Construction Value Chain

Part
01
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Part
01

Construction Value Chain - Overview

The residential construction industry value chain involves three stages, design, production and conversion of raw materials into manufactured products, and onsite construction, as discussed below.

Design

  • The design stage involves putting the structure idea into visual sketches and drawings that represent the final product/residential structure. In addition, the design team is responsible for ensuring that the project is in line with all the state regulations and codes as well as fulfills the overall usability building and vision of the owner.
  • The design team may consist of the lead architect, civil and structural consultants, landscape architect, and electrical, plumbing, and mechanical consultants. For more complex residential projects, waterproofing and roof consultant, cost consultant, interior designer, and an acoustical consultant may be involved.
  • The four steps involved in the design stage of construction include; programming and feasibility, schematic design, followed by design development and finally contract documents.
  • Programming and feasibility involve outlining of the construction project's goals and objectives. These may include the size of the building, the amount of space as well as the number of rooms.
  • Schematic design outlines the space, colors, textures, and materials used in the form of a sketch.
  • Using the sketch from the previous stage, design development helps determine materials to be used, the costing as well as the equipment needed.
  • The final stage of contract documents details all the construction final drawings as well as specifications. These documents are later used during on-site construction.
  • In case innovative design concepts are integrated, they must be first tested to ensure technological feasibility. This may include consideration of operation or production technological requirements, resources for design, as well as construction technology.

Production and Conversion of Raw Materials into Manufactured Products

  • Depending on the magnitude of the construction project, this stage commences after design approval or after the contractor for the project has been chosen. At this stage, the project team is put together and roles assigned accordingly.
  • The project team is responsible for preparing the construction site before actual construction works begin. Some specialties that must be included are; field engineer, project manager, contract administrator, superintendent, and health and safety manager. During this stage, any environment challenges are identified and predicted, including soil testing for the construction site.
  • The team then proceeds to prepare and obtain the required equipment, materials and workforce. Depending on the size and complexity of the project, materials required may include; glass, aluminum, plastics, steel, bricks or clay, and cement.
  • This stage is usually executed by the general contractor. However, sometimes subcontractors and materials suppliers may be involved with clearly detailed roles.

Onsite Construction

  • Onsite construction starts once all teams are set up and required materials obtained and prepared. Usually, a pre-construction meeting is performed to ensure that all the involved workforce and teams are on the same page of the project details, goals, and objectives. The meeting also details information on the project's quality control, job site access, working hours, as well as storage of the construction materials.
  • Schedules are streamlined for all workers, project agents as well as subcontractors involved. It is recommended to use a digital solution for residential construction planning purposes to avoid common pitfalls.
  • The on-site construction stage involves numerous works that are well coordinated by effective sequencing, legislative compliance, as well as keen attention on material delivery lead times to avoid any disruptions.
  • Summarily, this stage must address; appropriate quality measures, defects and their liability period, proper addressing of the design, dispute resolution, as well as realistic project schedule.

Research Strategy

To provide an overview of the value chain of the residential construction industry, we scoured industry reports, publications, expert articles, as well as credible niche websites. We were not able to identify the different stages involved as well as the processes or steps in each of the value chain stages in the residential construction niche specifically. We, therefore, carried out a triangulation to establish that the outlined value chain stages are applicable to the general construction value chain (all types of construction). This means that irrespective of whether it is residential construction or commercial construction or otherwise, these stages and the basic processes/steps within them apply.
We sought to identify the major types of construction and their features, then identify the major differences. We identified four major types of construction; residential building, institutional and commercial building, specialized industrial construction, infrastructure, and heavy construction. From the differences we were able to identify that the major differentiating factors are; materials used, equipment used, the end-use, pace of work, permits required, funding, as well as the functionality. The stages involved in the construction value chain were similar; the only differences were on the above-mentioned factors. Therefore, we concluded that the outlined stages of construction industry value chain (design, production and conversion of raw materials into manufactured products, and onsite construction) are similar to all types of construction; hence for the requested residential construction industry.
Part
02
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Part
02

Residential Construction Value Chain: Design Stage

Key stakeholders in the design stage of the residential construction value chain include architects, engineers, interior designers, and full service design-build firms, who couple one or more of these design-stage services with the construction of the final product into a seamless experience for the client. Key stakeholders and companies operating in the design stage in the residential construction value chain are summarized below.

