Factors Determining The Levels Of Construction Activity In A

Country

By Lee Chia Kuang and Lawrence Yap Sie Kiong

Abstract

The construction industry faces changing in the levels of its construction activity. Several
factors combine to determine the level of construction activity. The factors not only changing
the levels of construction activity, but also influence the capacity of the construction industry
over the short-term. The paper focuses on the factors which determine the levels of
construction activity in any country. This provides an understanding of scenario the
uncertain construction activity’s levels.

Introduction

Construction has always been defined as 3 D with the label of “Difficult”, “Danger”,
and “Dirty”. However, despite of these labels which may sound provocative to the
construction industries, construction industry has been very important to a nation’s economy.
By taking a look to Malaysia itself, the construction industry in Malaysia had been one of the
major industries which make big contributions to the nation’s gross domestic product (GDP).
Chan (2008) reported that construction industry had successfully obtained allocation of RM
200 billion in the form of development expenditure under the 9MP and another RM 20 billion
through Private Initiative (PFI), which is expected to play a major role in simulating and
sustaining demand of the Malaysian construction industry.

Indeed the contribution of construction economy is undeniable, and has made a

significant contribution to the country’s economy. In the context of construction economics
which studies production, distribution, and consumption of goods and services. (Wikipedia,
2008), there are various factors that influence the level of construction activities in one’s
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country. Through construction activities, such as constructs, alters, repairs, demolishes, the
output of these activities contribute massively to a nation’s socio-economic development. By
understanding the economics and the factors that influence the construction activities, the
level of construction activity can be controlled, and eventually increased for the sake of
consumers and citizens in a country.

Demand Factor

The level construction activity in a country largely depends on the demand from the
individuals and people in a country. As simple as that, the level of construction activity will
largely depend on the demand from the consumers and public. Demand from the consumers
has been the corner stone for all the construction activities in the context of construction
economics, as the willingness and the ability to pay for the construction goods from the
consumers decide the intensity of construction activities to be carried out in one country.

The relationship between demand and the construction activity is always

proportionate. The construction activity will increase if the demand for the construction goods
increases. More and more construction activities will be carried out if the demand for the
outputs and goods of construction activities are high. Generally, the output and goods of
construction activity according to Myers (2004) include housing, commercial and industrial
buildings, social-type construction, and repair and maintenance. Massive construction
activities will be carried out if the demand for these goods and outputs increases. Works done
by Myers (2004) revealed that the basics variables that change and influence the demands for
these goods are:

(a) The price of goods

(b) Changes in income
(c) New technologies
(d) Government policies
(e) Future expectations.

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 The mechanism of these variables in influencing the demand for construction activities
actually varies. For instances, the price of goods may influence the demand and even the
supply of construction goods in the market. According to Law of demand stressed out by
O’Sullivan and Sheffrin (2005), by the virtue of ceteris paribus which stress out the
relationship between price and quantity demanded, if the price of the construction goods
increase, the demand for these construction goods may decrease, and vice versa. Secondly, the
changes income of the consumers may also affect the demand of the goods of the
construction. If the income and the standard of living of the consumers increase, gradually
they will have an extra income which enables for them to fulfill their additional needs for
example renovation of house, extra condominium, or even additional with the extra
purchasing power, consumers may have capability and higher demand for the more
construction outputs which may portray their lavish lifestyle, or even satisfy their needs
basically. Thirdly, new technologies may increase the demand of construction activity, as
technologies can reduce costs, improve quality and bring more profits. Improvements may
include construction methods, communication methods, which will benefit both owner, and
consumers as the new technologies can meet the demand of consumers with its speed and
productive technology. However the factor of technology shall be discussed in the later
chapter, as it alone does not only satisfy the demand of consumers, the packages that
technologies alone can also bring is vast and wide contribution in the aspect of increasing
construction activity in a country.

Fourthly, government policies may also influence the demand of consumers. Rebates,
cutting on red tapes and other forms of incentives will boost owners and consumers to
construct more projects, increasing the demand of local investors and owners to develop, or to
construct property which will benefit from the government policies (Lourdes, 2008). Finally,
future expectation in the construction industry will also affect the demand for the construction
goods. Some consumers may have expectations in the construction industry which may lure
them to invest. In property investment for an instance, if owners of lands and property may
have positive and good expectation of the market, eventually more and more construction
activities will be demanded to be carried out to construct properties for the purpose of
investments.

Technology Factor
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 One of the factors that determine the level of construction activity in a county is the
technology level of the construction process in the construction industry in a country. Many
countries, including Malaysia has been trying to increase the technology level of the
construction process, by adopting new and updated technology approach in the process of
construction. According to CIDB (2007), technology enhancement increase productivity,
quality of construction can be increased with the minimum costs of construction, which will
then induce more profits for key players in construction industry. More and more contractors
and key players are willing to participate in the construction projects which will have to meet
the demand of the market which hungers for quality construction. The result of these
circumstances is the increase of more and more construction projects, and a higher level of
construction activity.

With a constructive enhance of technology level in the construction industry, the

technology factor can enable to reshape the construction industry which has been always
termed as “Dirty, Dangerous, and Difficult” (CIDB, 2007). These 3 D’ in the construction
industry has caused slumber and stagnant level of construction activities due to the image and
the harshness felt in the construction industry. With technological level which has been
enhanced, directly the working situation of construction sites will improve dramatically, result
in more progressive, more safe-wise environment, and in the end will attract more labours to
enroll in the industry and develop an “easier” and safer work place. In the end, more and more
activities will be carried out as more and more work force will be obtainable easily. As
mentioned in the earlier chapter, technology has close relationship with demand. If there is a
high demand of construction projects in a country, without adequate workforce and skilled
labour, the level of construction activity will going to meet a downfall scenario as there
maybe lack of inputs of labour workforce.

Hence, the influence of technological aspect in the construction activity has been
prominent and great. With effective technology enhancement, the construction industry will
utilize fewer inputs, but achieve better outputs, and hence boost construction activities as it
gains more and more investment and project opportunities as the confidence among investors
grow stronger. According to Rollet (1986), technology has been able to influence and bridge

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the gap between demand and supply. Agus (1997) stated that due to slow pace of construction
and higher cost, the construction is not able to meet the demand and hence had stalled the
construction activity of the country subsequently when the reputation of construction industry
and the level of activity has met stumbling stone due to its lack of technology aspects which
can utilize resource and progress at a higher speed.

By adopting technology advancement, the reason of level of construction activities can

be increased, due to several factors. Firstly, the human energy can be amplified greatly
amplified, because technology designed to make an activity easier to perform physically. In its
simplest terms, it can be regarded as the shift in energy from human to machine bringing an
increase in energy output. (Goodrum and Gangwar, 2002). When productivity increase,
directly it will boost the construction activity constructively. Secondly, technology
enhancement in the construction industry can increase level of control. When facing
inadequate labour force and high demand for the construction works, many experts foresee
the downfall of level of the construction activity because the output of construction will
decrease, certainly the construction projects that will be carried out will proportionately
decreased as well. However, according to Goodrum and Gangwar (2002), with technology
enhancement, it will increase the level of control which enables advances in machinery and
hand tools that transfer control from human to machine, and it can solve shortage of labours
and at the same time increase output.

Thirdly, technology enhancement had alleviates physical stresses imposed on a worker

and helps the worker cope with the work environment. With such package the technology can
bring ergonomically, there is no reason workers will hate the job they are doing. More and
more professionals enroll themselves in the construction industry, and more and more
investors foresee the great return from construction activities. Finally, with the boost from
technology, over time, construction equipment has been designed to provide greater and more
accurate information regarding internal and external processes, for instance the incorporation
of computers in to the construction. Subsequently, this factor can cut unnecessary costs and
still maintain time, cost, and quality of construction work. With such quality that technology
can bring, eventually there will be more demand for such quality workmanship in the
construction. Since many owners and key players already felt disappointed with the old

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fashioned and traditional construction way which stop them from investing and carry on more
construction projects in the country, technology enhancement can be an ingredient which
encourage more construction activities to be carried on to meet demands.

Indeed technology level in a construction industry will influence the level of

construction activity in a country. By taking Malaysia as an example, one good example given
out by Waleed et al (1997) is the technology enhancement by using mass production
technique at the building site, and for which in this case, the adoption of using new building
systems and factory-produced building components and by pioneering “conveyor belt” mass
production technique through “Industrialized Building Systems”, or so called IBS. IBS as
defined by Junid (1986), is the industrialized process which components of a building are
conceived, planned, fabricated, transported and erected on site. This technology enhancement
has shown good appearance, in cutting costs, improves the speed of construction, safer,
cleaner and improves the image of construction industry (Abdul Rahman and Omar, 2008). In
terms of the increment of construction activities, Waleed et al (1997) once again shown us
prior to the technology enhancement through IBS, the average house that is completed per
year per worker in Malaysia is only one house. With the technology enhancement with IBS,
each building worker to construct can reach up to 10 houses per year, which eventually
increase the construction activity progressively ever since. Without any doubt, such
circumstances has shown us technology factor has been influencing the level of construction
activity positively, by meeting demands for the construction activity even in the face of scarce
labour and resource.

Availability of Resources

A very wide range of resources are being use for the construction activity. Resources
required by the various activities of the industry are different. Such construction resources
including raw materials, manpower, machinery equipmentand etc. When people first began to
build, they used the materials that were to hand, and the amount of manpower involved was
somewhat irrelevant in the sense that people built for themselves without employing
independent manpower. While the materials used varied depending on the region but were
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basically cement timber, stone, clay and other naturally occurring materials (RICS, 1975).
Nowadays, the construction materials used may be: naturally occurring, such as sand and
gravel; processed from naturally occurring materials in the raw form using technologies
involving various levels of capital investment; or synthesized. Over the world, despite of the
nationality of the designers, all those similar types of materials were widely used in the
construction activities. Therefore, if it happens to be a shortage in anyone of the materials, it
may constrain the expansion of construction output (Ofori, 1990).

In the course of time, construction became a professional business and, as from this
moment, the manpower became an important factor and one which has very much influenced
construction activity through to the present (RICS, 1975). As mentioned above, the
construction industry in Malaysia is lacking of manpower inputs and extra manpower such as
field labours have to be imported from other countries such as Indonesia, Myanmar, Vietnam,
Bangladesh and etc. However, all these field labours were not well trained and lack of
experience in the construction activities. As a result, low quality construction products were
produced and subsequently caused the levels of construction activity fall (Ofori, 1990).

Government Policies

According to Wikipedia (2008), a policy is a deliberate plan of action to guide

decisions and achieve rational outcomes. The government plays an important role insetting
up the policies for the construction industry of every country. The effect of government’s
general policies on the performance of, and prospects for, the construction industry is wide
ranging and the policies are closely related to the levels of construction activity in a country.
Implementation of government policies of construction activities may imply body of
legislation, regulations and codes of practice relate to the acquisition and use of land,
utilisation of materials and methods of construction, employment conditions, use of buildings,
and so on (Ofori, 1990).

As further explained by Ofori (1990), under the government policies, government may
overtly encourage or discourage the use of certain items and hence give subsidies, impose
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penalties or support or restrict the inflow of some raw materials for construction activities.
Thus, such a policy certainly may influence the levels of construction activity in that country.
According toJeffrey Ng (2004), the Economic Package announced by the Malaysia
Government in mid 2003 provided measures such as stamp duty exemption, waiver of Real
Property Gains Tax (RPGT) and tax incentives to house buyers. Those incentives have helped
enhance accessibility to homeownership and directly raised the levels of construction
activities in Malaysia. This statement can be further supported by the survey conducted by
REHDA (Real Estate and Housing Developers’ Association). The findings from the survey
revealed that three quarter of about 250 respondents selling houses priced below RM 180,000
cited that sales have improve since the implementation of such policy.

Conclusion

Undeniably, construction activities is one of the major contributions to the nation’s

GDP of Malaysia. However, the levels of construction activity are strongly influencing by
several factors. Among the variables those have been identified including demand factor,
technology factor, availability of resources and government policies on the construction
activities. Shortage or changing of any of the factors mayconstrain or enhance the expansion
of the construction activity. Since the factors influence the levels of construction activity
cannot be removed, therefore, in long run, the key players in the construction industry must
have understand the major factors and to control the levels of the construction activity.

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