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
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 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
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 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

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 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).
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 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

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 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.
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 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)
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 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
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 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
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 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

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Determinants of Construction Demand
1) Availability of credit
2) Condition of the existing stock of built
facilities
3) Economic conditions – economic growth &
development
4) Exchange rates
5) Government action – policy & expenditure
6) Household disposable income
7) Household formation rate
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Determinants of Construction Demand
8) 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)
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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

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Determinants of Construction Demand
 > 50% of the determinants of construction
demand listed above are economic factors
◦ A country’s economy & its construction
investment are interdependent; their causal
relationship is bi-directional

 Construction investment may be growth

dependent or growth initiating.
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Questions?

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