Professional Documents
Culture Documents
SOCIOLOGY
IX SEMESTER, B.ARCH
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Table of Contents
1. Introduction to economics
1.4Factors of production...............................................................22
2. Land economics
2.1 Land economics: Land as limited resource.............................25
2.5 Acts.........................................................................................37
3. Building economics
3.1 Architectural aspects of building economics...........................45
SECTION B: SOCIOLOGY
5. Urbanisation
5.1 Trends and characteristics.......................................................74
5.4 Study......................................................................................90
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SECTION A: BUILDING ECONOMICS
a) Scarcity
Scarcity occurs when commodities used to satisfy people's material wants
are not available in adequate amounts. Scarce commodities are called
economic goods. Commodities that are not scarce are called free
goods. The problem of scarcity is commonly known as the Economic
Problem. It has two aspects: Society's material wants: the material wants
of its citizens and institutions are virtually unlimited or insatiable; and
economic resources: the means for producing goods and services are
limited or scarce. An important question is: "why are commodities
scarce?" They are scarce because the resources used to produce them are
also scarce. These economic resources are land, labour and capital, also
called the factors of production or inputs.
b) Choice
If all things are scarce in comparison to the desire for them, and if people
have a lot of unsatisfied wants, they cannot satisfy all of their wants.
People, therefore, have to make choices. In this case the economic
problem is how best to use resources available to satisfy human wants.
c) Opportunity Cost
Opportunity cost is a direct result of having to make a choice. In making a
choice, people have to sacrifice; this sacrifice is called opportunity cost or
the cost of something given up in terms of alternatives forgone when a
choice is made.
d) Specialisation
Specialisation results from division of labour, a result of the problem of
scarcity. Its aim is to increase the productivity of labour to produce more
goods and services with a given level of capital. This will in turn increase
the ability of people t o satisfy their material wants.
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e) Exchange
Exchange complements specialisation. Any commodities produced must
be bought and sold to help economic growth. There must be a ready
market for those commodities produced otherwise specialisation would be
of no benefit. The principle on which exchange is based is called the Law
of Comparative Advantage. It states that it is beneficial if one
specialises in the production of the commodity in which he/she is more
efficient. International trade is based on this very simple principle.
g) Economic Systems
Another way to combat the problem of scarcity is to organise production
and exchange into an economic system. An economic system has two
elements: the forces of production; and the relations of production. The
forces of production include tools, factories, equipment, production skills,
and the level of knowledge of the labour force, natural resources, and the
general level of technology. The relations of production are the social
relationships between humans, particularly the relationship of each class
of humans to the means of production. The basic types of economic
systems or organisations are usually described as:
Traditional economies
Custom and habit forms the cornerstone of the system of solving
the economic problem. It is reinforced by superstition and religious
belief s and is common in some developing countries.
Market economies
There is predominantly private owner ship of economic resources. T
he allocation and distribution of economic resources is determined
by production, sales and purchase decisions taken mainly by firm s
and households through the market forces of demand and supply.
Command economies
This is a centre of all planned economy where most decisions about
the ownership, allocation and distribution of resources are taken by
the central authorities. Firms and households produce according to a
“plan” drawn up by government bureaucrats. Competitive markets
are not usually allowed to f unction.
Mixed economies
This is where t he economic system is a combination of some or all
of the other three systems. It may include some level of a market
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economy with a strong central government. There might be shifts in
balance between these two forces.
Whether or not our individual slice grows depends on whether we are able
to share in the growing economy. Even if we do not benefit directly, we
should still be able to see some advantages to the growing economy. This
is because the extra economic growth should produce higher tax
revenues, which can then be spent on public services that should benefit
everyone.
The first resource is land. Even if you are producing a service, you will
need somewhere to organise your work and do the necessary
administration, such as invoicing your customers and so on.
Manufacturers of a product have an even more pressing need for land, as
they will require a production site or factory location with storage for
supplies and parts. This means using the land resources of an economy.
The next resource – labour, it's no good going to all the trouble of
acquiring the location where we'll make the extra goods and services if we
have no labour to carry out the work.
The correct term for the resources used is: factors of production. There are
four factors of production: land, labour, capital and enterprise. Economic
growth depends on the quality and availability of these factors. If any of
the factors of production suffers from a lack of quality or availability, then
economic growth will not be as great as its potential. So what can cause
these factors of production to be of low quality or unavailable?
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Insufficient or contaminated land
Substandard labour supply
Other barriers exist that can hamper countries' ability to grow their
economies. They may be unable to gain access to export markets, due to
the trade policies of other countries. In order to protect their own
domestic producers, many countries block the imports of goods or
services from other parts of the world.
Another cost of economic growth is the loss of ancient ways of life and
cultures. As countries industrialise, natural resources can be lost as more
land is sought. The loss of huge areas of the Brazilian rainforest to cattle-
ranching is an example of this effect.
The 'one size fits all' view of economic development prevents subtle
differences in the routes chosen to development.
The search for faster economic growth may prevent countries
concentrating on social goals such as care for the elderly or children.
The homogenised global culture that some observers say has arisen.
Reference
http://www.bized.co.uk/learn/economics/notes/features.htm 2
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1.2 MACRO AND MICRO ECONOMICS:
Macro is derived from the Greek word “makros” which means large.
Macro economics may be defined as that branch of economic analysis
which studies the behaviour of not one particular unit, but of all the units
combined together. Macro economics is a study of aggregates. It is the
study of the economic system as a whole – total production, total
consumption, total savings and total investment. The following are the
fields covered by macro economics:
Theory of Income, Output and Employment with its two
constituents, namely, the theory of consumption function, the
theory of investment function and the theory of business cycles or
economic fluctuations.
Theory of Prices with its constituents of the theories of inflation,
deflation and reflation.
Theory of Economic Growth dealing with the long-run growth of
income, output and employment.
Macro Theory of Distribution dealing with the relative shares of
wages and profits in the total national income.
To understand why the overall flow of output and income fluctuates; what
factors lead to the growth in the productive capacity and what are social
and economic cost of economy’s growth, it is necessary to study the field
of aggregate economics i.e., total output income. Another name for the
aggregate economics is macro economics. The main topics covered under
this branch is study of national income analysis, the statistical
measurement of such aggregate flows as the gross national product
national income, consumption and investment and establishing
systematic relationships, which can explain the change in the aggregates
over time. Thus macro economics concerns the determinants of the
performance of entire economics of nations, groups of nations and the
whole world. [2]
While the economic study is concerned with the working of only one part
of the economy at a time and effects of a change in some variable on
other are analyzed on the assumption that rest of the economy during
that period is at a standstill; other things remaining the same, it forms a
part of the problems in micro economics.
The concept may be made clear at the very outset that a separate study
of Macro economics and Micro economics is absolutely necessary because
there may be inherent contradictions between the laws of micro
economics and macro economics. What might be right policy of an
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individual, a firm or an industry may not be right for the economic system
as a whole. In fact, the mere aggregation of the laws of behaviour of the
individuals, or firms will not hold good for the study of macro economics
because there are disharmonies between the behaviour of individual units
and the behaviour of economic system as a whole.
Since all modern economies are money economies (i.e., income, wages,
interests, rents, dividends and taxes, etc., are in terms of money), the
economic system can be considered as a system of money flows. The
money flows have their counterpart in real flows of goods and services.
Therefore the working of the economic system can be studied by following
the route through which the money flows or real flow money. [3]
Application:
Reference
What is Money??
Functions of money:
Characteristics of money:
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The characteristics of what serves as money depend somewhat on the
degree of complexity in the society. A relatively simple economy, with
relatively few goods and services, few producers and consumers, and few
transactions, may be able to function with a form of money that would not
work in a more complex society.
There are some general characteristics that are usually important for
whatever serves as money in a modern economy.
Money Supply:
Market liquidity:
Market liquidity describes how easily an item can be traded for another
item, or into the common currency within an economy. Money is the most
liquid asset because it is universally recognized and accepted as the
common currency. In this way, money gives consumers the freedom to
trade goods and services easily without having to barter.
Liquid financial instruments are easily tradable and have low transaction
costs. There should be no (or minimal) spread between the prices to buy
and sell the instrument being used as money. [1]
Measures of money:
Another measure of money, M0, is also used, although unlike the other
measures, it does not represent actual purchasing power by firms and
households in the economy. M0 is base money, or the amount of money
actually issued by the central bank of a country. It is measured as
currency plus deposits of banks and other institutions at the central bank.
M0 is also the only money that can satisfy the reserve requirements of
commercial banks. [1]
Types of money:
1. Commodity money
2. Fiat money
3. Credit money
4. Representative money
Banks:
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A bank is a financial institution licensed by a government. Its primary
activities include borrowing and lending money. Many other financial
activities were allowed over time. For example banks are important
players in financial markets and offer financial services such as
investment funds. In some countries such as Germany, banks have
historically owned major stakes in industrial corporations while in other
countries such as the United States banks are prohibited from owning non-
financial companies. In Japan, banks are usually the nexus of a cross-share
holding entity known as the zaibatsu. In France, banc assurance is
prevalent, as most banks offer insurance services (and now real estate
services) to their clients. [4]
Functions of a bank:
Banks play an important role in the financial system and the economy. As
a key component of the financial system, banks allocate funds from savers
to borrowers in an efficient manner. They provide specialized financial
services, which reduce the cost of obtaining information about both
savings and borrowing opportunities. These financial services help to
make the overall economy more efficient. Its economic functions can be
described as:
Types of banks:
I. Private Banks.
1. Savings banks.
2. Trust companies.
3. Commercial banks.
[6]
[(a) State banks, (b) National banks]
1. Private Banks
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Private banking is, perhaps, the oldest form of banking, and some of the
most powerful banking concerns in the world to-day are private
institutions. They are distinguished from public or incorporated banks in
that they are conducted as individual or partnership enterprises, and that,
until recently they have not been subject generally to the supervision of
the state. The tendency in recent years has been toward public regulation
of private as well as incorporated banks. In several states, private banks
are now forbidden to use a corporate name, or to use the name "bank' or
any similar title. Some states require private bankers to have a minimum
capital, and in a few Eastern states certain classes of private bankers are
required to post a bond. In a few states the banking business is absolutely
denied to unincorporated concerns.
