BUILDING ECONOMICS

1
Content of Presentation
 Introduction
 Definition
 Role
 Scope
 Importance
 Principles
INTRODUCTION
Building economics is concerned with production, consumption,service
and the analysis of commercial activities-

As it is related to architecture and building activity- all types of building for

all types of function by the builders (production) and consumption i.e.,
the ones who either buy or hire those building for various function with the
service offered by professionals like architects, planners, engineers, etc.

INTRODUCTIONOF BUILDING
ECONOMICS

PRODUCTION CONSUMPTION SERVICE

RELATEDTO ARCHITECTURE
AND BUILDINGACTIVITY
Building Economics is concerned with all economic aspects of
construction projects – from planning, design and implementation to the
completion.
The better the definition and accurate planning undertaken so the
understanding of the economics of your project will ensure optimum
results.
Building Economics is a summation of many diverse components and
specializations. Every project in the construction industry utilises some of
these specific disciplines – from construction to restoration, construction
economics is relevant everywhere.
A purely mathematical approach, though useful rarely provides the
desired outcome; construction costing is not only a matter of knowledge,
but also finesse, empathy and imagination, and of course experience
helps!

DEFINITION
“ Maximum utilization with limited resources .”
“The economic analysis of the market for services of architects and
construction companies.”
 SCOPE AND IMPORTANCE OF BUILDING ECONOMICS

1. Building economics is an emerging profession with a promising future.

2. As a profession, building economics should become allied with
corporate real estate and facilities management, which encompass the
entire building process
3. The opportunities to economize the use of building resources are highest
in the early stages of the building process, building economics focuses
on building planning and design
4. All fields concerning the built environment, including building economics,
are highly regarded because constructed facilities are an essential
ingredient of modern life
5. Building economics has become one of the key areas in educational
curricula in all fields concerning the built environment, including
architecture, civil engineering, surveying, and the like
6. Without building economics, building as an economic processwill never
be properly understood and managed
7. Building economics concerns both the economics of buildings as assets
and the economics of building as an economic process
8. Any well-trained economist can do well in building economics after a
brief period of familiarization with building terminology and typical
problems of the building industry
9. Building economics is a misnomer for cost accounting applied to
building projects.
10.Building economics is about management of buildingportfolios, rather
than about investment analysis of individual building projects
11.Building economics will emerge as an important field of study when it
develops analytical techniques and approaches all its own .
 ROLE AND PRINCIPLESOF BUILDINGECONOMICS

The study of Building Economics can be broadly classified into two

categories:
• Micro Economics
• Macro Economics

• MICRO ECONOMICS ALSO CALLED PRICE THEORY

• Micro Economics studies how the individual parts of the economy
make decisions to allocate limited resources.
• Microeconomics studies:
– how individuals use limited resources to meet unlimited needs
– the consequences of their decisions
– the behaviour of individual components like industries, firms and
households.
– how individual prices are set
– what determines the price of land, labour and capital
– inquire into the strengths and weaknesses of the market
mechanism.
IMPORTANCE

It analyses how millions of consumers and producers in an economy take

decisions about products and services offered.
It also deals with how buildings and services are distributed belonging to
different economic status.

LIMITATIONS

It cannot give an idea of the function of the economy as a whole.

 It assumes full employment which is a rare phenomenon in developing
countries or even developed countries which is quite unrealistic.
 MACRO ECONOMICS

• MACRO ECONOMICS ALSO CALLED INCOMETHEORY

• Macroeconomics studies about the functioning of the economy as a
whole
• It examines the economy throughwide-lens.
• Macroeconomics studies about
• the total output of a nation
• the way the nation allocates its limited resources of land, labor and
capital
• the ways to maximize production levels
• the techniques to promotetrade
• After observing the society as a whole, Adam Smith noted that there
was an "invisible hand" turning the wheels of the economy: a market
force that keeps the economy functioning.
LIMITATIONS

Individual is altogether ignored.

It overlooks individual differences, the general level of prices may be
assumed stable, but the food grains and building materials and consumer
goods may go up very high which may cause havoc for the poor and
middle class.
 MICRO ECONOMICS
Micro Economics as an article is built by the following terms :
• Budget Constraints
• Choice
• Demand and Supply
• Uncertainties
• Equilibrium
• Technical constraints
• Profit maximization
• Cost minimization
• Monopoly
• Oligopoly
• 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

Demands of natural 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 interdepe
ndent to maintain perfect equilibrium, policies in five year plans and
execution as per scheduled programs.

Technical constrains:
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.

Monopoly and oligopoly

Inthe 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 reputedproducers
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 productionis occasionally
affected by inflation, global economic recession, rising cost of living, over
population, scarcity of land in metros and othercities.
Macro Economics as an article is built by the following terms :
• Demand and supply
• Inflation
• Interest rate
• Employment
• Savings and investments
• Monetary policy
• 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 yearplans.

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 RBIthrough 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 orindirectly.