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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
MIKROSwhich 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
MAKROSwhich 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.