2. Savings Banks
Savings banks are of two general kinds: mutual and stock. The mutual
savings bank has no capital and consequently no stockholders. It is
organized for the exclusive benefit of the depositors. Apart from the
expenses of running the bank, the depositors get all the profit arising from
the investment of their deposits. In the stock savings bank, which has a
capital and stockholders, the profits of the business, over and above the
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customary interest to depositors, go to the stockholders as in other types
of banks.
The basic purpose of the savings bank is to encourage thrift and saving. It
provides at once a safe place for the working classes to keep their
savings, and an expert, reliable agency for their investment in the safest
way. The deposits are invested largely in mortgages, bonds, and other
high-grade securities. From the return on these loans or investments,
interest is paid the depositors or credited to their accounts at periodic
intervals, generally twice a year. Most savings banks require depositors to
give notice, varying from two weeks to three months, of intended
withdrawals, except where the amount is small. Primarily the savings bank
serves the wage-earner, not the business man. [8]
3. Trust Companies
4. Commercial Banks
There is little or no justification for the popular opinion that national banks
are safer and sounder than state banks. Most of the states now have
excellent banking laws, which in many instances are modelled upon the
national banking law. The percentage of failures among state banks is only
a trifle higher than among national banks. The soundness of a bank
depends, not upon the authority which issues its charter, but upon the
ability and honesty of its management and supervision. [10]
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References:
1. http://en.wikipedia.org/wiki/Money
2. http://www.informationbible.com/FunctionsOfMoney.html
3. http://www.moneyandyouth.cfee.org/en/resources/pdf/moneyfunct.p
df
4. file:///D:/acedamics/ix%20sem/b.e.s/money%20and%20banking
%20concepts/Bank.htm
5. file:///D:/acedamics/ix%20sem/b.e.s/money%20and%20banking
%20concepts/FUNCTION%20OF%20BANK.htm
6. http://chestofbooks.com/finance/banking/Money-And-Banking-
Holdsworth/Chapter-X-Functions-Of-The-Bank-75-Classification-Of-
Bank.html
7. http://chestofbooks.com/finance/banking/Money-And-Banking-
Holdsworth/76 Private-Banks.html
8. http://chestofbooks.com/finance/banking/Money-And-Banking-
Holdsworth/77-Savings-Banks.html
9. http://chestofbooks.com/finance/banking/Money-And-Banking-
Holdsworth/Chapter-XIX-Trust-Companies-152-Functions.html
10. http://chestofbooks.com/finance/banking/Money-And-Banking-
Holdsworth/79-Commercial-Banks.html
Land
Labor
Capital
Enterprise
a) Limited in supply;
b) No costs of production;
c) Varies in quality;
d) Has a wide range of alternative uses;
e) More productive land is in greater demand.
Labour includes all human resources physical and mental, available for
the production of goods and services. It may be unskilled, semi-skilled, or
skilled, and local labour markets vary in the size and nature of the pool of
labour. The payment for someone else's labor and all income received
from one’s own labor is wages.
The supply of labour is the number of hours which people are willing to
work for a given wage-rate over a period - say a year. The supply of labour
will, therefore, depend on the number of workers found multiplied by the
average number of hours worked by each worker. Ability and willingness
to work do not, in themselves, guarantee employment. Job creation
depends on the expansion of the economy. The supply of labour must also
consider the quality of labour and how efficiently the workers do the tasks
given to them. The efficiency of labour depends on education and
knowledge of the work force, motivation, working conditions and social
welfare.
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SECTION A: BUILDING ECONOMICS
2. LAND ECONOMICS
2.5 Acts
Characteristics of Land:
New developments:
Land itself is a resource like labor or capital, especially when the land
harbors deposits of natural resources like minerals, oil, or timber. It is also
a fixed resource: the amount of available land on Earth is finite, although
land speculation may create situations in which the supply of land cannot
meet the demand. The way in which land is used can have a profound
impact on a local or national economy, whether that use is urban or rural.
Public and private uses of land and their sometimes conflicting needs are
also of interest in land economics.
Land development:
The conversion of land from one use to another is the generally accepted
definition of land development. [2] This age old process began with ancient
societies organised themselves into tribes, on and claiming land, forming
villages and primitive towns, for the mutual protection and livelihood for
all. The great civilisation of Egypt, Greece and Rome can be traced to
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humble beginnings of tribal communities. Their growth in size and
complexity is typical of urban development and unlike what we are
experiencing today. With their complex roadways, aqueducts, commercial
markets and residential areas the ancient problems associated with land
development endeavours- those of adequate transportation, waste
disposal, drainage, water supply, population densities and others posed a
challenge then and continue to require innovative solutions today.
Today the process for finding solutions and developing scenarios for land
use that serve the greater good is systematic one, and is to a large
degree, uniform in principle and practise. The systematic approach to the
land use planning, analysis and engineering is known as land
development design.
Since the early 1950s, the conversion of land to a different use generally
meant a more intense use. The definition formally applied almost
exclusively to residential, commercial, retail, industrial and office uses. It
did not take long however, before city planners and residents alike echoed
to have areas preserved for recreational, educational, social and cultural
activities. In response to this social need the definition of land
development was broadened to include such as converting rural land to
agricultural use constructing major transportation and utility systems, and
even urban and suburban redevelopment projects. Thus, land
development is the conversion of land from one use to another, usually of
great intensity, and is typically applied to a single parcel or group of
parcels and includes supporting uses and infrastructure improvements.
Step1
Step2
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Site analysis determines the allowable use of the site based on local
master plans, codes and ordinances and recommends a course of action
to accomplish the development program with respect to those documents.
Step3
Step4
Step5
Final design is the conclusion to the primary design effort. Carried out
predominantly by engineers, preliminary plans are enhanced with a level
of detail sufficient to construct all aspects of the project
Step6
Step7
Land Conservation:
Public conservation land and other natural areas also contribute other
often overlooked products such as clean water supplies, and the benefits
such as the regulation of the effects of flooding, erosion and climate
change. [7]
References
1. http://www.wisegeek.com/what-is-land-economics.htm
2. http://en.wikipedia.org/wiki/Land_development - Pg-2
3. Land Development Handbook, Planning, Engineering & Surveying/
Dewberry, Third Edition,Chapter-1- Overview of The Land
Development Process, Pg- 3
4. Part-1- Overview-Pg-1
5. http://www.tn.gov.in/spctenthplan/CH_9_4.PDF
6. http://www.tn.gov.in/spc/annualplan/ap2004-05/ch9_4.pdf
7. http://www.doc.govt.nz/conservation/threats-and-impacts/benefits-
of-conservation/economic-impacts/
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2.3 PUBLIC POLICIES ON LAND UTILIZATION AND
DEVELOPMENT:
Public policy can be generally defined as the course of action or inaction
taken by governmental entities (the decisions of government) with regard
to a particular issue or set of issues. Other scholars define it as a system
of "courses of action, regulatory measures, laws, and funding priorities
concerning a given topic promulgated by a governmental entity or its
representatives.
The following constitute the vital sources of urban policy matters in India.
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Reports/papers brought out by the central or State
government
Five year Plans
Legislation
The Fifth Five Year Plan is of great significance so far as urban land policy
is concerned. It recognized that, perhaps the most important instrument
necessary for achieving breakthrough in urban development will be the
formulation of Urban Land Policy. In the Sixth Plan the thrust of
urbanization policy was on development of small and medium towns and
achieving balanced distribution of urban population. The Seventh Five Year
Plan called for slowing down the growth of big metropolises and stressed
the need for preparation of regional and sub-regional Urban Development
Plans.
Legislations:
The Committee on Urban Land Policy (1965) outlined four basic objectives:
Reference
1. www.wikipedia.org.
2. URBAN LAND POLICY – Author : A. RAVINDRA, page no.- 35-39
2.4 THEORIES OF LAND VALUES:
Land value can be considered in two contexts. One is the market value,
which is the price of a land parcel negotiated at the time of sale of the
parcel, and the other is the assessed value, which is the estimated worth
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of the parcel made by a competent private or public assessor (Northam,
1975). The market value of a piece of land may be different from the
assessed value.
The first important work on urban land use values was written by R.M.
Hurd (1901), often regarded as the father of modern land economics. He
adopted the principles put forward by Ricardo for agriculture land to the
urban land.
R.M. Haig (1926) introduced the notion of the friction of space i.e.
hindrance to perfect or immediate accessibility, for without such ‘friction’
there would be no transport costs and all locations would be perfect. He
tried to establish a three-way relation of rent, transport costs and location
which is independent.
Ratcliff (1949), carrying forward the argument of Haig opined that the
utilization of land was ultimately determined by the relative efficiencies of
the uses in various locations. Efficiency in use is measured by the ability
to pay rent and the use that can extract the greatest return from a given
site will be the successful bidder. [1]
Agricultural land has value because of its fertility, that is, its ability to
yield produce for its owners. However, the most fertile land is not always
the most valuable. Proximity to communities and to means of
transportation makes some agricultural land more valuable than other
land, more fertile but also more remote. In cities, towns and villages, land
is of use chiefly for placing buildings upon it. The use to which such
buildings may be put determines the value of the land in relation to the
other land in the community and their use depends to a great extent upon
their location.
Yes, the current financial crisis highlights how scholars need to recast the
economic theory that they teach. The key concept that is missing today is
LAND VALUE. Classical economics divided factors of production into three:
land, labor, and capital. Beginning around 1920, scholars conflated land
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with capital. This left them totally unprepared to cope with or explain the
crash of 1929. At this time "macro-economics", as we now call it, rose to
the fore. For a time it eclipsed "micro-economics", which had degenerated
into the explanation of the allocation of resources among competing ends.
Gradually, micro-economics came back to be integrated with macro, but in
the process land value almost disappeared.
