Construction Economics – Exam Notes

Question 1 - Describe and discuss the structure and characteristics of the Australian
construction industry.

- Statistical info on industry

- Size of industry - $70 billion
- Break up = 30%, 30%, 30%, 10% - Refer to Notes
- Break up is in civil and building sector
- Building sector broken up into residential and commercial

Question 2 - Describe, discuss and illustrate building cycles in general and the supply and
demand for the new housing in Australia.

- 7-10 year cycles

- Peaks and throughs – These are shortening, therefore we will have more booms and busts soon
- Booms & Busts of the industry
- How government regulates
- Industry provides fiscal and monetary policy – Government regulates industry through these
- Monetary and fiscal policy are the quickest and best way to generate growth – Eg, increasing
building, roads, bridges, etc.

Question 3 - How has economic thinking changed over time? Can neo classical thinking
be applied to the construction industry?

- Neo classical (Supply and demand) based on mathematical formulas

- Downturn in American government
- Yes, Globalisation (Individual governments don’t have much power anymore)
- Now big businesses have more influence and productivity

Question 4 - Describe and discuss the issues associated with affordable housing in
Australia.

- Property values have increased by approximately 150% over 5 years

- Affordability is lower
- Today 70% of dual income earned in Sydney is on mortgage repayments
- Affordable state – Tasmania @ 40%, 60% in NSW
- Check other states
- When interest rates go up, affordability is lower
- Population growth, income, cost of housing, transport and interest rates go up, affordability
becomes lower

Question 5 - Describe and discuss the direction business in Australia is taking over the
next 10 years. How does this direction apply to the construction industry?

- Will see more takeovers (Eg, Westpac over St George)

- Will see more mergers at top end of businesses
- Globalisation
- Increase in overseas labour costs (Eg, China – These type of countries will move from
developing to developed), therefore prices will go up and inflation goes up
- Small to medium size companies will go out of business, especially medium sized companies
- Smaller companies will survive as they are cheaper to operate – Technology influences this
such as the internet
- Businesses will end up being either big or small
Question 6 - How does the government use the construction industry to regulate the
economy, ie fiscal and monetary policy

- Fiscal – Interest rates

- Monetary Policy – Budgetary spending, using tax money to reinvest in the industry, especially in
roadwork, bridgework and public amenities

Question 7 - Describe and discuss various principles for successful investment in the
property market.

- Average current yield now is 3-4%

- Area that has positive growth potential
- Properties that have decent or high yield, research what is good or average
- Returning 6-7%, with area for potential growth, Eg close to CBD, coast, transport, shops and
general amenities
- Commercial property 7-8%

Question 8 - Describe and discuss the principles and theories of international trade and
comparative advantage as they apply to the global construction market?

- Foreign ownership of big construction companies, Eg Multiplex

- Individual companies are influencing the global economy, such as Andrew Forests Company,
Bigger companies and global governments such as China are willing and wanting to buy such
companies and the government has no influence
- The owner of the company becomes the ultimate decision maker and influence, not the
government – we are now seeing much more of this

Question 9 - Describe what it means to be an entrepreneur. What entrepreneurial skills are

particular to the construction industry?

- Coming up with ideas, such as a service or product that society or people will buy or use
- Coming up with something new and appealing, that will generate money, interest, success and
growth

Question 10 - Describe and discuss what globalisation means for the Australian
Construction Industry

- Foreign ownership
- Australian companies working in other markets, Eg, Dubai, UAE, China, etc
- Regional movement, interstate
- Existing companies expanding and moving into new markets
- Advances in technology, influencing and enabling this

Question 11 - What are the principles of the game theory? Can game theory be used for
determining success in tendering?

- Predicting what opposition is doing or what they have come up with

- Predict what they are going to submit
- Predicting is different to estimating cost