Architects and Design-Build Firms

ROLES
  • Architectural or design firms play a significant and comprehensive role in residential construction. Their responsibilities span numerous steps in the design phase of a residential construction project, and they may continue to play a role in the construction and build phases, to ensure the final project meets the desired design specifications.
  • The first phase of design includes reviewing and analyzing project goals and the vision, identifying any constraints, such as budget, current or future space requirements, and desired layout of space. The architect will also evaluate regulatory requirements, zoning, building codes, and the site layout.
  • The second phase of design is known as 'schematic design', in which the architect translates the project requirements, in the context of any known constraints, into a building design. This phase is fairly conceptual, and involves providing preliminary drawings of the interior space via floorplans, systems (such as electrical or HVAC) that will be part of the project, and, if relevant, exterior design components, such as elevations and site plans. The site plans may be delivered via sketches or computer-aided designs.
  • The third phase of design is 'design development', in which interior layouts, room sizes, and materials are finalized. Engineering firms are concurrently developing the electrical, plumbing, and HVAC systems. Design development typically results in a very detailed drawings or a specification book, which includes selected materials, installation instructions, technical information such as quality control instructions, and in some cases, an updated project cost.
  • The fourth phase of design includes developing the construction documents, taking the information from the design drawings and specification book to generate the required permits for construction and to obtain bids/quotes from contractors.
  • In addition to these core design responsibilities during the design phase of a residential construction project, the architect typically serves as a resource to answer design specification questions during the contractor bid process. Architects also monitor construction during the build phase to ensure the project is being built according to specifications, and address any issues that arise related to the design specifications.
  • A traditional design-construction process includes architects operating separately from contractors (i.e., the architect and contractor are working under separate contracts, at distinct stages of the process), though they would be required to work together at various points during the project to ensure success (i.e., project is built to design specifications).
  • Design-build firms, in which a designer, engineers, and contractors work together to offer a seamless project experience, are expected to see growth of 18% by 2021. While the design-build model is used quite frequently in non-residential construction (accounting for 40% of non-residential projects), this model may also be used in residential home-building as well, due to potential cost and time-savings. Residential Design Magazine notes that, anecdotally, custom residential design-build firms appear to be growing.
COMPANIES OPERATING IN THE DESIGN STAGE

BEINFELD ARCHITECTURE

  • Beinfeld Architecture is an award-winning residential and commercial architectural firm that considers their work inspired by 'place, culture, and history.' They are focused on using innovation and sustainable solutions to solve architectural challenges.
  • Ranked as the top architectural firm in Connecticut in 2020 by Home Builders Digest, the American Institute of Architects commented, "… Beinfeld takes an alchemical approach to his architecture, transforming the ordinary into the exceptional, and employing common materials towards uncommon ends. …
  • The work of Beinfeld has been featured in prominent magazines, and they recently won the 2019 AIA Interior Architecture Award for Design Excellence, working with Post Road Residential, who builds unique, class-A, multifamily housing developments between Boston and New York.

KOHN PEDERSON FOX (KPF)

  • KPF was ranked the 30th top architecture firm in the world by Architecture Quote, who offers a digital platform connecting architects to clients. KPF focuses on small and large project designs across the world, both residential and beyond.
  • Their goal is to design with the environment in focus, including promoting sustainable design and working with clients to design structures that reflect their communities.
  • An example project is 500 West 21st St., in New York City, an 8-story residential building that was conceived as a model for urban living, reflecting the character of the neighborhood.

GLUCK +

  • Gluck + is a single-source commercial and residential design-build company, who offers an integrated design and build process driven by architects. Gluck + believes an architect-driven process results in better buildings, and their architects are responsible for the end-to-end process, providing a seamless experience from design to construction to finished product.
  • Gluck + can help clients plan their projects, understand space requirements, and test-fit their potential construction project on various sites.
  • An award-winning design-build firm, they recently received press for a four-story home built for the firm owner's family. Gluck denoted it a "stairway to the treetops."

