Construction and Real Estate Dynamics PDF
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Construction and Real Estate Dynamics Edited by Philippe Thalmann and Milad Zarin-Nejadan AppliedEconometricsAssociationSeries GeneralEditors:JeanH.P.Paelinck,EmeritusProfessor,ErasmusUniversity, Rotterdam,andHenriSerbat,ChamberofCommerce,Paris The vital importance of econometrics for understanding economic phenomenaisincreasinglyrecognisedineveryfieldofeconomics. The discipline is based on ‘scientific processes which aim to identify, explainandforecasteconomicphenomenausingformalisedtoolstoproduce, measure, structure and model the information’ (Gerard Duru and Henri Serbat,1991). TheAppliedEconometricsAssociation,establishedin1974,seekstodevelop theuseofeconometrictoolsbyproducingregularupdatesonthestateofthe artandtheprogressmadeineachspecificfield,andsotofurtherthetransfor- mationofunconnectedfactsintopertinentinformationfortheuseinanalysis anddecision-making. The series was conceived to form a set of working references for advanced students and researchers in each specific field, as well as a guide to developmentacrossthedisciplinemorebroadly. Thisexchangeofknowledgewillbecontinuedpermanentlybytheopeningof adebate-siteontheInternet[http://www.lyonl.fr/aea]. Titlesinclude: FrançoiseBourdonandJeanBourdon(editors) WAGEECONOMETRICSANDMODELLING FabrizioCarlevaroandJean-BaptisteLesourt(editors) MEASURINGANDACCOUNTINGENVIRONMENTALNUISANCES ANDSERVICES ArthurGetis,JesúsMurandHenryG.Zoller(editors) SPATIALECONOMETRICSANDSPATIALSTATISTICS SivS.GustafssonandDanièleE.Meulders(editors) GENDERANDTHELABOURMARKET EconometricEvidenceofObstaclestoAchievingGenderEquality HansHeijkeandJoanMuysken(editors) EDUCATIONANDTRAININGINAKNOWLEDGE-BASEDECONOMY PavlosKaradeloglou(editor) EXCHANGE-RATEPOLICYINEUROPE EmileQuinetandRogerVickerman(editors) THEECONOMETRICSOFMAJORTRANSPORTINFRASTRUCTURES PhilippeThalmannandMiladZarin-Nejadan(editors) CONSTRUCTIONANDREALESTATEDYNAMICS AppliedEconometricsAssociation SeriesStandingOrderISBN978-0-333-71460-7 (outsideNorthAmericaonly) Youcanreceivefuturetitlesinthisseriesastheyarepublishedbyplacingastanding order.Pleasecontactyourbookselleror,incaseofdifficulty,writetousattheaddress belowwithyournameandaddress,thetitleoftheseriesandtheISBNquotedabove. CustomerServicesDepartment, MacmillanDistributionLtd, Houndmills, Basingstoke, HampshireRG216XS,England Construction and Real Estate Dynamics Editedby Philippe Thalmann FederalInstituteofTechnology Lausanne Switzerland and Milad Zarin-Nejadan UniversityofNeuchâtel Switzerland ©AppliedEconometricsAssociation2003 Softcover reprint of the hardcover 1st edition 2003 978-1-4039-1545-0 Allrightsreserved.Noreproduction,copyortransmissionofthis publicationmaybemadewithoutwrittenpermission. Noparagraphofthispublicationmaybereproduced,copiedortransmitted savewithwrittenpermissionorinaccordancewiththeprovisionsofthe Copyright,DesignsandPatentsAct1988,orunderthetermsofanylicence permittinglimitedcopyingissuedbytheCopyrightLicensingAgency,90 TottenhamCourtRoad,LondonW1T4LP. Anypersonwhodoesanyunauthorisedactinrelationtothispublication maybeliabletocriminalprosecutionandcivilclaimsfordamages. Theauthorshaveassertedtheirrightstobeidentifiedas theauthorsofthisworkinaccordancewiththeCopyright, DesignsandPatentsAct1988. Firstpublished2003by PALGRAVEMACMILLAN Houndmills,Basingstoke,HampshireRG216XSand 175FifthAvenue,NewYork,N.Y.10010 Companiesandrepresentativesthroughouttheworld PALGRAVEMACMILLANistheglobalacademicimprintofthePalgrave MacmillandivisionofSt.Martin’sPress,LLCandofPalgraveMacmillanLtd. Macmillan®isaregisteredtrademarkintheUnitedStates,UnitedKingdom andothercountries.PalgraveisaregisteredtrademarkintheEuropean Unionandothercountries. ISBN 978-1-349-51228-7 ISBN 978-0-230-00119-0 (eBook) DOI 10.1057/9780230001190 Thisbookisprintedonpapersuitableforrecyclingandmadefromfully managedandsustainedforestsources. AcataloguerecordforthisbookisavailablefromtheBritishLibrary. LibraryofCongressCataloging-in-PublicationData. Constructionandrealestatedynamics/ editedbyPhilippeThalmannandMiladZarin-Nejadan. p.cm.–(AppliedEconometricsAssociationseries) Includesbibliographicalreferencesandindexes. 1.Constructionindustry.2.Realestatebusiness.I.Thalmann,Philippe. II.Zarin-Nejadan,Milad,1957-III.Series. HD9715.A2C64752003 333.33–dc21 2003049802 10 9 8 7 6 5 4 3 2 1 12 11 10 09 08 07 06 05 04 03 Contents NotesontheContributors vi 1 Introduction 1 PhilippeThalmannandMiladZarin-Nejadan 2 DiversificationasaStrategyforMinimisingFluctuations inConstructionFirmTurnovers 11 MichaelBallandPeterAntonioni 3 The1985–95CycleinRealEstateMarkets: BubbleorShock? 