Real estate

Is the Construction Industry Ready for A Transformation?

By 10/11/2021 0 Comments

Introduction

Construction is one of the first-ever industries developed by mankind, and thereon, it has continued to shape the lives of millions in unique ways to this day. Every other business relies on the construction industry for its accommodation, plants, and infrastructure, while it is also a determinant of how people live, interact, work, grow, and play in societies. Not only does it have huge economic relevance for developed and developing countries around the world, but it also leaves a huge impact on the environment as it is the single largest consumer of the world’s resources. The industry has been slow to adopt the latest technologies developed over the last few decades as much of the stakeholders fear experimentation with new techniques instead of relying on old tried and tested methods. However, humans shape their environment, and thereon, the environment shapes them. In the face of market and consumer trends, calls for sustainability and resilience, and evolving regulations regarding the real estate industry, the construction industry is bound for a transformation in the upcoming years. This swift research article by the Iqbal Institute of Policy Studies will discuss the impact of the construction industry on a country’s economy and environment, how rising awareness and trends are affecting it, and is the industry ready for a transformation.

Economic and Environmental Scope of The Construction Industry

The construction industry has great economic and environmental relevance for developed and developing countries alike. With total annual revenues of more than USD 10 trillion and added value of USD 3.6 trillion, the construction industry accounts for 6 percent of the global GDP. In terms of developed and developing countries, the share of construction in total GDP stands around 5 percent and 8 percent, respectively. Also, more than 100 million people are currently employed globally in the construction sector, with residential housing accounting for 38 percent of global construction volume; transport, energy, water infrastructure for 32 percent; institutional and commercial buildings for 18 percent; and industrial sites for 13 percent. All this underscores the economic importance of the construction industry, and according to a 2014 study by the International Monetary Fund (IMF), if economies invest an extra 1.5 percent of their GDP towards infrastructure construction, they will achieve a 1.5 percent growth in GDP after four years (WEF, 2016).

In terms of the industry’s environmental relevance, the construction sector is the single largest consumer of raw materials and natural resources globally. Almost 50 percent of the global steel production is used in the construction sector, while 3 billion tonnes of materials are used for manufacturing building materials worldwide (WSA, 2021). However, almost 30 percent of all solid waste generated worldwide and in Pakistan consists of construction and demolition waste (Osmani, 2019). Due to the lack of solid waste management and recycling facilities, much of this waste is not recycled or reused. This results in the waste of a significant number of resources and results in placing a huge toll on the future demand for scarce raw materials. Therefore, there is a great opportunity to create closed material loops in a circular economic model. Value can then be generated from improving the quality of construction, quality of materials used, and increasing sustainability while reducing costs.

Pakistan is the fifth most populous country in the world, with a population of 220 million and a 60 million-strong labour force. Out of the total population, 36 percent reside in urban areas, whereas 63 percent reside in rural parts. The demand for housing is constantly growing in Pakistan at an annual rate of 2.4 percent. The construction industry in Pakistan accounts for 2.5 percent of the total GDP and employs 7.6 percent of the Pakistani labour force.  A variety of different factors have contributed to the growth of the construction sector in Pakistan over the last year. After the coronavirus inflicted lockdowns dragged the economies of many countries worldwide, Pakistan announced a construction package for the industry which included benefits in terms of tax and other material incentives. Contributing alongside was the Prime Minister’s Naya Pakistan Housing Program initiative, which aims to provide affordable housing to millions of Pakistanis over the years (BOI, 2021).

Changing Trends and the Construction Sector

The construction sector has always remained slow in adopting change due to the difficulty that is faced by introducing new technologies and methods in the process. However, the construction industry stands affected by megatrends that are shaping the global economy in terms of markets and customers, society and workforce, and politics and regulations. It is generally said that what is not broken should not be fixed. However, older construction methods and practices have often resulted in large amounts of waste being generated and leave a massive and damaging environmental impact. A large number, up to 40 percent, of resources used during the construction process are often wasted due to negligence on the part of labourers and poor management of stock. Technology can play a significant role in reducing these inefficiencies while also improving product use and reuse. Change in consumer demand trends will also impact construction as population and urbanisation continue to grow and bring about a new set of challenges for society.