ANTHONY WILDER

  • Anthony Wilder is a design-build firm, offering custom architecture, interior design, and construction services for the custom residential market.
  • Their Washington DC-based business caters to clients who are looking for time-savings and simplicity in their custom home building process. They have eight architects and seven lead carpenters, with 12-15 projects in the design or build stage at any given time.
  • Anthony Wilder positions its architectural services as personalized, focusing on schematic design and selecting finishes. They have an Interior Design studio that helps ensure the interior finishes meet the exact needs of their clients. Their architectural and interior design teams support the construction and build process.

CULPAN AND COMPANY

  • Culpan and Company is an Eagle, Idaho-based, design-build firm, whose mission is to design and build high-quality, innovative residential homes, reflecting the owner's personality. They are focused on leveraging the latest technology in their design-build process.
  • Their design development process involves working closely with their clients to understand lifestyle factors, architectural preferences, and design aesthetic ('programming'). Schematic design and managing all documentation follows the programming phase.
  • A sample client testimonial around the design process is, "Clive’s homes are well-designed— both in terms of layout and quality. Nothing he does is cookie cutter— he starts from scratch on your design and gives great thought to layout— giving privacy where needed, thinking about sound, light, views. He’s the type who makes his contractors fix every little thing— if it needs to be redone it gets redone".

Engineering Firms

ROLES
  • In the design phase of a residential construction process, an engineer focuses on the structural elements and technical components of the design.
  • Some roles engineers play in the design phase of residential house construction include designing the HVAC plan, plumbing plan, electric plan, and providing energy calculations to determine the energy-usage of the home.
  • In the design phase, structural engineers ensure a building will be structurally sound, environmentally responsible, and meet codes and regulations.
  • Civil engineers may be involved in design-related responsibilities, such as residential site design, sewage system design, and drainage system design.
  • Engineering may also play a role in sustainable residential design, including consulting on and designing energy-efficient systems, indoor air quality systems, and 'green' heating and cooling systems.
COMPANIES OPERATING IN THE DESIGN STAGE

RESIDENTIAL ENGINEERING AND DESIGN

  • Residential Engineering and Design is a Connecticut-based design firm, offering services in engineering and architectural design.
  • Residential Engineering and Design focuses on design solutions that support sustainable design and 'green building.'
  • Their design-focused services are wide-ranging and include services such as regulatory research, developing plans for stormwater management, structural design and analysis, and supporting the design of energy-efficient building 'envelopes'.

VISTA STRUCTURAL

  • Originally focused on residential structural design, Vista Structural now offers a full-suite of architectural and engineering design services. The company, based in Van Nuys, California, has specialists in civil, structural, and solar engineering, as well as architectural design, allowing clients to have a single point of contact during their project.
  • Their designs visualize projects for the client, supported with comprehensive architectural and engineering services. Vista Structural prides themselves on offering a high quality product, in a timely manner, at an appropriate cost.
  • In addition to planning and designing, as a design-build firm, they oversee all aspects of building construction.

SUMMIT ENGINEERING

  • Summit Engineering is a New Hampshire-based company providing structural design services in the residential construction industry.
  • Summit specializes in the design and planning of new structures. They have worked on projects involving private homes, townhouses, condominiums, and apartment buildings.
  • They have helped clients integrate sustainability goals into their construction, as well as manage environmental challenges.
  • Structural design focus areas include, for example, developing designs for 'cold-formed' steel, the most common material used in roofs, walls, and floors, designing retaining walls, and doing flood risk assessments.

Interior Designers

ROLES
  • Interior designers may sometimes be involved in the design phase, either as part of a design-build or architectural firm, or as an independent local designer, who partners with a builder or architect.
  • The role of an interior designer in the design phase is to help optimize the selections of client internal finishes and fixtures, such as cabinetry and millwork, bathtubs and sinks.
COMPANIES OPERATING IN THE DESIGN STAGE

SPARK INTERIORS

BARBARA GILBERT INTERIORS

  • Barbara Gilbert Interiors is an interior design firm, who offers services appropriate for the design phase of a new home construction project (as well as post-construction).
  • She focuses on design that is functional, elegant, sustainable, and efficient.
  • She works with architects and builders in the design stage of a residential project with space planning, and efficient, attractive interior designs.
  • Her design recommendations have a significant focus on green products and sustainability, from selecting eco-friendly products and finishes, to ensuring water efficiency and healthy indoor air quality.

