Building Economics Notes 464f

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 2

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 3

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 4

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). 6

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 7

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. 8

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) 9

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 10

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 11

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 12

Determinants of Construction Demand 1) 2)

3) 4) 5) 6)

7)

Availability of credit Condition of the existing stock of built facilities Economic conditions – economic growth & development Exchange rates Government action – policy & expenditure Household disposable income Household formation rate 13

Determinants of Construction Demand 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) 8)

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Determinants of Construction Demand 15) Prices

– tender prices, property prices & import prices 16) Output 17) Taxation 18) Technology 19) Unemployment 20) Weather conditions.

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Economy & Construction Investment

A country’s economy and its construction investment 16

Determinants of Construction Demand > 50% of the determinants of construction

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demand listed above are economic factors ◦

A country’s economy & its construction investment are interdependent; their causal relationship is bi-directional

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Construction investment may be growth dependent or growth initiating. 17

Questions?

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