with a diverse group of experts is reported which analyse the nature and extent of existing problems of publicparticipation in EIA and suggestions for improvement. These indicate that the current level of participation in PIC projects is quite limited, particularly in the crucial earlier stages, primarily due to traditional culture and values, uneven progress in the adoption of participatory mechanisms, the risk of not meeting targets and lack of confidence in public competence. Finally, aprocess flowchart is proposed to guide construction practitioners and the community in general.

Corporations Act 2001 s 459G : application to set aside statutory demand

The application before the court in Millerview Constructions Pty Ltd v Palmer Plumbing Pty Ltd [2008] QSC 005 raised a significant question regarding the appropriate construction of s 459G of the Corporations Act 2001 (Cth) (the Act). The decision emphasises the importance of ensuring that any application to set aside a statutory demand must be served in a timely way on the creditor at the creditor’s address for service as stated in the statutory demand, or in strict compliance with another manner authorised by the Act.

Supporting and impeding factors for partnering in construction – a China study

Partnering has drawn attention from both academics and practitioners in the construction industry in the context of construction and facilities management. The past decades have seen a number of articles reporting the application of partnering in construction. The Chinese construction industry is one of the largest industries in the world; however, to the authors’ best knowledge, no project in mainland China has adopted this procurement approach in a formal and systematic manner as yet. This study employed a qualitative approach to investigate the factors that support or impede the implementation of partnering in mainland China. The findings indicate that the partnering practice is feasible in the construction industry of China due to the large demand brought about by China’s strong economic growth and government support. However, the implementation of partnering in the Chinese construction industry is being impeded by the restrictions of the current Chinese regulatory framework and tender evaluation framework, the incompatible features of Chinese culture and the general lack of trust. Six strategies that help to facilitate the implementation of partnering in China have been developed. This study offers a useful reference to implement collaborative contracting models such as partnering in developing countries.

The social construction of prostitution in Californian 'John' Schools

The existence of prostitution in society continues to be a highly contested issue in both political and social arenas. With traditional criminal justice methods to address prostitution focussing predominantly on sex workers, newly formed initiatives have been created to target the demand side of prostitution. ‘John Schools’ – diversionary programs for clients, or ‘johns’ who have been arrested for prostitution offences – aim to educate participants on the various harms and risks associated with such behaviour and claim to provide an innovative means to reduce prostitution by decreasing demand for sexual services. It is evident however, that these programs perpetuate traditional social constructions of prostitution, characterising the act, and the actors, as sexually deviant. This paper examines the curriculum of these programs in order to identify how prostitution is constructed, firstly through the depiction of the victims in the program, and secondly through the characterisation of prostitution offenders. This paper argues that such initiatives merely extend the charge of sexual deviance from the sellers of sex to the buyers, and fail to acknowledge autonomy and choice for sex workers and clients.