LUXUS DESIGN-BUILD

  • Luxus Design Build is a full-service design-build company in Nevada, that offers interior design services, in addition to architectural and engineering services, as part of their all-in-one approach to residential home building.
  • Luxus supports the client at the design stage with all interior design planning decisions, including cabinetry, colors, appliances, flooring, and more.
  • The company hires licensed and registered interior designers, who work as part of a team with other members of the design-build company during the design stage.

Research Strategy

To identify the key stakeholders in the design stage of the residential building industry, we leveraged information from design-stage companies that described the residential build process and roles, articles which discussed the involvement of key stakeholders at each stage of the process, and information from trade association, Design-Build Institute of America (DBIA).

We focused our research on the primary stakeholders in the design phase of residential construction, who are architects, engineers, and more holistically, design-build firms, who provide end-to-end services with a single point of contact, from design to construction. Some firms also offer specialty interior design services along with their architectural designs, or enlist the support of local interior designers in the design phase. We have included interior designers as a stakeholder, though they are not always part of the design stage in residential construction.

Other stakeholders at the design stage may also include the client, an investor, and possibly the general contractor or project manager, depending on the project need and specific service being offered (architectural services or engineering services alone, or holistic design-build services). We have not included these possible stakeholders in our analysis because some may cross all phases of the design, production, and build process in residential construction, and/or may not necessarily be integral to the design phase of residential construction in most situations. We have only included the primary stakeholders in the design phase, who are architects (including those who offer separate interior design services and those who do not), engineers, interior designers, and design-build companies, who offer a full range of design services for a residential construction project.





Part
03
of nine
Part
03

Residential Construction Value Chain: Production Stage

The production stage of the residential construction industry value chain includes two major stakeholders; Mining and Excavation Companies (responsible for the extraction/sourcing of raw materials), and Construction Materials Producers/Manufactures. More details on the nature of their activities and examples of some of the leading companies are provided below.


Overview of the Process

The production stage of the residential construction value chain is concerned with the production and conversion of raw materials into manufactured products. This process aims at the production of finished building materials such as concrete (from sand and gravel), bricks (from clay), wiring (from metals), and others. This entails the extraction and processing of the relevant raw materials and their conversion into the required building/construction materials. Two major players are involved; the mining and quarrying companies, and the building materials manufacturing companies.


Mining and Quarrying Companies

These companies own and/or operate mines and quarries for the extraction (mining and quarrying) and primary processing of raw materials used by several industries, including the residential construction industry. Examples of such raw materials include aggregate, granite, limestone, marble, gypsum, and lime. The primary processing of these materials includes operations such as filtering, bleaching, crushing, cutting, and sizing.

Examples of the globally leading companies in that industry include:


Construction Materials Manufacturers

These companies further process the raw materials into finished construction/building materials ready to be used for construction purposes. Examples of these materials include bricks, cement, glass, and ceramic. Most of these companies also supply their products to construction sites and affiliated merchants.

Examples of the globally leading companies in that industry include:


Research Strategy

While there are many stakeholders relevant to the process, the research, in alignment with the project objective of the value chain analysis of the global residential construction industry, focused on the business-oriented stakeholders/key players involved in the production stage. Other stakeholders include the residents environmentally impacted by the process, the public authorities responsible for business/industry licensing, labor unions, and others.
Part
04
of nine
Part
04

Residential Construction Value Chain: On-Site Construction Stage

The main segments of stakeholders operating in the on-site production stage of the value chain of the residential construction industry are the suppliers, the contractors and the client/end user.

Identifying the Value Chain in Residential On-Site Construction

  • Depending on the exact nature of the project, there are many stakeholders for on-site construction. These include site joiner, shop fitter, wood machinist, bricklayers, general constructors, laborers, paints/decorators, ceiling fixer, roofer, scaffolder, plasterer, structural, electrician, client and project manager.
  • In the value chain, stakeholders can broadly be described as investor, manufacturer/supplier, bank/financial institution, planner/designer and end user/owner.
  • Therefore, in terms of construction value chain for just on-site, the main stakeholders would be the suppliers, contractors turning the materials into a finished project, plus the end user/owner.
  • It can be difficult to narrowly discuss the value chain in construction, simply because there are so many materials involved in the process. These include aluminum, cement/concrete, glass, plastics, steel and more.

