ABA 2307

B. Arch 3rd Year 2015

BUILDING ECONOMICS

Lecture 3 & 4

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Construction Demand & Supply I

Today's lecture plan, we will look at

Introductions

Law of demand & its determinants

Law of supply

Relationship between demand & supply

Determinants of construction demand

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Introduction

In economics, the term demand refers to the

amount of a good or service which consumers

are both able and willing to purchase per unit

of time at all alternative prices

The qty demanded is the amount of a

product people are willing to buy at a certain

price

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Introduction cont’d

The relationship between price and quantity

demanded is known as the demand

relationship.

Supply refers to the amount of good or

service which sellers are willing to sell at all

alternative prices

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Law of demand

It states that, if all other factors remain

equal, the higher the price of a good, the less

people will demand that good.

Meaning the higher the price, the lower the

quantity demanded

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Demand curve

A, B and C are points on the demand curve. Each point on the

curve reflects a direct correlation between qty demanded (Q)

& price (P).

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Determinants of demand

1. price of the commodity,

2. Consumers’ tastes and preferences,

3. The number of consumers considered,

4. Consumers’ income,

5. The prices of related goods,

6. The range of goods available to consumers

7. Consumers’ expectations regarding future prices

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Law of supply

The law of supply demonstrates the

quantities that will be sold at a certain price

This means that the higher the price, the

higher the qty supplied. Producers supply

more at a higher price because selling a

higher qty at a higher price increases

revenue.

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Law of supply

A, B and C are points on the supply curve. Each point

on the curve reflects a direct correlation between

qty supplied (Q) & price (P)

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Relationship btn demand & supply

It shows that demand is inversely

proportional to price while supply is directly

proportional to it

Demand for built facilities – i.e. constructed

space comes from 1st order primary needs

for shelter to the higher order needs for

production of goods and services

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Relationship btn demand & supply

This demand translates into construction

demand, which in turn translates into

construction supply – commonly termed

construction output.

Demand is the value of contracts for new

construction work awarded to main

contractors including speculative work

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Relationship btn demand & supply

while construction output is the amount

payable to contractors for work done in the

relevant period

Therefore, construction demand normally

leads to construction output spread over a

period of time

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Determinants of Construction Demand

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1) Availability of credit

2) Condition of the existing stock of built

facilities

3) Economic conditions – economic growth &

development

4) Exchange rates

5) Government action – policy & expenditure

6) Household disposable income

7) Household formation rate

Determinants of Construction Demand

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8) Interest rates

9) Inflation

10) Money supply

11) Peoples tastes & preferences for housing,

entertainment etc

12) Planning regulations

13) Political climate – conflict, governance,

security etc

14) Population (size, structure and geographical

distribution)

Determinants of Construction Demand

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15) Prices – tender prices, property prices &

import prices

16) Output

17) Taxation

18) Technology

19) Unemployment

20) Weather conditions.

Economy & Construction Investment

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A country’s economy and its construction investment

Determinants of Construction Demand

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> 50% of the determinants of construction

demand listed above are economic factors

◦ A country’s economy & its construction

investment are interdependent; their causal

relationship is bi-directional

Construction investment may be growth

dependent or growth initiating.

Questions?

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