Scribd
Upload
20 views26 pages

Construction Markets

The document discusses construction markets and covers topics like market structures, demand, supply, price determination, bidding, and other economic concepts related to the construction industry. It notes that the construction industry has overlapping markets that are largely asymmetric and fragmented. Factors that influence supply and demand are also examined.

Uploaded by

KENGA NIXON LEPOSO
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
20 views26 pages

Construction Markets

The document discusses construction markets and covers topics like market structures, demand, supply, price determination, bidding, and other economic concepts related to the construction industry. It notes that the construction industry has overlapping markets that are largely asymmetric and fragmented. Factors that influence supply and demand are also examined.

Uploaded by

KENGA NIXON LEPOSO
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 26

Construction markets

GROUP 4
The nature of the Industry
The product is large and heavy, expensive, immobile and
custom made.
Overlapping markets: geographically, type of service, size
of contract, sophistication, type of product.
Labour intensive, accompanying multiplier effect,
disruptions are very disastrous: Big Four Agenda
What is a market?
Mechanism, process, economic place
Hillebrandt (2000): market consist of sellers of close
substitutes. In reality, sellers operate in different markets
at the same time.
Largely asymmetric, fragmented, lack of info flow
Market Structures
Perfect competition; efficiency, normal profits, perfect
knowledge?
Monopoly: has to produce less, govt; limited monopoly-
negotiation; discriminating monopoly
Monopolistic: ease of entry, product differentiation
Oligopoly; competitive tendering; partial oligopolists
Monopsony; the powerful buyer
Demand
Economist regard demand as the requirement for goods and
services which the customer is both willing and able to pay for
it
Thus every consumer follows the law of demand: Other things
being equal, when the price of a good rises, the quantity
demanded of the good falls, and when the price falls, the
quantity demanded rises.
Form of demand
Housing
Industrial-commercial
Social type construction, Kenyan context
Repair and maintenance
Demand for housing

The current price for housing


The price for other forms of housing
Income distribution and expectation change
Demographic factors such as number of households
Government policy
Supply
Quantity of goods and services that sellers are willing and
able to sell. There are many determinants of quantity
supply, but once again price plays a major role.
Supply and the price determinant
Firms supply more when the prices of the products are
high; profit.
The high prices offer an incentive to expand on the
output and incentives for new firms to enter the market
industry hence increased supply.
Housing in Kenya
Supply and the non price determinant
Other than price, there can be other factors that affect the
supply of construction products other than prices. Some
of these factors are:
1. Cost of production
2. Government policies
3. Expectations
Price determination
Generally price is determined by the law of demand and
supply
In the construction industry there are several ways of
price determination including negotiation, tendering and
bidding and price-fixing
The final price depends on shared benefits and fixed costs
Bidding
•Bidding;free-range to selective bidding. The contractor
comes up with either a lump-sum unit price or a fixed
price for which he will execute the works. Contractor
considers:
•To bid or not to bid; cost of the project; lowest
worthwhile bid price(lowest mark up); the final markup.
Bidding theory
Developed between the late 1950s to early 960s
Used to determine the markup prices for contractors to add
on cost in order to maximize profit. Multiplying various
markups with the probability of getting the job at the same
price
Other scholars tried to get a coefficient for contractors bid
After developments the theory was found to be helpful
only in academics but not in practice
Price elasticity

Price elasticity of demand, measure of the extent to which


the quantity demanded of a commodity responds to
changes in price. It is calculated by:
E=%change in quantity demanded
%change in price
Elasticity of supply
Time lag: elasticity inelastic or fixed; excess demand;
causes shortage.
Other types of elasticity
Income elasticity of demand: income on demand
E=% change in quantity demand
% change in income
For normal goods the income elasticity is positive but the income elasticity
for inferior goods is negative
Changes in wages are inelastic in the short run as it takes a relatively long
time for people to respond to changes in relative wages in the construction
sector
Cross price elasticity
Measure of extent to which the quantity demanded of one
commodity responds to changes in price of another commodity.

% change of quantity demanded of A


% change of price in B
Housing sector: demand is sensitive to changes in mortgage
interest rates; if interest rates increase demand for property will
in return decrease.
Factor Markets
Factor is a market where factors of production are bought
and sold; land ,labour and capital.
Land: all natural resources unimproved by human work.
The unique characteristics of land ,zero production cost
and a fixed supply gives rise to the theory of economic
rent.
Labour
Labour, contribution to production of human effort
physical or mental.
Supply depends on amount of hours offered by each
individual and workers available.
People are concerned about purchasing power of their
wage packet and its nominal value; Income effect.
Capital
Physical assets produced in order to assist in production
of more goods. The rate of return on capital investment is
its earnings expressed as a percentage of the outlay.
Marginal efficiency of capital is the earnings or yield of
monies invested expressed as a percentage of last unit of
capital employed.
Role of competitive markets
Contestable markets; threat of a potential new entrant is
sufficient to constrain prices; little or no sunk costs
Suicide bids, Latham (1994) - clawing back in variations
and contigencies, very low bid do not provide value for
money.
Gardiner (2011), UK, half of tenders priced poorly
Healthy competition
Collusion; clients are advised to vet bid for evidence of
collusion.
Efficiency, less waste and more economic growth
Competition policy
Market fluctuation and cycles
● Business cycles, growth cycles, construction
business cycles, building cycles
● Fluctuations are expedient, may not be avoided, but
defensive measures, may be taken
● Research body largely based in the developed world;
new perspectives - intergration of capital and real
estate markete, expectation, globalisation
Building cycles
● Building cycles are longer and of greater amplitude,
why?
● ‘Population, credit, shocks’ Parry Lewis (1950)
● Construction lag, over or undershoot; response to
technological advancement; asymmetric information
and foul expectations;
● Government still acts to stabilise
Conclusion
● Lots of research gaps in Africa
● Dearth of data
● Need to understand current market failures
● Building cycles in Kenya

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy