Construction and Real Estate Dynamics

150 Pages·2003·0.822 MB·English

by  Philippe Thalmann, Milad Zarin-Nejadan (eds.)

Construction and
Real Estate Dynamics
Edited by
Philippe Thalmann and Milad Zarin-Nejadan
AppliedEconometricsAssociationSeries
GeneralEditors:JeanH.P.Paelinck,EmeritusProfessor,ErasmusUniversity,
Rotterdam,andHenriSerbat,ChamberofCommerce,Paris
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Titlesinclude:
FrançoiseBourdonandJeanBourdon(editors)
WAGEECONOMETRICSANDMODELLING
FabrizioCarlevaroandJean-BaptisteLesourt(editors)
MEASURINGANDACCOUNTINGENVIRONMENTALNUISANCES
ANDSERVICES
ArthurGetis,JesúsMurandHenryG.Zoller(editors)
SPATIALECONOMETRICSANDSPATIALSTATISTICS
SivS.GustafssonandDanièleE.Meulders(editors)
GENDERANDTHELABOURMARKET
EconometricEvidenceofObstaclestoAchievingGenderEquality
HansHeijkeandJoanMuysken(editors)
EDUCATIONANDTRAININGINAKNOWLEDGE-BASEDECONOMY
PavlosKaradeloglou(editor)
EXCHANGE-RATEPOLICYINEUROPE
EmileQuinetandRogerVickerman(editors)
THEECONOMETRICSOFMAJORTRANSPORTINFRASTRUCTURES
PhilippeThalmannandMiladZarin-Nejadan(editors)
CONSTRUCTIONANDREALESTATEDYNAMICS
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Construction and
Real Estate Dynamics
Editedby
Philippe Thalmann
FederalInstituteofTechnology
Lausanne
Switzerland
and
Milad Zarin-Nejadan
UniversityofNeuchâtel
Switzerland
©AppliedEconometricsAssociation2003
Softcover reprint of the hardcover 1st edition 2003 978-1-4039-1545-0
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Constructionandrealestatedynamics/
editedbyPhilippeThalmannandMiladZarin-Nejadan.
p.cm.–(AppliedEconometricsAssociationseries)
Includesbibliographicalreferencesandindexes.
1.Constructionindustry.2.Realestatebusiness.I.Thalmann,Philippe.
II.Zarin-Nejadan,Milad,1957-III.Series.
HD9715.A2C64752003
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12 11 10 09 08 07 06 05 04 03
Contents
NotesontheContributors vi
1 Introduction 1
PhilippeThalmannandMiladZarin-Nejadan
2 DiversificationasaStrategyforMinimisingFluctuations
inConstructionFirmTurnovers 11
MichaelBallandPeterAntonioni
3 The1985–95CycleinRealEstateMarkets:
BubbleorShock? 38
DidierCornuelandFrancisCalcoen
4 EstimatingConstructionDemandinSingapore:Potential
ofNeuralNetworks 66
FreddieTanandGeorgeOfori
5 Lump-sumMovingCost 88
GerbertRomijn
6 RentGrowthControlandtheTransitionof
LandtoUrbanUse 112
AlastairMcFarlane
AuthorandSubjectIndex 140
v
Notes on the Contributors
PeterANTONIONI
Lecturer
BusinessSchool,UniversityCollege,London,U.K.
Email:[email protected]
MichaelBALL
Director
UrbanandPropertyEconomicsConsultancy,London,U.K.
VisitingProfessor
Department of Real Estate and Planning, University of Reading,
Reading,U.K.
Email:[email protected]
FrancisCALCOEN
CNRSResearchDirector
Cresge/Labores,CatholicUniversityofLille,France
Email:[email protected]
DidierCORNUEL
ProfessorofEconomics
MEDEE-IFRESI,UniversityofLille,France
Email:[email protected]
AlastairMcFARLANE
SeniorEconomist
U.S.DepartmentofHousingandUrbanDevelopment
OfficeofPolicyDevelopmentandResearch,Washington,USA
Email:[email protected]
GeorgeOFORI
ProfessorandHead
DepartmentofBuilding,SchoolofDesignandEnvironment
NationalUniversityofSingapore,Singapore
Email:[email protected]
vi
NotesontheContributors vii
GerbertROMIJN
ResearcherPublicFinance
CPB Netherlands Bureau for Economic Policy Analysis, The Hague,
Netherlands
Email:[email protected]
FreddieTAN
AdjunctSeniorResearcher
DepartmentofBuilding,SchoolofDesignandEnvironment
NationalUniversityofSingapore,Singapore
Email:[email protected]
PhilippeTHALMANN
ProfessorofEconomicsofthenaturalandbuiltenvironment
FederalInstituteofTechnology,Lausanne,Switzerland
Email:philippe.thalmann@epfl.ch
MiladZARIN-NEJADAN
ProfessorofEconomics
Department of Economics and IRER, University of Neuchâtel,
Neuchâtel,Switzerland
Email:[email protected]
1
Introduction
Philippe Thalmann and Milad Zarin-Nejadan
The construction industry is a major constituent of European
economies. The gross output of the sector in the European Union
(EU)represented10.4percentofGDPand5.4percentoftotalvalue
added (2000 figures). The sector also accounts for one half of gross
capital formation. However, the share of construction expenditure
in GDP has been declining steadily since 1973, with the exception
of a small boom at the end of the 1980s. The evolution is basically
thesameforresidentialandnon-residentialcomponents,paralleling
otherindustrialisedcountries.
The EU is the principal world exporter of construction services.
Europeancompanies,amongthelargestintheworld,holdaboutone
halfofinternationalmarkets.Thevalueofcross-bordertradeishow-
everstillrelativelylowcomparedtothetotalvalueoftheconstruction
market. Taking into account indirect imports (that is purchases of
Table1.1 ConstructionexpenditureasapercentageofGDP
1970–73 1974–79 1980–89 1990–95 1996–00
EuropeanUnion 14.5 13.3 11.7 11.3 10.4
–residential 6.9 6.4 5.6 5.3 5.2
–non-residential 7.6 6.9 6.1 6.0 5.2
OECD 13.8 13.2 12.3 11.3 11.0
–residential 6.2 6.0 5.3 4.9 4.9
–non-residential 7.6 7.2 7.0 6.4 6.1
Source: OECD,HistoricalStatistics,Paris,differentyears.
1
2 PhilippeThalmannandMiladZarin-Nejadan
non-domestic origin through a local subsidiary), overall EU public
sectorimportpenetrationisbetween7and10percent.
Constructionhasalwaysbeenakeysectorintermsofemployment.
In the EU, it provides jobs for 11.9 million workers (2000 figures)
representing 7.2 per cent of the total workforce. It is also a pow-
erful engine of job creation. Every job created in the construction
sectorgeneratestwofurtherjobsinrelatedsectors. Thus, morethan
30 million workers in the EU depend, directly or indirectly, on the
construction sector. Construction employment is, however, largely
hardwork,dangerousandvolatile.Itattractspoorlyqualifiedlabour
with low educational achievement along with unskilled immigrant
workerswillingtoworkbelownormalwagelevels. Over90percent
oftheworkforceismale. Constructionworkersareself-employedin
the proportion of 22 per cent, more than in manufacturing (7.3 per
cent)andeveninservices(17.8percent).
Underthoseconditions,itmaynotbesurprisingthatconstruction
contributesadisproportionateshareoftheshadoweconomy.Further
reasonsarehighnon-wagelabourcosts, whichcanamounttomore
than30percentofthewagecost,thehighmobilityoftheworkforce,
theshortdurationofcontracts,thestrongcyclicalandseasonalvari-
ation in the industry and illegal immigration which can easily find
workinthesectorrequiringlittleornoqualificationorexperience.
The construction sector is extremely heterogeneous. Although it
cangenerallybeconsideredasquitelabour-intensive,particularlyin
its final assembly stage on site, it also includes activities with high
human capital intensity (for example design and management) as
wellashighmachineryintensity(forexampleexcavation).Thecon-
structionindustryisstronglyfragmented.Evenifafewglobalplayers
commandhighturnovers,constructionis,incomparisonwithother
industrialsectors, farfrombeingpronetooligopolisticordominant
tendencies, except in selected sectors such as tunnelling. In 1990,
the turnover of the ten largest European construction companies
only accounted for less than 6 per cent of the total European mar-
ket. Craftsmen and small and medium-sized enterprises (SMEs) play
amajorroleinthesector. Indeed, 97percentofsome2millionEU
companies have less than 20 employees, and 93 per cent have less
than10. Asaresult, 67percentofconstructionvalueaddediscon-
tributed by companies with less than 50 employees, two and a half
times the corresponding share in manufacturing. The construction