Suppliers

  • While suppliers do not generally work on-site, they are important to discuss because they directly supply the equipment and materials to be used for on-site construction.
  • Materials and equipment usually flow from manufacturers to vendors to the contractors.
  • There are many construction material distributors in the world. ABC Supply Co, for example, is the largest distributor of roofing, siding, windows and gutters in the US.
  • Beacon has over 500 locations and works director with contractors to supply them with roofing, siding, gutters, insulation, materials and tools.
  • 84 Lumber distributes timber products for a variety of uses like decking, doors, siding, stairs, railings and more.

Contractors

  • Arguably the chief component in the on-site construction value chain, the contractors turn the materials into a finished product. As residential construction has many elements, contractors fulfill a variety of services like roofing, joining, electrician, painting, plastering and more.
  • A general contractor (GC) usually oversees the entire project, employing a number of specialty sub-contractors to undertake the work. The is often employed on behalf of a design/engineering firm representing the owner.
  • There are thousands of GCs (and GC companies) across the US and the world. Swinerton has been working since 1888 and has overseen hundreds of projects with its 3,500 strong workforce.
  • Baxall Construction has worked on beautiful, high-end residential homes in Kent, UK.
  • China State Construction Overseas Development Co, like many general contractors, works on residential builds as well as commercial and public buildings.

Client/End User

  • For residential construction, the ultimate end user is going to be the person(s) living in the home. Sometimes the client, though, is a landlord or real estate developer.
  • Technically, as single-home residential projects are largely undertaken using financing (as opposed to cash), the client could be stated as the bank or lender. However, the end user is still the person(s) moving into the home.
  • Some large real estate developers in residential construction are AvalonBay Communities, Greystar Real Estate Partners, Wood Partners and Mill Creek Residential. These companies would not be end users, but they would the client in the value chain of on-site construction (as they then sell the completed homes on).
Part
05
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Part
05

Return on Investment: Design Stage

The design stage of the residential construction industry typically enjoys relatively low profit margins of 6%.

Overview

Part
06
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Part
06

Return on Investment: Production Stage

While there was limited information on the financial performance of the production stage of the residential construction industry, available data sets indicate that profitability and return on investment in the building materials industry is dependent on the type of product manufactured by companies in a particular segment, i.e., segments such as the "HVAC, Plumbing, and Electrical Equipment" group with higher value or more differentiated products return more in shareholder returns and profit margins.
  • In August 2017, Roland Berger released a report on the Building Materials Industry based on a consideration of 88 construction materials manufacturers headquartered in North America (Mexico, Canada, and the United States).
  • The report further divided the industry into six segments: HVAC, Plumbing, and Electrical Equipment (Group A), Lighting and Wiring (Group B), Roofing, Siding, Lumber, and Other Materials (Group C), Concrete, Minerals, Clays, and Stone (Group D), Glass, Windows, Doors, and Flooring (Group E), and Construction Metals (Group F).
  • The report found that the revenue in 2016 was $144.2 billion, which represented a 9.1% revenue growth from $139.8 billion in 2015.
  • In 2016, the EBITDA profit margin for the North American building materials industry was 10%, a 2.7% growth from 7.3% in 2015.
  • Pertaining capital productivity, the study found that the working capital in the industry was 19% of revenues in 2016, and 18% in both 2014 and 2015. Asset turnover remained constant at 0.9x for the three consecutive years.
  • The three-year (2014-16) risk-adjusted profits (ROIC — WACC) for Groups A, B, C, D, E, and F were 11.7%, 3.4%, 1.1%, 0.1%, -1.2%, and -3.4%,respectively. Therefore, the average profit for the North American building materials industry between 2014 through 2016 was about 0.1%.
  • Additionally, "62% of building material companies were earning above the historical industry average cost of capital (8%)."
  • Between 2014 and July 2017, average industry shareholder returns stood at about 12.1% per annum; however, segments with higher value or more differentiated products (Groups A, E, and C) returned about 13% over the three years. Notably, despite the weaker results from 2014 to 2017, "commodity-based Groups D and F" returned over 30% in 2016. Group B performed averagely up to 2016 but dropped in 2017 due to tariffs imposed on Mexican products.
  • While the above information is representative of the overall building materials production market, the residential segment is a leading driver for the industry. A more recent report from FMI adds that the residential segment shares the building materials production market almost equally with the commercial segment.

