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Boom Bust Nature of the Construction Industry the undeniable connection with economic growth

Boom Bust Nature of the Construction Industry the undeniable connection with economic growth

Right from the very beginning, construction has been a form of activity that has had a very close relationship with man. During those ancient times man constructed thatched huts and other forms of makeshift shelter from wood and other naturally occurring materials. However, nowadays the construction industry happens to be a far more complex entity. The following statement is a rather general way of describing the construction industry When considering the fields of architecture and civil engineering, construction is a process that consists of the building or assembly of infrastructure (Wikipedia). In todays context construction happens to be a very sophisticated multitasking activity. From the above mentioned statement its quite obvious that the construction industry caters to a lot of different professions. To be more specific a lot of jobs depend on the construction industry. Thousands of builders, plumbers, carpenters, sub-contractors, building materials producers, manufacturers of white goods, carpets, curtains, estate agents etc are all involved in the realm of the construction industry (Hopkins, 2008). Considering the recent economic developments the relationship between the housing sector and the construction industry have never been more obvious. With regard to the present economic climate there is a definite decline in the construction industry and as mentioned before; a lot of people have lost their jobs due to this decline in activity in the construction industry. In many ways the construction industry always seems to have a definite pattern i.e. initially there would be a prolonged boom in the construction industry and this is followed by the construction industry going bust. Most often the prolonged boom stage results in the formation of a housing bubble. This bubble is a speculative term with regard to economics and is generally characterized by the fact that all the factors that make up

the housing bubble seem to be highly overvalued. So when the housing bubble bursts - the prices come crashing down and so does the economic activity of the construction industry. Then again a general economic recession tends to affect the construction industry. Hence its quite safe to say that the boom bust nature of the housing industry is also cyclic in nature. The argument here is on the basis that business cycles also have ups and downs; they too follow a cyclic pattern. However the question still remainsSo how exactly does an economic downturn affect the construction industry? The following statement will provide a simple insight into why this occurs The construction and building industry ends up getting very badly affected because much of the expenditure on them is investment expenditure and this will often be delayed during times of an economic downturn (Sloman economics, 2009). Perhaps one of the best examples of how a building boom can be rerouted to the path of ruin is the case of Sesena in Spain. Here the building boom was reduced to ruins by the collapse of Spains economic miracle. To be more specific Half built Sesena is now the sorry symbol of an economy with Europes highest unemployment rate (Tremlett, 2009). This isnt an issue of much debate, especially since a lot of people believe that Spain is entering its worst recession in over fifty years. In this Spanish city of Sesna the seeming unstoppable building boom i.e. the housing bubble came crashing down really hard. The effects of this bubble burst were aggravated by the corresponding credit crunch. The basic result being that due to the unbelievably low prices the construction industry stooped being a viable economic operation. So to this day; close to a

million newly built properties in Sesna remain unsold. Hence in many ways the construction industry can go bust due to oversupply too. The recession and over supply seems to have burst the housing bubble in Dubai too. In fact the real estate rates in Dubai came down by as much as 45%. This had a lot of cascading effects on the many other sectors of the vibrant Dubai economy. Of course room rents came crashing down and with it the construction industry also plummeted (Mena Infrastructure, 2009). However on the bright side the various players in the construction industry realm seems to have taken this opportunity to make large scale structural reforms. These reforms are mainly aimed at making the business transactions in Dubai more transparent and work is going on now to rebuild the image of Brand Dubai. Either way the important fact here is that economies have to decide to aim for more realistic and sustainable growth targets in the future, as opposed to uncontrollable greed. Its this very greed that caused this economic recession. Conclusively as per the generally accepted consensus the only way out of the present recession is to make a coordinated global effort. This calls for the previously consumer oriented nations to focus on exports and savings. Correspondingly countries like China and India should also focus on increasing domestic demand. The Chinese government has already taken heed of this and has enacted policies that have started a housing boom in China. This has indeed started to increase domestic demand, however efforts must be taken so as to prevent the formation of a housing bubble. Most importantly progress will be slow as The profits created by the housing and stock market bubbles were terrific. And since the housing bubble is not going to come back the spending that sustained the economy in the pre-crisis years isnt coming back either (Krugman, 2009).

References 1. Wikipedia Construction. Retrieved on October 31, 2009, From, http://en.wikipedia.org/wiki/Construction 2. Kathryn Hopkins (2008, December 15). Housing starts lowest since 1924 as construction bears brunt of recession. The Guardian. Retrieved on October 31, 2009, from http://www.guardian.co.uk/business/2008/dec/15/housing-starts-construction-recessioncrisis 3. Building - from boom to bust! The Sloman economics news site. Retrieved on October 31, 2009, from http://pearsonblog.campaignserver.co.uk/?p=250 4. Giles Tremlett (2009, January 19) Building boom reduced to ruins by collapse of Spain's economic miracle. The Guardian Retrieved on October 31, 2009, from http://www.guardian.co.uk/world/2009/jan/19/spain-construction-recession 5. From boom to bust and back again? MENA infrastructure .Retrieved on October 31, 2009, from http://www.menainfra.com/article/From-boom-to-bust-and-back-again/ 6. Paul Krugman (2009, January 6) Life without Bubbles. The New York Times .Retrieved on October 31, 2009, From http://www.nytimes.com/2008/12/22/opinion/22krugman.html? _r=1