Market and Consumer Trends

According to a study conducted on global market trends, 65 percent of the next decade’s growth in construction will happen in developing countries. Markets are increasingly becoming globalised, and it is not uncommon to see foreign companies developing infrastructure in local projects. The complexity associated with construction projects is also increasing and diversifying. Subsequently, the challenges associated with ageing infrastructure have also opened new opportunities for the construction sector.

Sustainability and Resilience

In terms of sustainability and resilience, the construction industry continues to remain the largest consumer of global resources, while resource scarcity is becoming a valid concern for many countries. If resources and raw materials are not used efficiently and effectively, the cost of construction will eventually rise and make the provision of essential infrastructure to people a challenging task. Therefore, a significant effort is now being placed to reduce, recycle, and reuse construction and demolition waste. Moreover, due to climate change and its debilitating effects, the occurrences of natural hazards and disasters has increased significantly over the past few years. Therefore, the construction industry is also under pressure to face challenges associated to resilience and infrastructural integrity of future buildings.

Society and Workforce

Trends related to urbanisation and growing housing crisis also have a significant impact on the construction sector. More than 200,000 people are daily added into urban areas requiring affordable and healthy housing. The health and comfort need of citizens are also changing as greater life expectancies have also given rise to a higher number of ageing people in cities. This means that future infrastructure and urban planning must cater to the needs and requirements of diverse social and demographic groups in a society. Ageing is also impacting construction in a unique way as it is limiting the number of skilled workforces available to developers and contractors. Furthermore, certain infrastructural developments also meet resistance from civil society activists on differing grounds, and stakeholder pressure and organisation will play a huge part in the future of the construction industry.

Politics and Regulation

Lastly, in terms of politicisation and the complexity of regulatory requirements, the construction industry is increasingly facing pressures from government and local regulatory authorities. Developing a typical warehouse in India requires more than 25 different procedures and approvals. Strict labour laws have also been shown to be divisive and counterproductive in making the labour workforce more efficient. One key problem is the amount of time required for approvals in construction projects. Governments and regulatory authorities should fix a time limit on these procedures to ensure that no delays are experienced by developers and contractors at public and private level.

Conclusion

The construction industry has great economic and environmental relevance for the world. It accounts for 6 percent of the global GDP and is the largest global consumer of raw materials, also accounting for 25 to 40 percent of global carbon emissions. Multiple mega trends are shaping the future of construction industry which pose challenges and offer opportunities for the industry as a whole. The construction industry has always remained slow in adopting change as tried and tested methods are favoured compared to newer and untested technologies. Given the magnitute of the engineering and construction industry, the slightest improvement in processes can have a far reaching impact. Future blogs on how construction industry can transform will dive deeper into how public and private organisations can contribute towards a transformation in the engineering and construction landscape.

Bibliography

BOI. (2021). Housing and Construction . Retrieved from Invest Pakistan: https://invest.gov.pk/housing-and-construction

Osmani, M. (2019). Construction Waste. Retrieved from ScienceDirect: https://www.sciencedirect.com/topics/earth-and-planetary-sciences/construction-waste

WEF. (2016). Shaping the Future of Construction . World Economic Forum .

WSA. (2021). Steel and raw materials . World Steel Association.

Research Questions

What is the environmental and economic scope of the construction industry?

What are the trends that are shaping the future of the construction industry?

Key Takeaways

The construction industry has great economic and environmental relevance for developed and developing countries alike. With total annual revenues of more than USD 10 trillion and added value of USD 3.6 trillion, the construction industry accounts for 6 percent of the global GDP.

In terms of developed and developing countries, the share of construction in total GDP stands around 5 percent and 8 percent, respectively.

Also, more than 100 million people are currently employed globally in the construction sector, with residential housing accounting for 38 percent of global construction volume; transport, energy, water infrastructure for 32 percent; institutional and commercial buildings for 18 percent; and industrial sites for 13 percent.

If economies invest an extra 1.5 percent of their GDP towards infrastructure construction, they will achieve a 1.5 percent growth in GDP after four years (WEF, 2016).

In terms of the industry’s environmental relevance, the construction sector is the single largest consumer of raw materials and natural resources globally.

Almost 50 percent of the global steel production is used in the construction sector, while 3 billion tonnes of materials are used for manufacturing building materials worldwide (WSA, 2021).

The construction industry in Pakistan accounts for 2.5 percent of the total GDP and employs 7.6 percent of the Pakistani labour force. 

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