Research Strategy

The research team could not find any information specific to the typical per project return on investment (ROI) or internal rate of return (IRR) or profit margin for the production stage of the residential construction industry. We managed to find data on the industry in North America which we used as a proxy.





Part
07
of nine
Part
07

Return on Investment: On-Site Construction Stage

Residential construction is a lucrative business model. The information below shows the return on investment (ROI) per project for the on-site construction stage.

Key Findings

  • The ROI of a construction company depends mainly on the amount of projects they complete.
  • Top contractors earn about 40% return on their invested capital. Their success is attributed to their well-thought financial practices.
  • One good example is the D.R. Horton company, one of America's largest home-builders. In 2019, it had a profit margin of 13.1%. The company's pre-tax income increased by 9% to $660.1 million.
  • According to the Chairman of the Board, Donald R. Horton, the company generates $4 billion of cash flow. They have also increased their revenue over the past five years by 119%.
  • The same is true for LEG Immobilien AG, the largest real estate developer in Germany. They achieved $1.04 Billion in profit. It represents a 4.26% increase compared to the previous year. The key drivers for this profitability are the consistent organic rental demand and the company's operating efficiency.
  • An industry report from Sageworks noted that residential construction is one of the fastest-growing industries today. After the recession, residential construction companies were able to enter one of their most profitable stages. The average profit margin for the industry is 6%.
  • In Asia, the residential construction market also looks positive, particularly in China and Indonesia.
  • In the Philippines, Vista Land, a residential construction company, reported its 2016 financial highlights. As stated in the company's project portfolio, the gross profit per subdivision or condominium project between 1993-2015 ranges from P403 to P941 million ($8 to $18 million) per project. The company's net income in 2016 was P8.1 billion, with a total revenue of P31 billion.
  • The ROI of each on-site construction project vary. Productivity can have a huge impact on how big or small the profit is.
  • There have been studies that have identified that low productivity of construction site workers is the main reason for project delay, low ROI, and profit margins. As such, companies need to address material management, accident protocol, and efficiency with the client's punch list in order increase their efficiency and complete on-site projects in a shorter time, which will help them achieve their target ROI.

Part
08
of nine
Part
08

Residential Construction: Profitability

Although there was no specific information available about the factors that determine residential construction profitability on a global scale, the local country information we found is presented here as helpful findings from Australia, England, Russia, Brazil, China, Japan, Democratic Republic of Congo, and Germany. Countries from each hemisphere were chosen to provide a sense of the vast differences in residential housing construction situations around the world. Five factors were chosen because of their importance to any residential construction project.