When it comes to the dynamics that lead to crises like that of 2008, land
values move in cycles of high amplitude, much higher than the values of
reproducible capital. When values are high and rising they lead to great
excesses of urban sprawl. These excesses fructify vast new areas around
growing cities, resulting in an overhang of "ripening" land that far exceeds
possible demands, resulting in a crash.
Tax theory is now based on the fallacy that a progressive tax must also be
one that suppresses and distorts incentives. This reflects economists
ignoring the high concentration of the ownership of land, and the positive
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incentive effects of taxing land in lieu of work, enterprise, building, and
income-creating investing. [2]
In the other way, LVT is often said to be justified for economic reasons
because if it is implemented properly, it will not deter production, distort
market mechanisms or otherwise create deadweight losses the way other
taxes do.
Nobel Prize winner William Vickrey believed that "removing almost all
business taxes, including property taxes on improvements, excepting only
taxes reflecting the marginal social cost of public services rendered to
specific activities, and replacing them with taxes on site values, would
substantially improve the economic efficiency of the jurisdiction." A
correlation between the use of LVT at the expense of traditional property
taxes and greater market efficiency is predicted by economic theory, and
has been observed in practice. [3]
Reference
2.5 ACTS:
Land Use and Building Act (132/1999, amendment 222/2003 included):
Planning review
At least once each year, local authorities must draw up a review of all
planning matters that are or will in the near future become pending in the
local authority or the regional council and which are not of minor
importance (planning review). The review briefly explains planning matters
and the stage of processing reached as well as any such decisions and
other actions which have an immediate influence on the basic premises,
objectives, content and implementation of plans.
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Planning reviews must be publicized in a manner appropriate for their
purpose.
National land use objectives are decided upon by the Council of State.
National land use objectives may concern matters which have:
a) international or more extensive than regional bearing on local structure,
land use, or the transport or power network;
b) a significant impact on national cultural or natural heritage; or
c) Nationally significant impact on ecological sustainability, the economy of
the local structure, or avoidance of environmental hazards.
When national land use objectives are issued, the general objectives of
this Act and the objectives for land use planning laid down in section 5
must be taken into account.
Building restriction
The difficulties that come in the process of Land Acquisition in India are
immense, given the population density and the type of land use in the
country. This is evident from the fact that the fundamental issue in a
number of top stories in the past few years has been the Process of Land
Acquisition; be it Narmada Bachao Andolan or the recent Nandigram issue.
With number of State Governments demarcating lands as Special
Economic Zones the problem just is going to get worse. The evolution of
Law of Land Acquisition as it exists today in various forms in different
statutes in India has undergone an evolution in the last decade. Originally
the wishes of owners of property were totally irrelevant, but at present,
the law tries to provide various provisions for objections and alternative
remedies in case of inadequacy of compensation.
Apportionment of compensation
3. BUILDING ECONOMICS
Benefits
Tilt up
SCC is a generic term for mix designs that differ from traditional concretes
at the molecular interface between the cement compounds and the
admixture polymers. The fluidity of SCC ensures a high level of workability
and durability whilst the rapid rate of placement provides an enhanced
surface finish. SCC's high strengths overnight strengths typically reach 30-
40N/mm2 and 2 day strengths can break the 100N/mm2 barrier enable
easier and more reliable demoulding. SCC is certainly the way forward for
both in-situ and precast concrete construction. The health and safety
benefits and the improved construction and performance results make it a
very attractive solution.
Tunnel Form
Tunnel form is becoming one of the most common methods of cellular
construction in the UK as its cost effectiveness, productivity and quality
benefits are being realized on a wide range of projects.
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Tunnel form is a fast-track method of construction that is well suited to
repetitive cellular projects such as hotels, apartment blocks and student
accommodation. Recognized as being a modern method of construction,
tunnel form simplifies the whole construction process by enabling a
smooth and fast operation that can result in frame costs being reduced by
15 per cent and provide frame programme time savings of 25 per cent.
The use of PT offers several benefits, not least of which is the fact that the
PT floor slabs are generally thinner than an ordinary reinforced concrete
slab. They can also be up to 300mm thinner than a floor in a steel frame.
This minimises the building's height to the extent that this could mean an
extra storey on a ten storey building. The amount of pre-stress can be
adjusted to control deflection, thus enabling the minimum depth of slab to
be used.
Objectives:
Abstract:
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Many new materials are being developed from polymers, metals, and
ceramics. Industry is beginning to introduce some of these high-
performance or new-technology materials in construction and
manufacturing applications because the materials have advantages over
traditional materials like steel, concrete, wood, and aluminium. However,
many high-performance materials have not been used in large-scale
construction projects. Economic and Technical Barriers hinder industry's
aggressive introduction of these new technologies despite their
advantages over traditional materials. The primary economic barrier
preventing the use of new technology material is their high initial cost.
Regardless of how cost effective a material might be over the life cycle of
the project, industry balks at high up-front costs, particularly when the
life-cycle costs of a new material are relatively uncertain. This cost barrier
inhibits construction applications of - and eventually research in - new
materials. Yet the construction industry has many potential applications;
for example, fiber-reinforced polymers (FRPs) and high-performance
concrete and steel are technically viable substitutes for conventional
bridge materials. FRPs are also likely candidates for use in marine
structures and offshore oil rigs. Germany and Japan are leading the world
in FRP use in construction; if U.S. companies are to remain globally
competitive, they too will likely need to introduce new technology
materials in their construction projects. To overcome this cost-based
barrier to the adoption of new materials, the construction industry needs
practical economic methods for evaluating alternative building and
construction materials in a comprehensive and consistent manner.
There are many ways in which the concrete industry has embraced
innovation and advocated modern methods of construction. Innovation is
an essential feature that must be present in construction; a definition of
innovation is to exploit existing and develop new technologies.
Concrete Masonry
In-situ Concrete
3.1.c
Low Cost Housing is a new concept which deals with effective budgeting
and following of techniques which help in reducing the cost construction
through the use of locally available materials along with improved skills
and technology without sacrificing the strength, performance and life of
the structure. There is huge misconception that low cost housing is
suitable for only sub standard works and they are constructed by utilizing
cheap building materials of low quality. The fact is that Low cost housing is
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done by proper management of resources. Economy is also achieved by
postponing finishing works or implementing them in phases.
Building Cost
The building construction cost can be divided into two parts namely:
Now in low cost housing, building material cost is less because we make
use of the locally available materials and also the labour cost can be
reduced by properly making the time schedule of our work. Cost of
reduction is achieved by selection of more efficient material or by an
improved design.
1) Reduce plinth area by using thinner wall concept.Ex.15 cms thick solid
concrete block wall.
Foundation
Normally the foundation cost comes to about 10 to 15% of the total
building and usually foundation depth of 3 to 4 ft. is adopted for single or
double store building and also the concrete bed of 6″(15 Cms.) is used for
the foundation which could be avoided.
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It is recommended to adopt a foundation depth of 2 ft. (0.6m) for normal
soil like gravely soil, red soils etc., and use the uncoursed rubble masonry
with the bond stones and good packing. Similarly the foundation width is
rationalized to 2 ft.(0.6m).To avoid cracks formation in foundation the
masonry shall be thoroughly packed with cement mortar of 1:8 boulders
and bond stones at regular intervals.
In the case black cotton and other soft soils it is recommend to use under
ream pile foundation which saves about 20 to 25% in cost over the
conventional method of construction.
Plinth
It is suggested to adopt 1 ft. height above ground level for the plinth and
may be constructed with a cement mortar of 1:6. The plinth slab of 4 to 6″
which is normally adopted can be avoided and in its place brick on edge
can be used for reducing the cost. By adopting this procedure the cost of
plinth foundation can be reduced by about 35 to 50%.It is necessary to
take precaution of providing impervious blanket like concrete slabs or
stone slabs all round the building for enabling to reduce erosion of soil and
thereby avoiding exposure of foundation surface and crack formation.
Walling
Wall thickness of 6 to 9″ is recommended for adoption in the construction
of walls all-round the building and 41/2” for inside walls. It is suggested to
use burnt bricks which are immersed in water for 24 hours and then shall
be used for the walls.
It is suggested not to use wood for doors and windows and in its place
concrete or steel section frames shall be used for achieving saving in cost
up to 30 to 40%.Similiarly for shutters commercially available block
boards, fibre or wooden practical boards etc., shall be used for reducing
the cost by about 25%.By adopting brick jelly work and precast
components effective ventilation could be provided to the building and
also the construction cost could be saved up to 50% over the window
components.
The traditional R.C.C. lintels which are costly can be replaced by brick
arches for small spans and save construction cost up to 30 to 40% over
the traditional method of construction. By adopting arches of different
shapes a good architectural pleasing appearance can be given to the
external wall surfaces of the brick masonry.
Roofing
Normally 5″(12.5 cms) thick R.C.C. slabs is used for roofing of residential
buildings. By adopting rationally designed in-situ construction practices
like filler slab and precast elements the construction cost of roofing can be
reduced by about 20 to 25%.
Filler slabs
They are normal RCC slabs where bottom half (tension) concrete portions
are replaced by filler materials such as bricks, tiles, cellular concrete
blocks, etc. These filler materials are so placed as not to compromise
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structural strength, result in replacing unwanted and nonfunctional
tension concrete, thus resulting in economy. These are safe, sound and
provide aesthetically pleasing pattern ceilings and also need no plaster.
They are easy to construct, save on cement and steel, are more
appropriate in hot climates. These can be constructed using compressed
earth blocks also as alternative to bricks for further economy.
Finishing work
The cost of finishing items like sanitary, electricity, painting etc., varies
depending upon the type and quality of products used in the building and
its cost reduction is left to the individual choice and liking.
Conclusion
The above list of suggestion for reducing construction cost is of general
nature and it varies depending upon the nature of the building to be
constructed, budget of the owner, geographical location where the house
is to be constructed, availability of the building material, good
construction management practices etc. However it is necessary that
good planning and design methods shall be adopted by utilizing the
services of an experienced engineer or an architect for supervising the
work, thereby achieving overall cost effectiveness to the extent of 25% in
actual practice.
