ECONOMICS

CHAPTER 1
Micro Economics Related to Architecture and Engineering
The study of Economics can be broadly classified into two categories:
1. Micro Economics
2. Macro Economics
In this article, we are going to discuss various terms related to Micro Economics. Check out the
brief on Micro Economics.
Here is the list of terms we are about to discuss in this article:
1. Budget Constraints
2. Choice
3. Demand and Supply
4. Uncertainties
5. Equilibrium
6. Technical constraints
7. Profit maximization
8. Cost minimization
9. Monopoly
10. Oligopoly
11. Production
Budget constraints
For individuals, the budget for acquiring property depends in the earning capacity of the family
per annum, the ability to raise loan, savings, repaying capacity (in 5year/ 10year/ 15year loan
periods).
Choice
Depends on the budgetary capability, savings, willingness to invest, optimum level to spend,
location of the property etc, choice of the specifications, reputation of the builders, quality of
construction, timely completion of projects, proximity to public amenities like transport, railway
station, airport etc.
Demand and supply
Depends on National income, financial status of the family to invest, stability of the job,
location of the place of works, means of transportation.
Supply depends on the builders who are willing to invest in construction to meet the demand of
various economic level of buyers.
Uncertainties
Depends on the stability of the elected governments at state/central, cost of living availability
of land at affordable level, building materials, availability of loans at reasonable rates of
interest, skilled and unskilled labour, manpower, government policies, natural calamities, riots,
inflation, global economy as well as national economy, imports/exports, technical knowhow.
Equilibrium
Normally, this factor depends on demand and supply which are interdependent to maintain
perfect equilibrium, policies in five year plans and execution as per scheduled programs.
Technical constraints
Appropriate technology either indigenously developed or acquired from other countries,
availability of technical expertise like architects, planners, engineers, willing efficient builders,
innovative technology to build eco-friendly buildings as appropriate to our country and global
warming is the need of the hour.
Profit maximization and cost minimization
These aspects are to be monitored by governmental agencies or some non-governmental
agencies so that builders do not make too much profit taking advantage of the demand as it is
happening in the building industry.
Building industry comes under ambit of Consumer Protection Act. There should be strict rules
by sanctioning authorities to see that the building is constructed as per sanction and
specifications.
Monopoly and Oligopoly
In the building industry, there is no monopoly. The only department in central government,
which does not have architects is Ministry of Railways and AP state. They are managed by
engineers only. There is oligopoly in the building industry i.e., there are reputed builders and
reputed producers of building who produce quality building materials because of intense
competition.
Production
The demand for housing is always more than the production either in government sector or
private sector. The production is occasionally affected by inflation, global economic recession,
rising cost of living, over population, scarcity of land in metros and other cities.
Lack of proper mass transportation.
Availability of infrastructure.
We will be discussing Terms in Macro Economics in our successive articles
Study of Macro Economics
Study of Economics can be divided into two parts:
1. Micro Economics
2. Macro Economics
In this article, we are going to discuss various terms related to Micro Economics. Check out the
brief on Macro Economics
Here is the list of terms we are about to discuss in this article:
1. Demand and supply
2. Inflation
3. Interest rate
4. Employment
5. Savings and Investments
6. Monetary Policy
7. Fiscal Policy
Demand and Supply
At national level, this depends on the government policies. How different building activities and
infrastructure are planned and budgeted. Taxation polices, direct and indirect tax, allocation of
funds for housing for the weaker sections in Five Year plans.
Inflation
This aspect depends on how effectively the government can control inflation by exercising
control over general price rise and building materials, effective tax collection both at central
and state level, maintaining equilibrium in demand and supply, earning foreign exchange. The
increase in oil prices invariably increase the cost of living in all walks of life including building
industry.
Interest rate
The finance ministry through RBI (Reserved Bank of INDIA) controls the interest rates over
products, personal incomes, including housing loans and building materials.
Employment
Now major employment takes place only in private sector. Only an insignificant percentage of
employment takes place in central government and state governments. Pension schemes have
to be discontinued by the governments. The unemployment rate is very high now either in the
underemployment, or employment which is not compatible to qualifications, and resulted in
crime rate to unprecedented level by either educated or uneducated youth.