Helpful Findings

Materials Costs
  • In Australia, the rising cost of raw materials affects residential contractors, who must absorb price changes because of widespread use of fixed price contracts.
  • In England, a producer of manufactured homes is more likely to be able to control materials costs than a builder of traditional homes, because the manufactured home producer uses a factory and standardized equipment and automation, while the traditional home builder cannot do that. Modular methods of construction offer important opportunities for cost savings.
  • One international survey found that in 2020, global construction costs (including materials) are expected to rise an average of 4.3 percent.
  • In Japan, materials costs are reported to have risen 20 percent in 2018.
  • The prices of raw materials influence the cost of a residential construction project by increasing or decreasing the estimated project cost depending on the availability of the materials, the fee to transport them to the site, and the difficulty of obtaining them.
Land Costs and Permits
  • In Australia, residential contractors are affected by changes in the cost of land. They may offer to build homes in a particular area, only to find that the cost of land has changed between the time they started their projects and the time their projects are completed.
  • In Germany, local governments control the issuing of building permits. The number of building permits issued has declined in recent years. "The German association of free real estate and housing companies (BFW) believes that a key factor for the decreasing number of building permits in Germany was a problem with the "designation of sufficiently affordable building land by the municipalities."
  • Land costs influence the cost of a residential construction project by increasing or decreasing the estimated project cost depending on the sale price, associated real estate fees, and taxes due on the land which must often be paid before a residence can be constructed, and may exceed the amount that the builder planned to pay, thus raising the final cost of the project.
  • Land permits influence the cost of a residential construction project by increasing or decreasing the estimated project cost and the time that may pass before a building project can begin. During the waiting time, property taxes may accrue as well as interest on any loans that a buyer may have entered into to purchase the land.
Labor Costs and Availability
  • Australia's workforce is aging. As Australia's construction industry grows, it is having difficulty recruiting skilled workers to meet rising demand.
  • In Japan, there is a shortage of construction workers, possibly due to the building of Olympics venues. Labor shortages are an ongoing problem, with fewer engineers available and an aging population reducing the numbers of workers.
  • Labor costs and availability influence the cost of a residential construction project by increasing or decreasing the estimated final labor costs, lengthening or shortening the time it takes to construct the project, and occasionally bringing a project to a halt because a required tradesman cannot be located to perform a necessary service.
General Market Conditions
  • A recent Deloitte report found that in the UK, Belgium, the Netherlands and Ireland, construction company profit margins are so small that they may not be offset by an increase in orders for building projects. About 31 percent of the UK’s largest building contractors reported a decline in profit margins in November 2017. The UK's 10 largest contractors experienced a negative average margin of -0.5 percent.
  • In Russia, most people live in apartments that were built 30 to 60 years ago. Recent years have seen very little increase in Russian residential construction. Between 2014 and 2017, the Russian construction industry experienced steady decline. Although official Russian sources said that construction increased in 2018, other sources said that the figures had been manipulated, and that the actual situation was continued decline.
  • In Brazil, the construction industry has fallen on hard times. The Brazilian construction industry declined for five years in a row, from 2013 to 2018. This decline can be attributed to multiple factors, including a general economic slowdown, a decline in oil prices, government austerity measures, and allegations of corruption against politicians. The residential construction sector accounted for 33 percent of the construction market during 2013 to 2018. The demand for housing in Brazil is expected to remain high.
  • In China, high demand for housing led to speculation and inflated housing prices. To deal with the problems, the Chinese government put in place "property-purchasing and loan limitations, price restrictions, and housing tax reforms to regulate the development of the industry and limit speculation." Nevertheless, in China the construction industry revenue is expected to grow about 4.2 percent over the next five years.
  • In the Democratic Republic of Congo, housing demand far outstrips housing supply. The backlog is estimated at 3,945,555 houses needed. The city of Kinshasa has a housing deficit estimated at 54.4 percent of the country's deficit, needing an average of 143,092 houses to be built each year in the next decade. "In rural areas, which make the most part (57.4 percent) of the country, the notion of property development is totally absent. Therefore, the limited number of developers are concentrated in urban areas, with very restricted access to finance. Because of this situation, housing supply is limited, and only accessible to the elite minority."
Cultural Conditions
  • According to one blog post by an American who lived in Germany, "In Germany, renting a home is the norm. Homeownership in Germany does exist, but typically one has to put 30-50% down up front on top of high property and building costs." Instead of living in a single family home, an investor usually builds a home and then rents it out. "..[R]enting is different too in Germany. In the US, it is common to sign a 1-year lease, but Germans will rent the same place for many years. Our landlord thought us wanting to rent for only 3 years was too short and he almost did not allow us to move in."
  • In Russia, there are virtually no single-family homes in urban areas. Everyone lives in multi-story apartments.
  • In Tokyo, Japan, people live in condominiums and apartments. The supply does not meet the demand.
  • Cultural conditions influence the cost of residential construction projects by determining the sizes, locations, styles, design, materials used, and functions of the residences being built. The residences must meet the expectations of prospective buyers and/or renters in order to be successfully sold or rented and occupied.

