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Unit - 1 Consumers : In good old days, there was barter system with

no profit motive. Present days, the medium of exchange is

INTRODUCTION TO BUILDING ECONOMICS money which is used in so many forms for buying and selling
for all activities.
Building economics is concerned with production and
consumption and services and the analysis of commercial MICRO ECONOMICS
It is a small part of whole economics which deals with
As it is related to architecture and building activity all types individuals, their needs, their behaviour, individual firms and
of buildings for all types of functions by the builders its activities. This deals with studies like incomes, capital
(production) and consumption i.e., the ones who either buy or spending on building, individuals who are engaged in various
hire those buildings for various functions with the services products for building construction. Micro-economics is also
offered by professionals like architects, planners, engineers called Price Theory.
Importance of Micro-economics : It analyses how millions
Ends scarce means of consumers and producers in an economy take decisions
about products and services offered. It also deals with how
buildings and services are distributed belonging to different
The scarce means like land, building materials, and allied
economic status.
services result in failing to meet the deman in housing sector.

Basic concept any activity (legally permitted) which shall Limitations

result in building activities to serve people for which the
people are ready to pay the price directly or indirectly by It cannot give an idea of the function of the economy
buying or hiring the spaces can be treated as an economic as a whole.
It assumes full employment which is a rare
Goods and services : Economic good is a physical object like phenomenon in developing countries or even
natural or manmade (artificial) goods. developed countries which is quite unrealistic.

Natural goods : Sources like land, water, air, natural stones, TERMS RELATED TO MICRO ECONOMICS.
sand basic raw materials to be converted to manmade
materials to be used for construction of buildings. Budget constraints : For individuals, the budget for acquiring
property depends in the earning capacity of the family per
Manmade goods : Product like mosaic tiles, tiles of all annum, the ability to raise loan, savings, repaying capacity (in
stones, ceramic tiles, wall finishes, doors/windows/woodwork, 5year/ 10year/ 15year loan periods).
electrical materials, water supply and sanitary pipes and
fittings etc, harnessing solar power, A/C plants, heating, Choice: Depends on the budgetary capability, savings,
cooling etc. willingness to invest, optimum level to spend, location of the
property etc, choice of the specifications, reputation of the
Producers : Producers are individuals, builders, contractors in builders, quality of construction, timely completion of
private sector or governments state or central. projects, proximity to public amenities like transport, railway
station, airport etc.
Primary producers are those who produce raw materials like
wood, stones, basic raw materials for production of building Demand and supply :
Depends on National income, financial status of the family to
Secondary producers are those who are engaged in production invest, stability of the job, location of the place of works,
of materials like cement, procure sand, metal, steel, means of transportation.
aluminium, various other materials to be used in building
construction. Supply depends on the builders who are willing to invest in
construction to meet the demand of various economic level of
Tertiary producers: Tertiary producers are those who carry buyers.
out the following functions:
Uncertainties : Depends on the stability of the elected
Transportation governments at state/central, cost of living availability of land
Banking at affordable level, building materials, availability of loans at
Architects and Engineers etc who offer services, reasonable rates of interest, skilled and unskilled labour,
insurance agencies for buildings, educational manpower, government policies, natural calamities, riots,
institutions, who train professionals.
inflation, global economy as well as national economy, It overlooks individual differences, the general level
imports/exports, technical knowhow. of prices may be assumed stable, but the food grains
and building materials and consumer goods may go
Equilibrium : Normally, this factor depends on demand and up very high which may cause havoc for the poor and
supply which are interdependent to maintain perfect middle class.
equilibrium, policies in five year plans and execution as per
scheduled programs. Conclusion

Technical constraints : Appropriate technology either According to some eminent economists, the subject matter of
indigenously developed or acquired from other countries, economics includes the Price Theory (micro-economics),
availability of technical expertise like architects, planners, income theory (Macro-economics), employment theory,
engineers, willing efficient builders, innovative technology to growth theory. All these are interdependent on each other.
build eco-friendly buildings as appropriate to our country and
global warming is the need of the hour. Demand and Supply

Profit maximization and cost minimization At national level, this depends on the government policies.
How different building activities and infrastructure are
These aspects are to be monitored by governmental agencies planned and budgeted. Taxation polices, direct and indirect
or some non-governmental agencies so that builders do not tax, allocation of funds for housing for the weaker sections in
make too much profit taking advantage of the demand as it is Five Year plans.
happening in the building industry.
Building industry comes under ambit of Consumer Protection
Act. There should be strict rules by sanctioning authorities to This aspect depends on how effectively the government can
see that the building is constructed as per sanction and control inflation by exercising control over general price rise
specifications. and building materials, effective tax collection both at central
and state level, maintaining equilibrium in demand and
Monopoly and Oligopoly supply, earning foreign exchange. The increase in oil prices
invariably increase the cost of living in all walks of life
In the building industry, there is no monopoly. The only including building industry.
department in central government, which does not have
architects is Ministry of Railways and AP state. They are Interest rate
managed by engineers only. There is oligopoly in the building
industry i.e., there are reputed builders and reputed producers The finance ministry through RBI (Reserved Bank of INDIA)
of building who produce quality building materials because of controls the interest rates over products, personal incomes,
intense competition. including housing loans and building materials.

