Building Economics 6u1b3c

BUILDING ECONOMICS & SOCIOLOGY

Introduction to general economics in building industry

Introduction to Building Economics

• Building economics is concerned with production and consumption and services and the analysis of commercial activities – • As it is related to architecture and building activity – all types of buildings for all types of functions by the builders (production) and consumption i.e., the ones who either buy or hire those buildings for various functions with the services offered by professionals like architects, planners, engineers etc.

• Ends – scarce means • The scarce means like land, building materials, and allied services result in failing to meet the deman in housing sector.

• Basic concept – any activity (legally permitted) which shall result in building activities to serve people for which the people are ready to pay the price directly or indirectly by buying or hiring the spaces can be treated as an economic activity.

• Goods and services • Economic good is a physical object like natural or manmade (artificial) goods.

• Natural goods • Sources like land, water, air, natural stones, sand basic raw materials to be converted to manmade materials to be used for construction of buildings.

Manmade goods Product like mosaic tiles, tiles of all stones, ceramic tiles, wall finishes, doors/windows/woodwork, electrical materials, water supply and sanitary pipes and fittings etc, harnessing solar power, A/C plants, heating, cooling etc.

Producers Producers are individuals, builders, contractors in private sector or governments state or central.

Primary producers are those who produce raw materials like wood, stones, basic raw materials for production of building materials.

Secondary producers are those who are engaged in production of materials like cement, procure sand, metal, steel, aluminium, various other materials to be used in building construction.

Tertiary producers Tertiary producers are those who carry out the following functions: Transportation Banking Architects and Engineers etc who offer services, insurance agencies for buildings, educational institutions, who train professionals.

Consumers In good old days, there was barter system with no profit motive. Present days, the medium of exchange is money which is used in so many forms for buying and selling for all activities.

Micro Economics  Micro has been derived from GREEK word “MIKROS”which mean small .  It is a study of the individual units of economic system .  In other words a small part of economy & not the whole economy .  Microeconomics focuses on how decisions are made by individuals and firms and the consequences of those decisions.

Principles of Micro Economics. • • • • • • • • • • •

1.Budget Constraints 2.Choice 3.Demand and Supply 4.Uncertainties 5.Equilibrium 6.Technical constraints 7.Profit maximization 8.Cost minimization 9.Monopoly 10.Oligopoly 11.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 Depends on National 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 interdependent to maintain perfect equilibrium, policies in five year plans and execution as per scheduled programs.

Technical constraints 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 ecofriendly 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. Building industry comes under ambit of Consumer Protection Act. There should be strict rules by sanctioning authorities to see that the building is constructed as per sanction and specifications.

Monopoly and Oligopoly In the 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 reputed producers 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 production is occasionally affected by inflation, global economic recession, rising cost of living, over population, scarcity of land in metros and other cities. Lack of proper mass transportation. Availability of infrastructure.

Macro Economics.  Macro is been derived from the Greek word “MAKROS”which means LARGE.  Macro economic is the study of large part of the economy i.E.,The whole economy.  The study of economic behaviour of the economy as a whole & not the individual economic units of the economy.  Macroeconomics examines the aggregate behavior of the economy (i.e. how the actions of all the individuals and firms in the economy interact to produce a particular level of economic performance as a whole).

Principles of macro economics. • • • • • • •

1.Demand and supply 2.Inflation 3.Interest rate 4.Employment 5.Savings and Investments 6.Monetary Policy 7.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 Year plans.

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 RBI through 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 or indirectly.