References
1. http://www.archibus.com/products/datafiles/Space.pdf
2. http://www.concretecentre.com/main.asp?page=148
3. http://www.concretecentre.com/main.asp?page=438
4. http://www.concretecentre.com/main.asp?page=335
5. http://www.concretecentre.com/main.asp?page=627
6. http://www.concretecentre.com/main.asp?page=609
7. http://www.engineeringcivil.com/low-cost-housing.html
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3.2 RENT CONTROL AND OTHER BUILDING ACTS:
3.2.a All transactions in Indian real estate sector are governed by various
laws enacted by the Central Government of India and respective State
governments. One such law is the RENTAL LAWS. These laws govern the
rental of commercial and residential property and are necessary to
enforce individual civil rights of both landlord and tenant and prevention
of any kind of deceit.
The real estate scene in India is flawed by land market distortions. The
most glaring ones include inflexible zoning, rent and tenancy laws. Zoning
laws, rent controls and protected tenancies have been detrimental to the
healthy rental trends in India. They have put a freeze to land in city
centres that could be otherwise made available for new retail outlets and
flats.
The Rent Control Act has led to several adverse situations like languishing
investment in rental housing, withdrawing of existing housing stock from
the rental market, stagnating municipal property tax revenue. The rent
control along with security of tenure has not given any encouragement to
house owners to renovation their houses and most houses as a result
have a worn out look.
Repeal of the Rent Control Act would lead to construction boom and meet
the growing need for housing and aid employment generation. There will
be more rational use of prime locations and will set off a continuous
process of urban renewal.
The new Maharashtra Rent Control Act, Delhi Rent Control Act,
Tamil Nadu Rent Control Act, Karnataka Rent Control Act all has
provisions for the dispute among the landlords and tenants. Each of the
State Rent Act provides for fixation of Standard Rent as well decree for
possession and provisions that lay down the satisfaction of the Court.
The landlord should get the agreement registered. The landlord must give
the tenant a duplicate copy of the rental agreement, failing which the
tenant is not obligated to pay rent until the tenant receives a copy of the
rental agreement.
For a lease agreement, the terms of the lessee (tenant) and the lessor
(landlord) when they enter into a lease agreement would include terms
like the term of lease, deposit amount and monthly rentals. The lessor or
the landlord should ensure the premises come back in the right shape in
repossession.
All the electricity and telephone charges have been taken care of till
the specified date by the lessee or tenant at the time of
repossession.
On satisfactory fulfilment of all these aspects, the lesser should offer the
refund the security deposit (if given) to the lessee offering vacant and
peaceful possession of the premises.
Under the Leave and License Agreement transfer of interest takes place
on permission and the same can be terminated as per the terms of the
agreement. The possession can be demanded back from the licensee. The
label to the agreement could be Leave & License or Tenancy Agreement,
but it is the intention of the party that counts. Documentation of the
commercial lease is also an important rental law procedure.
Conclusion
The rental laws in India need to be revised to protect the owner and
his/her property from the tenant.
If these laws are enacted and strictly enforced, there is every chance that
more investors will want to enter the real estate market to utilize the
rental fees as income. This is especially true for the commercial sector.
The tax laws also need to be revised so that renting of properties becomes
a financially viable option. Amendments in the Rent Acts of several states
are a progressive move.
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3.2.b The Government Buildings Act, 1899,ACT No.4 OF 1899, [AS
ON 1956], 3rd February, 1899.
This Act provides for the exemption from the operation of municipal
building laws of certain buildings and lands which are the property, or in
the occupation, of the Government and situate within the limits of a
municipality.
(a) This Act may be called the Government Buildings Act, 1899.
(b) It extends to the whole of India except [the territories which,
immediately before the 1st November, 1956, were comprised in Part B
States]
Nothing contained in any law or enactment for the time being in force to
regulate the erection, re-erection, construction, alteration or maintenance
of buildings within the limits of any municipality shall apply to any building
used or required for the public service or for any public purpose, which is
the property, or in the occupation, of the Government, or which is to be
erected on land which is the property, or in the occupation, of the
Government: provided that, where the erection, re-erection, construction
or material structural alteration of any such building as aforesaid (not
being a building connected with [1] defence, or a building the plan or
construction of which ought, in the opinion of [2]the Government
concerned], to be treated as confidential or secret) is contemplated,
reasonable notice of the proposed work shall be given to the municipal
authority before it is commenced.
(1) In the case of any such building as is mentioned in the last preceding
section (not being a building connected with i) defence or a building the
plan or construction of which ought, in the opinion of ii) the Government
concerned], to be treated as confidential or secret), the municipal
authority, or any person authorized by it in this behalf, may, with the
permission of the State Government previously obtained, but not
otherwise, and subject to any restrictions or conditions which may, by
general or special order, be imposed by the State Government, inspect
the land and building and all plans connected with its erection, re-
erection, construction or material structural alteration, as the case may
be, and may submit to the State Government a statement in writing of
any objections or suggestions which such municipal authority may deem
fit to make with reference to such erection, re-erection, construction or
material structural alteration.
References:
1. www.indianground.com/rentals/rental-laws-in-india.aspx
2. http://www.vakilno1.com/bareacts/Laws/The-Government-Buildings-
Act-1899.htm
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3.3 ECONOMICS OF HIGH RISE BUILDINGS:
High-rise buildings became possible with the invention of the elevator (lift)
and cheaper, more abundant building materials. Buildings between
75 feet (23 m) and 491 feet (150 m) high are, by some standards,
considered high-rises. Buildings taller than 492 feet (150 m) are classified
as skyscrapers. The average height of a level is around 13 feet (4 m) high,
thus a 79 foot (24 m) tall building would comprise 6 floors.
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There is a general understanding that construction cost will rise as storey
height increases. This is not universally true for increased number of
storeys. Morton & Jagger (1995) pointed out that some cost factors will
increases and some cost factors will decrease the cost per square metre
as height increases and the significance of these cost factors will change
at different heights. Flanagan and Norman (1999) pointed out that
construction cost generally falls as the number of storeys increases. They
categorize construction cost into four cost components for considering the
number of storeys and the height of the buildings:
(1) Cost items fall as the number of storeys increases, e.g. roofs,
foundation.
(2) Cost items rise as the number of storeys increases, e.g. lift installation,
fire services.
(3) Cost items fall initially and then rise as the number of storeys
increases, e.g. curtain walling.
(4) Cost items unaffected by height, e.g. floor finishes, do
Lease Span
Lease span is the clear distance from the building core to the external
wall. It depends upon
the functional requirement and size of floor plate. Based on the collected
data common lease span is approximately 12m, ranging from 9.80m to
13.89m. The Bank of ChinaTower has the longest lease span of
approximately 17m at its lower floors due to its split core design.
Floor Height
The floor height consists of two aspects; namely, the floor-to-floor height
and floor-to-ceiling height. The minimum floor height may be determined
by the relevant building regulations. As the floor-to-ceiling height ranges
from 2.60m to 2.80m with an average of 2.69m. The difference between
the lowest and highest ceiling height is only 200mm.
Conclusion
The two main considerations other than economic value are the client’s
preference and the statutory requirements on tall buildings. The cost
effect of high-rise buildings concerns the quality and the quantity change
of different building elements. This calls for a sensible choice of the
systems or the type of materials used for a say, a 10-storey building, 20-
storey building, a 30-storey building and so on, up to a height or number
of storey permitted by the statutory requirements. This study presents a
cost data analysis of
the building elements in respect of the number of storey and height of
seven office buildings which provide an indication of the cost trend and
the cost change for a change of the numbers of storeys and heights.
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SECTION B: SOCIOLOGY
Types of environment
On the other hand, man has been influenced and is still being influenced
by his social environment in the following ways:
i. He obeys existing laws and customs of his community. Before man
is born, there are already existing rules and customs in his
community. To fit in properly into such community man is bound to
observe them.
ii. Man conforms to the modes of worship in his society. Though, there
is freedom of worship but most of the religions man subscribes to
are already there before he was born.
iii. Man enjoys the pleasure of what exists around his environment,
such as the type of food and drinks that are produced in his
environment. He also adapts himself to the trend of fashion in his
society.
Every society has a language of communication. Therefore, man
speaks the language that is already in use by the people of his
society.
Social Structure
Definitions:
Social structure is a term frequently used in anthropology, sociology
and social theory to refer to enduring relationships or bonds
between individuals or groups of individuals. [1]
Social structure possession of scarce goods. Additionally, in any
society there is a more or less regular division of labour. [2]
The ways in which people within a culture are organized into smaller
groups; each smaller group has its own particular tasks. [2]
Social structure refers to regularities in social life, its application is
inconsistent. For example, the term is sometimes wrongly applied
when other concepts such as custom, tradition, role, or norm would
be more accurate.
Social structure is sometimes defined simply as patterned social
relations—those regular and repetitive aspects of the interactions
between the members of a given social entity
Karl Marx argued that the economic base substantially determined the
cultural and political superstructure of a society.
Divisions:
Social network:
In its simplest form, a social network is a map of all of the relevant nodes
between all the nodes being studied. The network can also be used to
measure social capital -- the value that an individual gets from the social
network. These concepts are often displayed in a social network diagram,
where nodes are the points and ties are the lines. [5]
Social groups:
A group can be defined as two or more humans that interact with one
another, accept expectations and obligations as members of the group,
and share a common identity. By this definition, society can be viewed as
a large group, though most social groups are considerably smaller.
A true group exhibits some degree of social cohesion and is more than a
simple collection or aggregate of individuals, such as people waiting at a
bus stop. Characteristics shared by members of a group may include
interests, values, ethnic or social background, and kinship ties. According
to Paul Hare, the defining characteristic of a group is social interaction.
A social group consists of two or more people who interact with one
another and who recognize themselves as a distinct social unit. The
definition is simple enough, but it has significant implications. Frequent
interaction leads people to share values and beliefs. This similarity and
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the interaction cause them to identify with one another. Identification and
attachment, in turn, stimulate more frequent and intense interaction. Each
group maintains solidarity with all to other groups and other types of
social systems.
