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Construction Economics - Assignment Example

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Construction Economics

The industry provides services such as maintenance, repairs and rehabilitation of existing structures.
The industry comprises of three main sectors, which include building construction, heavy and civil engineering and specialty trade contractors. The building and construction sector includes contractors who build buildings for residential, industrial and commercial purposes. Heavy and civil contractors build roads, bridges, sewers and other major projects mostly relate to state infrastructure. Specialty deals with carpentry, painting and other works that relate to all types of construction.
The industry teds to enter recessions first and often the last to recover. Most economic factors, which lead to recession, affect the construction industry. Inflation is one of the major causes of recession where consumer goods become expensive resulting to a drop in customer spending. In instances when the economy is expanding, there is increased consumer spending due to better wages and high disposable income.
During the economic boom individuals have disposable income, which they use to buy durable goods and assets such as apartments and homes (Samuelson & Nordhaus, 2004 p. 56). In addition, the state acquires more tax revenue, which it utilizes by developing infrastructure. All three sectors of the construction industry indicate tremendous growth during this period. ...
This happens in the initial stages of economic contraction. The Federal Reserve additionally, increases the lending interest rates and mortgage rates leading to reduced loans. The monetary control and inflation affect the construction industry even when they are in the early stages of inflation. The fluctuating interest rates results to an increase in the number of defaulters since they are unable to pay (Agapiou et al, 1998, p. 56). Federal Reserve increase in interest rates and reduced money supply result to weak housing market. The increase in lending affects the housing market, which comprises of the building sector of construction industry. Those already building houses are unable to continue due to escalating prices brought by rise in energy cost and fluctuation of currencies. Economic recession heavily affects the construction industry even in the early stages due to initial reduction in customer sending that result to a decrease in the demand of housing due to oversupply. Recession affects the industry more when compared to transport, education and financial industries. In addition, housing prices fall leading to a rise in foreclosures. Schmalensee (1987) says that the recession results to a rise in unemployment and thus a decline in the number of construction works (132). An imbalance in supply and demands slows the construction of residential building due to increase in interest rates. For example during 2007 recession total construction in United States declined by 28% (Department of labor). During recession, the government reduces its spending since its budget is normally under strain. This results to a decline in heavy and civil sector of the construction industry, which heavily relies with government projects such as roads and ...Show more


The construction industry is among the most essential industry in the global economy. The nature of the industry deals in both goods and services. It deals with goods such as apartments, houses, factories, schools, offices, roads and the building of other structures. …
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Construction Economics essay example
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