Lack of proper education like basic education, education in trades which helps the weaker
sections.
Savings and Investments
Government through nationalized banks, financial institutions, public schemes can attract
savings by offering reasonable interest on the public investments.
Monitory system and policies
The monitory systems are controlled by RBI through nationalized banks, LICHFL, HDFC, HUDCO,
which offer housing loans. The overall policies are controlled by central government and
sometimes implemented by state governments.
Fiscal Policies
Some Fiscal policies are controlled by Central Government and some by State Government by
levying taxes like sales tax, excise tax, income tax, import/export duties, property tax, wealth
tax, taxes on investments in fixed deposits if the interest earned is more than 10,000/ per year,
taxation is either directly or indirectly.
CHAPTER II
Public Participation versus Private Participation
Public sectors like HUDCO, Hindustan steel, Heavy Engineering corporation etc are controlled by
Central Government, Nizam Sugars, Allwyn Ltd, Praga tools etc are controlled by the State
Government of AP (Andhra Pradesh).
As far as Building Industry is concerned, materials like cement, steel, wood, aluminium, brick
manufacture, variety of floor tiles, wall tiles, electrical materials, plumbing and sanitary ware
and fittings etc (to mention only few) are produced in India resulting in quality products, at
various price levels to suit different economic levels of social strata.
Only Housing meant for central/state government employees is controlled by central or State
governments. The housing for weaker sections are taken care of by State governments as a
policy of Government.
Generally the housing for weaker sections results in poor quality of construction due to lack of
proper control by state government. The most neglected class in India are tribals still remain
poor even after 53 years of Independence.
Housing loans are available at RBI controlled rates of interest for other classes of the society in
India and also from General Insurance Co (GIC), LIC Housing Finance Ltd, and Private agencies.
Certain Housing schemes are handled by Foreign Direct Investment (FDI) as well result which
result in quality construction.
Efficiency in Economics
Capability and able to perform duties well. The efficiency in production of building materials is
high as there is competition and those who work in production are offered annual bonus
depending upon the profits made by companies.
The efficiency in construction industry is generally high if the projects are handled by
Architects, Engineers, and experienced builders. Unfortunately many constructions re handled
by builders who are not experienced.
This is due to the ignorance of the public and loss of investments by the public. Most of such
constructions are mediocre.
Equity in Economics
The central Government helps the public in offering fair rates of interest of the public invests in
Central Schemes like Indira Vikaas Patrika (IVP), Postal Savings schemes which offer Monthly
income schemes on investment in Postal saving schemes and they offer interest on fixed
deposit also. Share market is most risky as it is volatile.
Labour Intensive Industry versus Capital Intensive Industry
There is a problem of choosing between labour intensive industries or Labour intensive
methods and Capital Intensive industries or Capital Intensive Methods. In under developed
countries, due to chronic unemployment or cheap labour to capital is preferred.
The most efficient use of resources in less developed countries will tend to favour labour
intensive methods. For innovations, it would also follow the Capital Saving and Labour using
innovations, it would be preferred. It would be profitable to adopt capital-intensive techniques
to increase productivity.
If the export industries are capital-intensive such as mining and mineral refining, then, even
though there is surplus labour, extensive investment has to be done in order to earn necessary
Foreign Exchange.
For example, In India, Labour force is available in plenty. This is the reason most of the building
industry is Labour Intensive including both skilled and unskilled labour.
Only certain prestigious projects are handled by Reputed Building agencies like L&T, Raheja
Builders etc who employ only skilled labour force handled by all professionals like Architects,
Engineers, project Managers, etc and they handle construction using precast building elements
and heavy equipment and machines.
They work on TURN KEY basis like designing and execution on a time bound programmes. In
construction of International Airports, the private agencies invest the capital, design, build and
operate for certain number of years to recover their investment and profits (BOT). Sometimes
we send skilled technical professionals, skilled labour to other countries to help in their
construction activity. Sometimes we import Technical Knowhow for production of advanced
building materials for domestic consumption.
CHAPTER III
Basic Inputs into Building Construction |
Engineering Economics
Building Construction Economics
We will be discussing Inputs into Building Construction in terms of four important factors:
1. Land
2. Labour
3. Capital
4. Materials
Land
Marshall defines Land Land means the materials, and the forces which nature gives us
freely for the human beings (other creatures as well), in land, in water, in air, light and
Heat.
Land is natures gift
Land has no supply price (supply remains same) whether price of land is high or low
Land is permanent (lack of mobility)
Land lacks mobility in geographic sense
Provides infinite variation in fertility, utility, situation etc
Labour
Any work whether manual or material which is undertaken for a monetary consideration, is
called Labour in economics.
Marshall defines Any exertion of mind or body undergone partly or wholly with a view
to some good (consideration) other than pleasure, derived directly from work.
Labour is inseparable from labourer.
Labourer has to sell his labour in person.
Labour has no reserve price.
Labour has weak bargaining power.
Labour force cannot be increased or decreased.
Capital
Refers to that part of mans wealth which is used in producing further wealth or which yields an
income. Land is considered as a capital as:
1. It is free gift of nature.
2. Capital is perishable whereas land has no mobility.
The capital can be increased but the amount of land is fixed and the value may vary depending
on location. Capital formation is the very core of the Economic development. Without capital,
Building industry cannot survive and flourish for the benefit of the society.
Materials
Materials are available in two forms:
1. Natural Materials
2. Manmade Materials
Natural Materials
Natural materials such as stones, mud, minerals, water (wood), ores for various materials like
Gold, silver, copper, iron, aluminium, sand etc.
Manmade Materials
These materials include bricks, stone blocks, tiles, granites, marble, steel, aluminium, copper
products, PVC, cement, wood, plywood, laminates, paints, most of the building materials.
Building industry put to use both natural and manmade materials, to construct structures to
cater to various needs of human beings on the Gods Gift LAND.
Technological research in producing innovative new Building Materials that can withstand
suitably THE GLOBAL WARMING, which is causing ecological imbalance at an alarming rate and
such innovations are the need of the hour. This is true especially in the case of our country
INDIA.
CHAPTER IV

Financing of Projects | Economics related to
Architecture and Engineering
Financing of Projects | Economics related to Building Industry
Financing of Projects is the most important factor determining the success of the project.
Various factors influence the success of a project.
In this article, we are going to study the major factors that are responsible for the success of
the Building project
Here are the four factors:
1. Sources
2. Total Cost Estimation of the Project
3. Utility in Financing
4. Agencies and Institutions directly and indirectly influencing the economic aspects of a
project
Sources
Loans are available for both purchasers and Builders from:
All Nationalized Banks,
Co-operative Banks,
Private Banks,
LIC HFL,
Finance Companies,
Insurance Companies like General Insurance Co (GIC), United India Insurance Co Ltd, National
Insurance Co Ltd, Oriental Insurance Co Ltd, New India Assurance Co Ltd (for the employees),
Foreign Direct Investment FDI, 20 Nationalised Banks along with Regional Rural Banks come
under Public sector.
Commercial Banks, Cooperative Banks operate under provisions of Cooperative societies Law of
states for credit and non-credit purpose.
National Bank of Agriculture and Rural Development (NABARD) help Farming sector.
Total Cost Estimation of the Project
Price to be paid for a things like;
The cost of living
General level of prices
The cost of price of an article
Cost of production
Cost of house or property
A house should be built based on an estimated cost. If the building cost increases, it will be a
loss and if it can be reduced, it will be a saving for the individual as well as for the company as
a whole.
Utility in Financing
Proper utility of the available financial resources in a planned manner will result in the success
of the projects. Any improper planning, lack of technical expertise, under utility of technology
and expertise will result in the losses of the project as well as loss to the resources of the
Nation as a whole.
Agencies and Institutions directly and indirectly influencing the economic aspects of a
project
Interest rates by banks, availability of materials (products, producers of materials),
Governmental agencies, both central and state policies in making finances available for loans,
personal savings, demand and supply, Population (Growing in India and decrease in some
western countries).
Economic stability of the country, Global Economy, Location of the projects, Inflation or
Deflation. All the agencies those advance Housing loans like Specialised Financing agencies like
HUDCO, HDFC, National Housing Bank (NHB). More than 90% of the dwelling units are financed
by Housing and Urban Development Corporation (HUDCO) for economically weaker sections and
Low Income Group.