Groups are among the most stable and enduring of social units. They are
important both to their members and to the society at large. Through
encouraging regular and predictable behaviour, groups form the
foundation upon which society rests. Thus, a family, a village, a political
party a trade union is all social groups. These, it should be noted are
different from social classes, status groups or crowds, which not only lack
structure but whose members are less aware or even unaware of the
existence of the group. These have been called quasi-groups or groupings.
Nevertheless, the distinction between social groups and quasi-groups is
fluid and variable since quasi-groups very often give rise to social groups,
as for example, social classes give rise to political parties.
Types of groups:
Household - all individuals who live in the same home, there are
various models in Anglophone culture including the family, blended
families, share housing, and group homes.
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Community - A community is a group of people with a commonality
or sometimes a complex net of overlapping commonalities, often -
but not always - in proximity with one another with some degree of
continuity over time. They often have some organization and
leaders.
Mob - A mob is usually a group of people that has taken the law into
their own hands. Mobs are usually a group which gather temporarily
for a particular reason.
Group - 3 to 5 people
Bunch - 6 to 9 people
Significance:
Development of a group:
Two or more people in interacting situations will over time develop stable
territorial relationships. As described above, these may or may not
develop into groups. But stable groups can also break up in to several sets
of territorial relationships. There are numerous reasons for stable groups
to malfunction or to disperse, but essentially this is because of loss of
compliance with one or more elements of the definition of group. The two
most common causes of a malfunctioning group are the addition of too
many individuals, and the failure of the leader to enforce a common
purpose, though malfunctions may occur due to a failure of any of the
other elements (i.e., confusions status or of norms).
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In a society, there is obvious need for more people to participate in
cooperative endeavours than can be accommodated by a few separate
groups. [6]
Conclusion
References
1. wikipedia.org/wiki/Social_structure
2. www.britannica.com/EBchecked/topic/629641/violence
3. www.nigeriansinamerica.com/articles/3659/2/Mans-Family-And-His-
Environment---An-Essay-On-The-Issues-Of- The-Society/Page2.html
4. wikipedia.org/wiki/Social structure
5. wikipedia.org/wiki/index.html?curid=325726
6. wikipedia.org/wiki/Social group
7. nos.org/331courseE/L-22%20SOCIETY%20AND
%20ENVIRONMENT.pdf
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SECTION B: SOCIOLOGY
5. URBANISATION
5.4 Study
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5.1 TRENDS AND CHARACTERISTICS
Organization
Organization in sociology
The dyad is the smallest level of organization that exists. Dyads consist of
two people.
A unique feature of dyads is that each individual in the dyad has total veto
power over any aspect of the relationship (Appelbaum and Chambliss,
1997:84).
Groups
Formal Organizations
1. Coercive Organizations
2. Utilitarian Organizations
3. Normative Organizations
Bureaucracy
A bureaucracy traditionally does not create policy but, rather, enacts it.
Law, policy, and regulation normally originate from a leadership, which
creates the bureaucracy to put them into practice. In reality, the
interpretation and execution of policy, etc. can lead to informal influence.
A bureaucracy is directly responsible to the leadership that creates it,
such as a government executive or board of directors. Conversely, the
leadership is usually responsible to an electorate, shareholders,
membership or whoever is intended to benefit. As a matter of practicality,
the bureaucracy is where the individual will interface with an organization
such as a government etc., rather than directly with its leadership.
Generally, larger organizations result in a greater distancing of the
individual from the leadership, which can be consequential or intentional
by design.
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Definition- Bureaucracy is a concept in sociology and political science
referring to the way that the administrative execution and
enforcement of legal rules are socially organized. Four structural
concepts are central to any definition of bureaucracy:
1. a well-defined division of administrative labour among persons and
offices,
2. a personnel system with consistent patterns of recruitment and
stable linear careers,
3. a hierarchy among offices, such that the authority and status are
differentially distributed among actors, and
Craft organizations are those where outputs are hard to observe, but
outcomes are fairly easy to evaluate.
Coping organizations are those where neither outputs nor outcomes are
observable. [3]
Organizational structures
Pyramids or hierarchies
Committees or juries
Matrix organizations
Ecologies
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Pyramids or hierarchies
Committees or juries
Matrix organization
This organizational type assigns each worker two bosses in two different
hierarchies. One hierarchy is "functional" and assures that each type of
expert in the organization is well-trained, and measured by a boss who is
super-expert in the same field. The other direction is "executive" and tries
to get projects completed using the experts.
Ecologies
There are five key organizational trends that you should be aware of.
Globalization
Increasingly globalized sales, manufacturing, research, management
Movement from direct exports to having sales offices in different
countries to having manufacturing to all functions spread across the
globe
Due to:
Diversity
Workforce getting more heterogeneous sexually, racially, culturally,
individually, etc.
Source of both innovation and conflict/communication problems
Due to:
o changing demographics
Flexible
Organizational systems and processes and people that can respond
differently to different situations
Fewer detailed rules and procedures
Due to:
Flat
Fewer levels of management,
Workers empowered to make decisions
Due to:
Networked
Direct communication across unit & firm boundaries, ignoring chain
of command
Cross-unit team structures
Across the board contact with customers, not just official boundary
spanners
Customization
Decentralization
Due to:
Reference
1. http://www.en.wikipedia.org/wiki/sociology
2. http://www.en.wikipedia.org/wiki/organizational behaviour
3. http://www.en.wikipedia.org/wiki/organisation
4. http://www.en.wikipedia.org/wiki/formal organization
5. http://www.en.wikipedia.org/wiki/informal organization
6. http://www.delmar.edu/socsci/rlong/intro/org.htm
But in complex systems cause and effect are often not closely related in
either time or space. The structure of a complex system is not a simple
feedback loop where one system state dominates the behaviour. The
complex system has a multiplicity of interacting feedback loops. Its
internal rates of flow are controlled by nonlinear relationships. The
complex system is of high order, meaning that there are many system
states (or levels). It usually contains positive-feedback loops describing
growth processes as well as negative, goal-seeking loops. In the complex
system the cause of a difficulty may lie far back in time from the
symptoms, or in a completely different and remote part of the system. In
fact, causes are usually found, not in prior events, but in the structure and
policies of the system.
To make matters still worse, the complex system is even more deceptive
than merely hiding causes. In the complex system, when we look for a
cause near in time and space to a symptom, we usually find what appears
to be a plausible cause. But it is usually not the cause. The complex
system presents apparent causes that are in fact coincident symptoms.
The high degree of time correlation between variables in complex systems
can lead us to make cause-and-effect associations between variables that
are simply moving together as part of the total dynamic behaviour of the
system. Conditioned by our training in simple systems, we apply the same
intuition to complex systems and are led into error. As a result we treat
symptoms, not causes. The outcome lies between ineffective and
detrimental.
The study of urban dynamics requires tools that allow the exploration of
the
Change phenomenon in time and space. Urban modelling techniques have
been traditionally used to explore issues in urban dynamics, and automata
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models like cellular automata and agent based models seem to be a
particularly suitable approach for this kind of study. Therefore, an agent
based model was used in order to unfold the problem of urban growth of
Latin American cities through their dynamics. Agent based models are
based on the understanding that human decision making plays a major
role in urban processes and urban change. Their framework allows
interactions between agents and their landscape to be explicitly
represented. Hence, this kind of model permits the analysis of dynamic
processes that link spatial development with social issues, which is of
fundamental importance when dealing with cases of strong social
differentiation, as is the case of urban dynamics
GENTRIFICATION
Although many studies of gentrification have been made, the most widely
acknowledged hypothesis is Smith’s rent gap theory. (Smith,1979; 1982;
1986).
From the point of view, complexity theory can be seen as a new systemic
approach, which studies the relation between parts and whole in a
different way, stressing the idea of a structure emerging from a bottom-up
process where local action and interactions produce the global pattern.
Urbanization Process
Urbanization is defined as the increase in the number of cities and urban
population. Urbanization is not only a demographic movement. Therefore,
when describing urbanization; social, economic and psychological changes
that constitute the demographic movement should be considered. Based
on this, comprehensive definition of urbanization can be made as follows:
Urbanization is a process that leads to the growth of cities due to
industrialization and economic development, and that leads to urban-
specific changes in specialization, labor division and human behaviors.1 In
that way, urbanization is a forced and inevitable demographic movement
and this process should not certainly be neglected.
Urbanization involves social drift and social residue concepts that may
explain prevalence of urban mental disorder. Social drift is defined as the
tendency of certain individuals to migrate to certain areas, whereas social
residue expresses residual groups remaining at certain areas after
migration of population. Relative impacts of these concepts depend on
primarily pushing (as a result of poverty in rural areas) or pulling (because
of better job opportunities) immigrants to cities. The forces that cause
people to leave their original areas and to dwell cities are defined as push
and pull effects. Reasons for push to cities are divided into two as the
change and the stagnation factors. Technical unemployment among the
change factors and reduction in useful land areas due to rapid population
increase known as the stagnation factor lead to people’s flowing to cities.
Abandonment of rural areas due to push factors is more difficult and
violent process for immigrants themselves. Among the reasons that pull
people from rural areas to cities (pull urbanization) are better education,
health, employment opportunities and higher life standards. As the factors
that push people from rural areas to cities do not depend on individual’s
own preference, these factors threaten and affect persons’ mental health
more negatively when compared to pull factors. The impacts of such
urbanization are often harmful to mental health.
Effects of Urbanization
Rapid growth of cities due to immigration leads to:
Conclusion
While demographic data still shows a world population growth one can see
that unbalanced trends are destroying human cohesion and building social
exclusion in cities and regions. MAIN ISSUES – STRONG MIGRATION
FLOWS; INCREASE OF DEMAND ON METROPOLITAN AREAS
Another side of the problem is the permanent increase of demand of
nutrients and other resources while most of them are locally becoming
less and less. OTHER ISSUE – CONGESTION OF MARKETS, UNEVEN
DISTRIBUTION OF OFFER AND DEMAND, HOMELESS PEOPLE
A third problem lies on technology development with large impacts on
environment, employment, on economy and on social aspects, bringing
UNBALANCED EFFECTS on them, very difficult to deal with.