Production Employment

The demand for housing is always more than the production Now major employment takes place only in private sector.
either in government sector or private sector. The production Only an insignificant percentage of employment takes place in
is occasionally affected by inflation, global economic central government and state governments. Pension schemes
recession, rising cost of living, over population, scarcity of have to be discontinued by the governments. The
land in metros and other cities. Lack of proper mass unemployment rate is very high now either in the
transportation. Availability of infrastructure. underemployment, or employment which is not compatible to
qualifications, and resulted in crime rate to unprecedented
MACRO ECONOMICS level by either educated or uneducated youth.

It deals with aggregates and averages of entire economics like Lack of proper education like basic education, education in
national income, aggregate products, aggregate outputs, total trades which helps the weaker sections.
employment, total consumption, savings and investments,
aggregate demand, aggregate supply, general level of prices. Savings and Investments
Here it also studies how these aggregates are fluctuating and
affecting the economic growth of the country. Macro
Government through nationalized banks, financial institutions,
Economics is also called Income Theory.
public schemes can attract savings by offering reasonable
interest on the public investments.

Individual is altogether ignored.


The monitory systems are controlled by RBI through Efficiency in Economics

nationalized banks, LICHFL, HDFC, HUDCO, which offer
housing loans. The overall policies are controlled by central Capability and able to perform duties well. The efficiency in
government and sometimes implemented by state production of building materials is high as there is competition
governments. and those who work in production are offered annual bonus
depending upon the profits made by companies.
Fiscal Policies
The efficiency in construction industry is generally high if the
Some Fiscal policies are controlled by Central Government projects are handled by Architects, Engineers, and experienced
and some by State Government by levying taxes like sales tax, builders. Unfortunately many constructions re handled by
excise tax, income tax, import/export duties, property tax, builders who are not experienced.
wealth tax, taxes on investments in fixed deposits if the
interest earned is more than 10,000/ per year, taxation is either This is due to the ignorance of the public and loss of
directly or indirectly. investments by the public. Most of such constructions are
Unit - 2
Equity in Economics
INTENSIVE INDUSTRY The central Government helps the public in offering fair rates
of interest of the public invests in Central Schemes like Indira
There is a problem of choosing between labour intensive Vikaas Patrika (IVP), Postal Savings schemes which offer
industries or Labour intensive methods and Capital Intensive Monthly income schemes on investment in Postal saving
industries or Capital Intensive Methods. In under developed schemes and they offer interest on fixed deposit also. Share
countries, due to chronic unemployment or cheap labour to market is most risky as it is volatile.
capital is preferred.
The most efficient use of resources in less developed countries PARTICIPATION
will tend to favour labour intensive methods. For innovations,
it would also follow the Capital Saving and Labour using Public sectors like HUDCO, Hindustan steel, Heavy
innovations, it would be preferred. It would be profitable to Engineering corporation etc are controlled by Central
adopt capital-intensive techniques to increase productivity. Government, Nizam Sugars, Allwyn Ltd, Praga tools etc are
controlled by the State Government of AP (Andhra Pradesh).
If the export industries are capital-intensive such as mining
and mineral refining, then, even though there is surplus labour, As far as Building Industry is concerned, materials like
extensive investment has to be done in order to earn necessary cement, steel, wood, aluminium, brick manufacture, variety of
Foreign Exchange. floor tiles, wall tiles, electrical materials, plumbing and
sanitary ware and fittings etc (to mention only few) are
For example, In India, Labour force is available in plenty. produced in India resulting in quality products, at various
This is the reason most of the building industry is Labour price levels to suit different economic levels of social strata.
Intensive including both skilled and unskilled labour.
Only Housing meant for central/state government employees
Only certain prestigious projects are handled by Reputed is controlled by central or State governments. The housing for
Building agencies like L&T, Raheja Builders etc who employ weaker sections are taken care of by State governments as a
only skilled labour force handled by all professionals like policy of Government.
Architects, Engineers, project Managers, etc and they handle
construction using precast building elements and heavy Generally the housing for weaker sections results in poor
equipment and machines. quality of construction due to lack of proper control by state
government. The most neglected class in India are tribals still
They work on TURN KEY basis like designing and remain poor even after 53 years of Independence.
execution on a time bound programmes. In construction of
International Airports, the private agencies invest the capital, Housing loans are available at RBI controlled rates of interest
design, build and operate for certain number of years to for other classes of the society in India and also from General
recover their investment and profits (BOT). Sometimes we Insurance Co (GIC), LIC Housing Finance Ltd, and Private
send skilled technical professionals, skilled labour to other agencies. Certain Housing schemes are handled by Foreign
countries to help in their construction activity. Sometimes we Direct Investment (FDI) as well result which result in quality
import Technical Knowhow for production of advanced construction.
building materials for domestic consumption.
Unit - 3 Capital