38 DidierCornuelandFrancisCalcoen 4 EstimatingConstructionDemandinSingapore:Potential ofNeuralNetworks 66 FreddieTanandGeorgeOfori 5 Lump-sumMovingCost 88 GerbertRomijn 6 RentGrowthControlandtheTransitionof LandtoUrbanUse 112 AlastairMcFarlane AuthorandSubjectIndex 140 v Notes on the Contributors PeterANTONIONI Lecturer BusinessSchool,UniversityCollege,London,U.K. Email:[email protected] MichaelBALL Director UrbanandPropertyEconomicsConsultancy,London,U.K. VisitingProfessor Department of Real Estate and Planning, University of Reading, Reading,U.K. Email:[email protected] FrancisCALCOEN CNRSResearchDirector Cresge/Labores,CatholicUniversityofLille,France Email:[email protected] DidierCORNUEL ProfessorofEconomics MEDEE-IFRESI,UniversityofLille,France Email:[email protected] AlastairMcFARLANE SeniorEconomist U.S.DepartmentofHousingandUrbanDevelopment OfficeofPolicyDevelopmentandResearch,Washington,USA Email:[email protected] GeorgeOFORI ProfessorandHead DepartmentofBuilding,SchoolofDesignandEnvironment NationalUniversityofSingapore,Singapore Email:[email protected] vi NotesontheContributors vii GerbertROMIJN ResearcherPublicFinance CPB Netherlands Bureau for Economic Policy Analysis, The Hague, Netherlands Email:[email protected] FreddieTAN AdjunctSeniorResearcher DepartmentofBuilding,SchoolofDesignandEnvironment NationalUniversityofSingapore,Singapore Email:[email protected] PhilippeTHALMANN ProfessorofEconomicsofthenaturalandbuiltenvironment FederalInstituteofTechnology,Lausanne,Switzerland Email:philippe.thalmann@epfl.ch MiladZARIN-NEJADAN ProfessorofEconomics Department of Economics and IRER, University of Neuchâtel, Neuchâtel,Switzerland Email:[email protected] 1 Introduction Philippe Thalmann and Milad Zarin-Nejadan The construction industry is a major constituent of European economies. The gross output of the sector in the European Union (EU)represented10.4percentofGDPand5.4percentoftotalvalue added (2000 figures). The sector also accounts for one half of gross capital formation. However, the share of construction expenditure in GDP has been declining steadily since 1973, with the exception of a small boom at the end of the 1980s. The evolution is basically thesameforresidentialandnon-residentialcomponents,paralleling otherindustrialisedcountries. The EU is the principal world exporter of construction services. Europeancompanies,amongthelargestintheworld,holdaboutone halfofinternationalmarkets.Thevalueofcross-bordertradeishow- everstillrelativelylowcomparedtothetotalvalueoftheconstruction market. Taking into account indirect imports (that is purchases of Table1.1 ConstructionexpenditureasapercentageofGDP 1970–73 1974–79 1980–89 1990–95 1996–00 EuropeanUnion 14.5 13.3 11.7 11.3 10.4 –residential 6.9 6.4 5.6 5.3 5.2 –non-residential 7.6 6.9 6.1 6.0 5.2 OECD 13.8 13.2 12.3 11.3 11.0 –residential 6.2 6.0 5.3 4.9 4.9 –non-residential 7.6 7.2 7.0 6.4 6.1 Source: OECD,HistoricalStatistics,Paris,differentyears. 1 2 PhilippeThalmannandMiladZarin-Nejadan non-domestic origin through a local subsidiary), overall EU public sectorimportpenetrationisbetween7and10percent. Constructionhasalwaysbeenakeysectorintermsofemployment. In the EU, it provides jobs for 11.9 million workers (2000 figures) representing 7.2 per cent of the total workforce. It is also a pow- erful engine of job creation. Every job created in the construction sectorgeneratestwofurtherjobsinrelatedsectors. Thus, morethan 30 million workers in the EU depend, directly or indirectly, on the construction sector. Construction employment is, however, largely hardwork,dangerousandvolatile.Itattractspoorlyqualifiedlabour with low educational achievement along with unskilled immigrant workerswillingtoworkbelownormalwagelevels. Over90percent oftheworkforceismale. Constructionworkersareself-employedin the proportion of 22 per cent, more than in manufacturing (7.3 per cent)andeveninservices(17.8percent). Underthoseconditions,itmaynotbesurprisingthatconstruction contributesadisproportionateshareoftheshadoweconomy.Further reasonsarehighnon-wagelabourcosts, whichcanamounttomore than30percentofthewagecost,thehighmobilityoftheworkforce, theshortdurationofcontracts,thestrongcyclicalandseasonalvari- ation in the industry and illegal immigration which can easily find workinthesectorrequiringlittleornoqualificationorexperience. The construction sector is extremely heterogeneous. Although it cangenerallybeconsideredasquitelabour-intensive,particularlyin its final assembly stage on site, it also includes activities with high human capital intensity (for example design and management) as wellashighmachineryintensity(forexampleexcavation).Thecon- structionindustryisstronglyfragmented.Evenifafewglobalplayers commandhighturnovers,constructionis,incomparisonwithother industrialsectors, farfrombeingpronetooligopolisticordominant tendencies, except in selected sectors such as tunnelling. In 1990, the turnover of the ten largest European construction companies only accounted for less than 6 per cent of the total European mar- ket. Craftsmen and small and medium-sized enterprises (SMEs) play amajorroleinthesector. Indeed, 97percentofsome2millionEU companies have less than 20 employees, and 93 per cent have less than10. Asaresult, 67percentofconstructionvalueaddediscon- tributed by companies with less than 50 employees, two and a half times the corresponding share in manufacturing. The construction
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