A fourth question lies on the rapid changes of mentalities and beliefs,
through globalization and the world-wide spread of information, where
most PEOPLE IS LOOSING A SCHEME
OF HUMAN VALUES, getting confused and becoming an easy target for
marginalization, drug addict, crime… or suicide!
As a result there is a rapid growth of panic in big cities and metropolitan
areas, destroying their character of a “space of an integrated social
relation“and bringing instead the walled condominiums and street crime.
ISSUES: SOCIAL CONFLICTS AND CRIME, ATMOSPHERE OF FEAR. [2]
Reference
1. Anatolian Journal of Psychiatry 2008; 9:238-243
a. TOPIC: Impacts of urbanization process on mental health
b. M. Tayfun TURAN, Aslı BESIRLI
2. Manuel da Costa Lobo, “Problems and solutions of environment and
urbanization in the World”,
a. 44th ISOCARP Congress 2008
b. TOPIC: PROBLEMS AND SOLUTIONS OF ENVIROMENT AND
c. URBANIZATION IN THE WORLD
d. HEADING: I – THE PROBLEMS OF TODAY.
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5.4 STUDY
http://chinagreenbuildings.blogspot.com
The Discounted Cash Flow method and the Direct Capitalization method
are the fundamental tools for valuing real estate investments and I will
use that to inform the discussion today.
The DCF is the best theoretical way to value real estate, but it is
somewhat more complex than the direct capitalization method I will focus
on today. Direct capitalization generally captures nearly the entire
important nuance of DCF, but does so in a much easier-to-understand
formula. Therefore, I will focus on capitalization today. The direct
capitalization method involves taking the current net operating income
(NOI) of a building and capitalizing (multiplying it by a large number-
generally between 10 and 20) to reflect the face that this income will
continue into the future.
Of course, DCF and direct capitalization are not the only valuation
methodologies. Another extremely useful type of valuation tool is
comparables. Comparables involves taking two or more similar assets and
comparing their values. If, for example, we wanted to value Prosper
Centre, we could use the value of the neighbouring Kerry Centre as a
proxy. For example, Prosper Centre and Kerry Centre should have similar
capitalization rates. Of course we’d have to do slight tweaks to account for
variations, for example, but their valuation should be in the same ballpark
(although as I will show Prosper should have a lower cap rate since it's
green and Kerry is not).
While it may be true that some green building systems have long payback
periods, this totally misses the point in my mind. Simple payback period
makes no sense as a rigorous valuation tool for several reasons. First and
most importantly, payback period has no concept of revenues. For
example, imagine an investment that required $1 today, and then made
no revenues for the first 5 years, but made $1,000,000 in the 6th year. If a
developer were to strictly use the simple payback period with a 5 year
limit, they would miss this clearly profitable investment. This may be an
extreme example, but captures a serious flaw in the simple payback
period method of valuation. For this reason, I do not consider the simple
payback method to be a useful method of valuation. While it generally is
true that investments with short paybacks have good returns, it is not
necessarily true that investments with longer payback periods do not
have good returns.
Therefore I will ignore simple payback entirely and focus instead on direct
capitalization today.
(Note: for this discussion, I will assume that we are talking about an office
building, where tenants rent the building on a gross lease, i.e. one
monthly payment from the tenant to the landlord that covers utilities,
maintenance, insurance, and taxes in addition to rent. Other lease
structures, such as triple net, are more common, but the green valuation
issues remain the same. Please email me or use the comments box for
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any questions that relate to different lease structures and I will be happy
to respond.)
Reduced costs
The first way green buildings increase building value is through lower
operating costs.
Obviously, a green building that uses less energy will have lower utility
bills. Since LEED rated buildings on average use 33% less energy than
regular buildings, this means utility costs are about 33% lower. Since
utilities account for ~25 to 30% of an office building’s operating expenses,
this adds up to big value. Smaller water and waste bills also make for
better economics.
Green buildings can also lower other less-obvious expenses. For example,
the Fireman’s Fund, a leading insurance company, offers lower insurance
rates for LEED certified buildings. Other possible cost saving measures for
green buildings include lower interest rates through green banks
(although again this doesn’t affect NOI, only returns to the owner) and
lower maintenance costs thanks to smaller systems and better
commissioning processes.
The result is less operating expenses for green real estate, which means
higher building value.
Increased revenues
Several recent surveys and studies show that green buildings command
higher rents. A study by economists for the Berkeley Program on Housing
and Urban Policy showed that green buildings on average rent for 2-6%
more than their non-green counterparts, after controlling for other
variables like location and building age. This green premium even exists in
China, where a recent JLL report shows that nearly 70% of high-end real
estate tenants are willing to pay more for green real estate.
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Why do green buildings command these premium rents? Two reasons
primarily. First, workers in green buildings are more productive than
workers in brown buildings. Thanks to more day lighting, higher air
ventilation rates, improved indoor air quality, and other attributes of green
real estate, occupants of green buildings tend to be more comfortable and
more productive. The US Green Building Council website links to numerous
studies showing that productivity in green buildings is higher. Since green
real estate space is more productive than regular brown space, tenants
are willing to pay more for the productivity benefits. This productivity-
driven rent premium for green buildings will continue, as brown buildings
just cannot match the many productivity-boosting benefits of green
buildings.
Since higher rents means more NOI, higher rents therefore drive higher
value for green buildings.
Let’s first look at expected growth of NOI. As more and more companies
demand green real estate and are willing to pay more for the productivity
benefits, I think it’s safe to say that we can expect rents and NOI at green
buildings to grow faster than those at brown buildings. Or conversely,
when green building becomes the norm, very few tenants will be willing to
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pay the same price for brown real estate, meaning negative rent growth
for many brown properties. The result is still faster NOI growth for green
buildings, and therefore lower cap rates.
Green buildings are also less risky than their brown counterparts. Since
green buildings use more advanced building techniques and are more
likely to satisfy the needs of tomorrow’s tenants, there is less risk of
functional obsolescence for green buildings. Moreover, thanks to lower
environmental impact, green buildings also face less regulatory risk. The
result? Again, lower cap rates for green buildings.
So let’s take these results and run through a quick thought experiment.
Let’s start with a hypothetical building with rent of $1,500,000, expenses
of $500,000 and a cap rate of 10%. Now what happens when we take the
same building but assume its green? Well now rents will be 2-6% higher,
utilities will be 33% lower, and I'll assume the cap rate will be lower by 0.5
- 1%. As we can see from my calculations below, we get a big value
increase.
At the low end, we should expect green buildings to be worth 12% more,
and at the high end, green buildings could be worth as much as 25% more
than their brown counterparts. Of course this is just a hypothetical
example, but the takeaway is clear nonetheless: green buildings are more
valuable.
For developers, I think this means build green from the start. Even for
developers who build to sell immediately upon completion, green building
is still compelling. The purchaser of the building will have an interest in
owning for the longer-term, and should be willing to pay more for green.
So even if developers don’t believe the 12% valuation premium example
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that I laid out above, it seems they can easily get 5+% for all of the
reasons I described. This means as long as that developers can hold the
cost premium for green below this 5%, they will be making more money
than they otherwise would by building brown. If a developer can build
green at 5% but get a 10+% valuation increases, well, now the developer
is really doing well financially (not to mention socially and
environmentally). As more developers start to understand green building
economics, I think building green will become increasingly more profitable
and eventually become the only way to build.
For owners, I think this means retrofitting to green standards right now. As
my hypothetical calculations showed, the benefits of retrofitting and
getting green certification are huge. Not only will the building benefit from
higher rent, lower operating costs, better corporate image, less risk, etc
etc, but it will most likely pay for itself through immediately increased
building value. For example, if a building owner could perform a large
retrofit on a building for 10% of the building value, the investment would
immediately pay for itself thanks to higher post-retrofit building value.
Although increased building value isn’t exactly the same as cash in hand
for the building owner, the increased building value provides significant
security for this investment in energy efficiency and green features.
The bottom line is that green building makes sense for the bottom line. As
more and more developers, owners and tenants realize this, I expect to
see green building become the norm for those who can afford to pay for
the green benefits, particularly those in Class A office buildings, luxury
apartments and international quality industrial facilities. The trick then will
be to figure out how to make green building economics translate into
something that works for those other sectors of the market that I’ve been
talking about so much recently. Stay tuned for my next post for some
initial ideas on how to use these green building economics to make green
building affordable- and widespread.
Contents
The euro and the Financial Services Action Plan have contributed to
greater integration of financial markets. Indeed, Europe has overtaken the
United States in some segments of global markets. Capital flows are
largely unimpeded and most wholesale markets are well integrated. There
has been less progress at the retail level. Retail banking – and mortgage
markets especially – are mainly national. Cross-border mergers of financial
institutions can be complex due to government guarantees, ownership
arrangements, tax issues and resistance by supervisors, although the
Commission has improved the rules in this area by limiting supervisors’
discretion. Approval for selling products across borders can be lengthy
because they must be tailor-made to cater for national laws on investor
and customer protection. In mortgage markets, one option would be to go
for full mutual recognition (which implies that the judicial process of the
lender’s country would apply) since well-informed customers should be
able to decide which product is best for them. However, since consumer
safeguards are highly valued in some countries, another way forward may
be harmonisation of the most important protections and mutual
recognition for the rest. Fragmented payments infrastructure has also
been holding back a pan-European banking market, and the industry will
need to work quickly to ensure that the Singe Euro Payments Area (SEPA)
is up and running on time in 2010. In this respect, the recent agreement
by Council and the Parliament on the legal underpinnings of SEPA will
help.