BUILDING CONSTRUCTION ECONOMICS Refers to that part of mans wealth which is used in producing
further wealth or which yields an income. Land is considered
We will be discussing Inputs into Building Construction in as a capital as:
terms of four important factors:
1. It is free gift of nature.
1. Land 2. Capital is perishable whereas land has no mobility.
2. Labour
3. Capital The capital can be increased but the amount of land is fixed
4. Materials and the value may vary depending on location. Capital
formation is the very core of the Economic development.
Land Without capital, Building industry cannot survive and flourish
for the benefit of the society.
Marshall defines Land Land means the materials, and the
forces which nature gives us freely for the human beings Materials
(other creatures as well), in land, in water, in air, light and
Heat. Materials are available in two forms:

Land is natures gift 1. Natural Materials

2. Manmade Materials
Land has no supply price (supply remains same)
whether price of land is high or low Natural Materials

Land is permanent (lack of mobility) Natural materials such as stones, mud, minerals, water (wood),
ores for various materials like Gold, silver, copper, iron,
aluminium, sand etc.
Land lacks mobility in geographic sense

Manmade Materials
Provides infinite variation in fertility, utility, situation
These materials include bricks, stone blocks, tiles, granites,
marble, steel, aluminium, copper products, PVC, cement,
Labour wood, plywood, laminates, paints, most of the building
Any work whether manual or material which is undertaken for
a monetary consideration, is called Labour in economics.
Building industry put to use both natural and manmade
materials, to construct structures to cater to various needs of
Marshall defines Any exertion of mind or body human beings on the Gods Gift LAND.
undergone partly or wholly with a view to some good
(consideration) other than pleasure, derived directly from
Technological research in producing innovative new Building
Materials that can withstand suitably THE GLOBAL
WARMING, which is causing ecological imbalance at an
Labour is inseparable from labourer. alarming rate and such innovations are the need of the hour.
This is true especially in the case of our country INDIA.
Labourer has to sell his labour in person.

Labour has no reserve price.

Labour has weak bargaining power.

Labour force cannot be increased or decreased.

Unit - 4 A house should be built based on an estimated cost. If the
building cost increases, it will be a loss and if it can be
FINANCING OF PROJECTS | ECONOMICS RELATED reduced, it will be a saving for the individual as well as for the
TO BUILDING INDUSTRY company as a whole.

Financing of Projects is the most important factor determining Utility in Financing

the success of the project. Various factors influence the
success of a project. Proper utility of the available financial resources in a planned
manner will result in the success of the projects. Any improper
In this article, we are going to study the major factors that are planning, lack of technical expertise, under utility of
responsible for the success of the Building project technology and expertise will result in the losses of the project
as well as loss to the resources of the Nation as a whole.
Here are the four factors:
Agencies and Institutions directly and indirectly
1. Sources influencing the economic aspects of a project
2. Total Cost Estimation of the Project
3. Utility in Financing Interest rates by banks, availability of materials (products,
4. Agencies and Institutions directly and indirectly producers of materials), Governmental agencies, both central
influencing the economic aspects of a project and state policies in making finances available for loans,
personal savings, demand and supply, Population (Growing in
India and decrease in some western countries).
Economic stability of the country, Global Economy, Location
Loans are available for both purchasers and Builders from:
of the projects, Inflation or Deflation. All the agencies those
advance Housing loans like Specialised Financing agencies
All Nationalized Banks, like HUDCO, HDFC, National Housing Bank (NHB). More
than 90% of the dwelling units are financed by Housing and
Co-operative Banks, Urban Development Corporation (HUDCO) for economically
weaker sections and Low Income Group.
Private Banks,


Finance Companies,

Insurance Companies like General Insurance Co (GIC),

United India Insurance Co Ltd, National Insurance Co Ltd,
Oriental Insurance Co Ltd, New India Assurance Co Ltd (for
the employees), Foreign Direct Investment FDI, 20
Nationalised Banks along with Regional Rural Banks come
under Public sector.

Commercial Banks, Cooperative Banks operate under

provisions of Cooperative societies Law of states for credit
and non-credit purpose.

National Bank of Agriculture and Rural Development

(NABARD) help Farming sector.

Total Cost Estimation of the Project

Price to be paid for a things like;

The cost of living

General level of prices
The cost of price of an article
Cost of production
Cost of house or property