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ECONOMIC SURVEY OF ICELAND 2009: THE FINANCIAL AND
ECONOMIC CRISIS
www.oecd.org,www.worldbank.org
Contents
Iceland has plunged into its deepest economic recession in decades after
succumbing to a widespread financing crisis and a collapse of domestic
demand. The meltdown of Icelandic banks unfolded against the backdrop
of faltering global capital markets, which reached a climax in September
2008 with the failure of Lehman Brothers. By the fourth quarter of last
year, almost all OECD countries were experiencing sharp declines in real
GDP and world trade was plummeting. After years of rapid expansion, the
economic situation in Iceland also turned for the worse when the country’s
three main banks collapsed, capital markets seized up and financial
relations with foreign countries were shut down. While Iceland is in part a
victim of the international crisis, its severe plight largely results from a
recent history of ineffective bank supervision, exceptionally aggressive
banks and inadequate macroeconomic policies. The government has
devised a medium-term adjustment programme to restore policy credibility
and economic growth, which is being implemented in the context of an IMF
Stand By Arrangement. The origins of Iceland’s severe banking and
macroeconomic difficulties and policies for a sustainable recovery are
discussed in this Economic Survey.
Bank supervisors need to lay down tougher rules and apply them more
strictly
Although it will take some time to fully understand the causes of the
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financial crisis, some light was shed by studies commissioned by the
authorities. The report of the former Finnish supervisor, Mr. Jännäri, notes
that the first big mistake made was to allow local investor groups (with
major expansion plans) to gain controlling stakes in the banks when they
were privatised. The FME was not satisfied with this decision, which it
considers to have been political, but acquiesced after lengthy
deliberations. The report also points to a variety of practices that would
have been considered elsewhere as inconsistent with basic banking
regulation. Although banks seemed well capitalised, evidence suggests the
capital was of poor quality, sometimes coming from connected parties. The
banks had large exposures to investment groups and to each other (via
shareholdings), implying a high degree of common vulnerability. While
banking regulations were largely transposed from the European Union,
Iceland’s supervisors were unable to keep up with the complexity and size
of the system as it grew rapidly and applied rules in an excessively
legalistic manner. In the future, Iceland’s supervisors should not allow the
banking sector to become so complex and so large that they cannot
effectively fulfil their supervisory duties. Also, bank supervisors should lay
down tougher rules and, subsequently, apply stricter practice on large
exposures, connected lending and quality of owners, using discretionary
best judgement when necessary.
Volatility of inflation(1)
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1. Measured as the standard deviation of year-on-year
percentage change of monthly consumer price index.
2. Source: OECD, Main Economic Indicators.
Euro area entry is, however, some time off, even under the most optimistic
circumstances. For the time being, monetary policy should remain geared
towards supporting the króna and protecting the balance sheets of
unhedged borrowers. Exchange rate stability is the main goal of the capital
controls, but since capital controls do not work perfectly, monetary policy
needs to maintain a relatively strict stance. Until concerns about
disorderly capital outflows diminish, monetary policy should stay focussed
on maintaining exchange rate stability, which may limit the scope for
further reductions in the interest rate. Once the capital account has been
liberalised, a managed exchange rate regime will be increasingly difficult
to implement. The authorities should thus adopt an inflation-targeting
framework geared to meeting the Maastricht Treaty inflation criteria,
which would imply switching from the official CPI to the internationally-
comparable harmonised CPI (HICP). To improve the functioning of the
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monetary framework, the Central Bank’s credibility should be improved. A
good start has been made in this regard with recent reforms to
communication policy and to the governance structure of the Central
Bank, including the appointment of a Monetary Policy Committee with both
internal and external members, coming with adequate credentials, to take
interest rate decisions. It is also crucial that the conduct of monetary
policy be more decisive than in the past and that the government fully
respects the Central Bank’s independence.
The financial collapse has increased government debt. With the recession
and rising debt servicing costs, the public deficit is projected to be above
10% of GDP in 2009, adding to the public debt burden. A considerable
fiscal consolidation is therefore required to put public finances back on a
sustainable path and to pave the road for a successful euro-area entry. The
deficit should be reduced vigorously in the coming years, with the goal of
reaching balance. This path is consistent with that called for in the IMF
Stand By Arrangement. Both tax increases and spending cuts will be
needed, although the former are easier to introduce immediately. The
starting point for the tax increases should be to reverse tax cuts
implemented over the boom years, which Iceland can no longer afford.
This would involve increases in the personal income tax and lifting the
reduced rate of VAT. Just undoing the past tax cuts is unlikely to yield
enough revenue. In choosing other measures, priority should be given to
those that are less harmful to economic growth, such as broadening tax
bases, or that promote sustainable development, such as introducing a
carbon tax. The government should also increase unemployment
insurance contributions to a level that would be expected to balance the
fund’s accounts over the economic cycle, as planned.
Structural reforms in other areas would also contribute to laying out the
foundations for a sustainable recovery
While macroeconomic policy currently runs high on the policy agenda, this
should not obviate the need to conduct growth-friendly structural reforms,
notably in the labour market and the product market. The labour market is
flexible overall with high participation rates, ease of entry for migrants,
strong work incentives and unemployment benefits of short duration by
international standards. With Iceland being confronted for the first time in
recent history with a massive increase in unemployment, it will be
important to avoid introducing policies that would undermine the good
functioning of the labour market, such as higher replacement rates and
longer duration for unemployment benefits, as this would contribute to a
rise in long-term unemployment. Another strength of the Icelandic labour
market is that real wages are highly flexible, thus helping to smooth
economic adjustment in the face of shocks. Real wage cuts have in the
past come in the form of consumer price inflation exceeding the growth of
nominal wages. If Iceland joins the euro area, nominal wage flexibility will
become more important as a mechanism for adjusting to asymmetric
shocks. Although the product markets generally function well, several
areas need attention, as indicated in past OECD Surveys. The energy
sector is dominated by the state-owned National Power Company and
should be opened to foreign investment. In the mortgage market,
although the Housing Finance Fund is currently an element of stability,
policy makers might have to reassess its role as it benefits from a
government guarantee that prevents fair competition and distorts the
allocation of resources. More generally, experience of euro-area countries
underlines the need for greater flexibility throughout the economy if
adjustments to shocks are to occur smoothly and contribute to sustainable
growth and high living standards.
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ECONOMIC SURVEY OF RUSSIA 2009: STABILISATION AND
RENEWED GROWTH: KEY CHALLENGES
www.oecd.org,www.worldbank.org
Contents
Between the financial crisis which struck Russia in August 1998 and the
global crisis which broke out in earnest in September 2008, Russia had the
strongest decade of growth in its history, with real GDP nearly doubling.
This strong increase in output, coupled with the vigorous real appreciation
of the rouble, driven mainly by the surge in energy and raw material
prices, meant that nominal GDP measured in US dollars rose almost 7-fold
during that period, more than in any other major country. A wide range of
other economic and social indicators also saw dramatic improvements
during those ten years. Total factor productivity grew strongly, real wages
soared, and unemployment and poverty rates fell sharply. Strong current
account surpluses, combined with a swing in the private capital account
from large net outflows to even larger net inflows, pushed international
reserves to nearly USD 600 billion, behind only China and Japan. The
transformation of the government finances was particularly marked. After
defaulting on part of its debt in 1998, the federal government ran a string
of surpluses and almost extinguished public debt while building up foreign
assets amounting to 13% of GDP by end-2008. The picture for inflation was
more mixed, but for most of the past decade inflation was on a trend
decline, falling from 85% in late-1998 to single digits by mid-2007. At that
time, a combination of surging international food and energy prices and
very rapid money supply growth in Russia pushed inflation back up to
15%, before it began to fall again in late-2008 as energy and commodity
prices collapsed and money supply growth came to a sudden halt.
The strategy for Russia in tackling such a big economic crisis needs to be
broad-based, including a range of fiscal and monetary policy measures to
support aggregate demand and maintain the functioning of the banking
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system. As in other countries, policymakers in Russia should seek
measures that maximise the immediate demand effect; minimize
distortions; protect macroeconomic stability and fiscal sustainability via a
clear exit strategy from stimulus measures; and, where possible, yield
longer-term efficiency gains while achieving short-term demand
management goals. Designing a response that best conforms to these
principles, including finding the right balance where there are trade-offs
between them, is the overarching near-term policy challenge.
What has been the policy reaction to date, and how should it evolve?
The authorities’ reaction to the onset of the crisis was broadly in line with
that of many OECD economies, although the response in Russia was
unusually rapid and large, reflecting in part the substantial resources
available to the authorities after years of fiscal and balance of payments
surpluses. Liquidity and capital were provided to the banking system,
deposit insurance limits were increased, and a number of expansionary
fiscal measures were announced. All told, quantifiable announcements in
the first months of the crisis were equivalent to about 13% of GDP. These
measures were initially thought to be more than adequate to address the
consequences for Russia of the global financial crisis, but it has become
increasingly clear that Russia is facing a deeper and longer downturn than
was imagined a few months ago. As the stock of available resources has
dwindled while the cost of some initial measures has risen (notably the
combination of limiting depreciation of the rouble while providing ample
liquidity to banks) new measures are being more carefully weighed,
especially with respect to possible risks to fiscal sustainability.
The main short-term challenge for fiscal policy is to maximise the fiscal
multiplier while managing moral hazard and risks to long-term fiscal
sustainability. The former tends to suggest expenditure measures, possibly
in the form of transfers to low-income households or lower levels of
government, rather than general tax cuts. Temporary measures, such as
one-off transfers or temporary tax rebates, can be one effective way of
maximising the short-term demand impact. Measures those are hard to
reverse, such as raising entitlements or cutting tax rates, could undermine
long-term sustainability. The current crisis is increasingly looking like a
more extended downturn than originally foreseen, which may make
infrastructure spending more attractive than otherwise, particularly since
there is evidence that the fiscal multiplier is highest for such spending. The
threat to fiscal sustainability would appear to be less of a problem in
Russia than in many OECD countries, given low levels of gross public debt
and substantial public financial assets. Nonetheless, the federal deficit will
be very large in 2009, and is likely to remain at high levels for several
years. Moreover, Russia faces underlying negative demographic trends
and particularly serious environmental degradation problems, which could
entail major fiscal costs in the future. As in other countries, therefore, it
will be important for Russia to set its stimulus efforts in a medium-term
context that credibly charts a return to a sustainable public debt path.
Looking beyond the crisis, how can a better growth model be put in place?
At some point the crisis will end, and oil prices will probably recover sooner
rather than later. In the medium term, Russia will face the challenge of
putting in place a healthier model for sustained catch-up growth. This
should be one based on innovation, investment, the accumulation of
human capital and coherent implementation of the rule of law within a well
regulated and competition-enhancing market economy, rather than one
largely driven by strong but temporary improvements in the terms of trade
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and the increasing reliance on state corporations with inadequate
governance structures as well as ad hoc support of selected banks and
corporations. To this end, there is considerable scope for major progress in
a wide range of areas. For example, education performance is mediocre;
the healthcare system is deficient in a number of respects; innovation
policy does not get the most from Russia’s considerable potential;
administrative reform is needed to improve the efficiency of the public
service; and some important prices, notably for natural gas, remain
distorted, making the economy more energy-intensive than it should be.
Many of these topics have been addressed in past Economic Surveys, and
remain valid. Particular challenges discussed in this Survey include
macroeconomic management, including the priorities for monetary and
fiscal policy, the development of the banking system, and product market
regulation reforms to widen the scope for competition.
The following OECD assessment and recommendations summarise
chapter 2 of the Economic Survey of Russia published on 15
July 2009.
Contents
After defaulting on part of its debt in 1998, the federal government ran a
string of surpluses and almost extinguished public debt while building up
foreign assets amounting to 13% of GDP by end-2008.
Source: Federal Service for State Statistics, Central Bank of Russia and
Ministry of Finance of the Russian Federation.
The authorities’ reaction to the onset of the crisis was broadly in line with
that of many OECD economies, although the response in Russia was
unusually rapid and large, reflecting in part the substantial resources
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available to the authorities after years of fiscal and balance of payments
surpluses. Liquidity and capital were provided to the banking system,
deposit insurance limits were increased, and a number of expansionary
fiscal measures were announced. All told, quantifiable announcements in
the first months of the crisis were equivalent to about 13% of GDP. These
measures were initially thought to be more than adequate to address the
consequences for Russia of the global financial crisis, but it has become
increasingly clear that Russia is facing a deeper and longer downturn than
was imagined a few months ago. As the stock of available resources has
dwindled while the cost of some initial measures has risen (notably the
combination of limiting depreciation of the rouble while providing ample
liquidity to banks) new measures are being more carefully weighed,
especially with respect to possible risks to fiscal sustainability.
The main short-term challenge for fiscal policy is to maximise the fiscal
multiplier while managing moral hazard and risks to long-term fiscal
sustainability. The former tends to suggest expenditure measures,
possibly in the form of transfers to low-income households or lower levels
of government, rather than general tax cuts. Temporary measures, such
as one-off transfers or temporary tax rebates, can be one effective way of
maximising the short-term demand impact. Measures those are hard to
reverse, such as raising entitlements or cutting tax rates, could undermine
long-term sustainability. The current crisis is increasingly looking like a
more extended downturn than originally foreseen, which may make
infrastructure spending more attractive than otherwise, particularly since
there is evidence that the fiscal multiplier is highest for such spending.
The threat to fiscal sustainability would appear to be less of a problem in
Russia than in many OECD countries, given low levels of gross public debt
and substantial public financial assets. Nonetheless, the federal deficit will
be very large in 2009, and is likely to remain at high levels for several
years. Moreover, Russia faces underlying negative demographic trends
and particularly serious environmental degradation problems, which could
entail major fiscal costs in the future. As in other countries, therefore, it
will be important for Russia to set its stimulus efforts in a medium-term
context that credibly charts a return to a sustainable public debt path.
Contents
Just as monetary conditions during the period of strengthening oil prices
were too easy, as balance of payments strength fed through to money
supply growth via the central bank’s exchange rate-oriented monetary
policy, so they risk becoming too tight in a context of falling oil prices and
capital outflows. Intervention to support the rouble in the months
following the onset of the crisis meant sharply falling reserves, and this
was accompanied by a large fall in M2 since September 2008. Real
interest rates are becoming positive for the first time in years just as
aggregate demand is collapsing due to adverse external shocks. In
addition, the resistance to depreciation delayed a compensatory stimulus
for non-oil tradable when the oil price fell. The stepwise widening of the
exchange rate band allowed some breathing space for firms with heavy
foreign currency liabilities and possibly prevented a sharper weakening of
confidence in the rouble and, thus, a run on deposits. But the costs were
heavy, as expectations of further depreciation encouraged capital flight.
The central bank’s communication policy should foster the recognition
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that the real exchange rate eventually has to move in line with large
swings in fundamentals such as oil prices. This episode revealed the
weakness in the monetary policy framework and illustrated that holding to
a fixed exchange rate or managing a float for an extended period is
difficult, as serious conflicts with fundamentals are likely to arise sooner or
later, particularly in a commodity-dependent economy.
Russia’s banking sector has suffered repeated crises since the start of
transition. Policy makers face two broad regulatory challenges in seeking
to improve the stability of the banking system: to converge on existing
best practice as regards the implementation of prudential supervision and
(a challenge shared with many other countries) to address defects in bank
regulation which amplify economic cycles and give insufficient weight to
liquidity considerations. In the cyclical upswing Russian banks on average
maintained but did not increase capital cushions above the minimum
standard, and many therefore risk falling below the minimum as loan
losses rise as a result of the recession, unless new capital can be found.
As in OECD countries, there is a need for a more macro-prudential
approach to financial supervision, which takes more account of systemic
risks, in addition to focusing on bank-specific ones. Capital requirements
and/or provisioning rules should be made counter-cyclical and capital
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requirements should be allowed to vary across banks to reflect each
bank’s contribution to systemic risk. In addition, stress tests should
include assessments of shocks which hit across the banking system. There
will be ongoing efforts to reform international rules to strengthen existing
supervision approaches, and Russia should actively participate in these
discussions while proceeding with own reforms to bolster financial market
stability.
There are still many banks, most of which are very small
End of period
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Source: Central Bank of Russia.
Contents
The OECD’s product market regulation (PMR) indicator for Russia reveals
that, despite liberalisation in some areas, such regulation is, on average,
highly restrictive. The overall level of regulation is significantly higher and
restricts competition to a greater extent than in any OECD
country - including the emerging market economies within the OECD area.
All three of the high-level sub-components of the overall PMR index are
high in Russia relative to comparator countries, although there is
considerable regulatory heterogeneity in lower-level sub-components.
Reflecting the legacy of the Soviet era as well as the backlash after the
chaotic early years of transition to a new system, state control in the
Russian economy is extensive, via both direct state ownership and control
over economic activity. State-owned enterprises are found across a wide
range of sectors and often occupy a dominant position in their industry.
Furthermore, there is a pervasive blurring of the line between the public
and private sectors, arising not only from the extensive role of state-
owned enterprises but also by close ties between government (at all
levels) and major private firms. One reflection of this phenomenon is the
unusually important role of current or former politicians and senior
bureaucrats in business, which gives rise to multiple, distorting and costly
conflicts of interest. Recent initiatives to strengthen the obligations for
politicians and senior bureaucrats to publicise their incomes and financial
assets are welcome. The special-status state corporations, most of which
were established recently, are exempt from some reporting and
monitoring obligations. These exemptions should be removed.
Furthermore, the extent of the problems posed by the unclear governance
of these institutions, which are neither under full political surveillance nor
privately owned, should be carefully monitored. The PMR indicators also
signal a high level of government involvement in the private business
sector. In part, this reflects a prevalence of command-and-control-type
regulation. Significant benefits in terms of economic performance could be
yielded by reducing political interference in the operation of state-owned
enterprises (SOEs) and private sector firms. This should include separating
the activities with non-commercial policy objectives of SOEs and
consolidating them to the relevant government department; improving
standards of transparency and disclosure in SOEs; imposing an effective
firewall between public and private professional activities to avoid
conflicts of interest; disposing of golden shares in SOEs and private firms;
increasing the independence and accountability of government
representatives and accelerating appointments of independent and
accountable directors on SOE Boards; revitalising privatisation (once SOE
corporate governance has been improved); reducing the list of strategic
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firms and sectors; and using regulatory alternatives to command-and-
control regulation and direct intervention.
State control stands out as accounting for the high overall score
Russia’s average import tariff rate is somewhat higher than in most other
middle-income countries and significantly higher than in OECD countries.
Further, despite the implementation of a programme to simplify the rate
structure in 2000-01, the dispersion in tariffs has actually increased since
the beginning of the 2000s, indicating a less uniform structure. Lowering
tariff protection and tariff dispersion to OECD levels would be both
beneficial for economic performance and helpful in speeding Russia’s
accession to the World Trade Organisation (WTO), which has been under
negotiation for more than 15 years. WTO membership would in turn
exercise some leverage for making more progress with competition-
enhancing reforms. As to foreign direct investment (FDI), inflows have,
until recently, been robust, but barriers to foreign ownership are
estimated to be high in Russia compared to OECD countries. In part, this
reflects the enactment in May 2008 of the law on strategic industries,
which defines 42 sectors in which control by foreign investors requires
prior authorisation from a government commission. Although this law
increases transparency and is less ad hoc than the previous regime, its
sectored coverage is broader and notification delays longer than OECD-
recommended practice. The emergence of large state-controlled
conglomerates with dominant market positions also acts as a barrier to
FDI inflows. The scope for foreign investors to acquire equity in these
conglomerates or participate in government procurement contracts in the
sectors they occupy is strictly limited. Beyond explicit barriers to FDI, the
overall regulatory environment in Russia is perhaps the most significant
impediment to greater inflows of FDI. The government should increase the
openness and predictability of the foreign investment regime, review the
list of strategic sectors and ensure a level playing-field between domestic
and foreign firms with respect to government procurement and access to
subsidies.
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