Research Strategy

Several reports exist that discuss the general factors affecting international residential construction markets, but they are behind paywalls and not available. Construction industry reports, investor forecasts, media, and traveler reports were searched for information describing global and on individual countries' residential construction situations. We looked for international residential construction companies' annual reports, but none were located. Publications including Financial Times, Wall Street Journal, Japan Times, Africa Property News, and Businesswire were checked for overseas residential construction industry information. We determined that the best way to find information on residential construction outside the US was to obtain articles on specific countries' conditions. Even so, no specific information on an individual company's profit margin in other countries was found. Therefore, it is believed that such information is not publicly available.
Part
09
of nine
Part
09

Residential Construction Industry: Profitable Stages

While there is no publicly available information to fully answer the question, there are some indications of profitable opportunities within the residential construction industry and value chain. For example, taking into account that the value chains are context dependent allows differentiating opportunity by country. In addition, analyses of opportunities in residential construction such as reducing costs through more energy efficient production point to niches in the value chain where profitability has not been maximized. However, fine-grained analyses that compare profitability between different stages of the value chain are marketed for sale by data companies and not freely available. Below, please find some related data points identified while conducting research.

Residential Construction Value Chain Opportunities

  • Globally, residential building construction is predicted to grow over 10% each year through 2024 by which time it's expected to have a total market of $7.3 trillion with single- and multi-family housing showing significant development potential.
  • Half of all construction, including residential, will include modular elements (built offsite and constructed onsite) by 2022 to offset a global loss of skilled workers.
  • The lack of skilled workers has made visible some market profitability information by country. For example, in some European countries higher activity has increased or left overall profit margin unaffected while other European countries with lower activity have not been able to offset the higher cost and lower availability of skilled labor.
  • A digital value chain is disrupting and becoming embedded into the residential construction value chain as modular design, the internet of things, and online material supply require corresponding software and data handling systems.
  • Considerable interest is also growing in renewable and sustainable strategies in the construction value chain. For example, the World Bank, a global partnership that provides financial and technical help to developing countries, noted the profitability of energy efficiency has led to a growing demand for sustainable production, such as recycled aluminum output increasing five-fold between 1980 and 2015.

Research Strategy

Our research method was to begin by identifying commonly-accepted elements of the residential construction value chain, and then determining their relative profitability. While the construction industry has been well-studied, no reputable and recent sources provide fine-grained comparisons between profits at the various stages of construction from raw material to finished residence. As another way to find the information, we researched the larger players in the industry at different layers in the value chain, and then reviewed their Securities Exchange Commission filings where available (e.g., quarterly and annual reports filed by D.R. Horton, a large residential construction company in the United States). However, the level of aggregation and specialized economic data do not readily yield the detailed data necessary to determine profit by value chain position. In addition, determining the most profitable place in that chain would require a comparison of multiple companies in multiple countries at multiple positions all the way through the value chain.

The complexity of the required analysis derives, in part, from the residential construction value chain's context sensitivity. For example, regional availability of skilled works, or the lack thereof, can affect profitability since it partly determines labor costs. Similarly, a wide range among the cost of refining and transporting raw materials depending on construction location can vary and so can profitability. We then pored through aggregate data available for the overall volume data associated with residential construction (e.g., total houses built, total dollars, etc.), both globally and by country, but identified nothing specific to points in the value chain other than anecdotal profit claims by specific industry groups or individuals.

Sources
Sources

From Part 02
From Part 08
Quotes
  • "Prediction #1: 50% OF ALL CONSTRUCTION PROJECTS WORLDWIDE WILL INCLUDE MODULAR CONTENT BY 2022, DRIVEN BY THE GROWING GLOBAL SKILLS SHORTAGE. In March 2018, a new factory opened outside Liverpool, England employing 150 people 24 hours a day. What does it manufacture? Homes—starting with a first order of 81 homes and 58 apartments, as part of a first-year target of 450 homes. And it’s just one among many. At IFS, in 2018 we had four times greater customer activity around modular construction than in any previous year. From schools in Ireland to prisons and hospitals in the United States; from sustainable luxury apartments to vast workers’ dormitories, 2018 has seen modular construction go well beyond hype. In 2019 it will get even stronger, with housing shortages a key driver. "
  • "2019 will see growing numbers of traditional construction companies begin opening modular factories to stay competitive. And more new players enter the industry—from manufacturing, supply chain and logistics, to local governments, banks and insurance companies. Many will be able to offer flexible finance and service packages too. The pressure on incumbent building firms to adapt will be huge. They’ll need tighter control and more adaptability over every aspect of their projects. Proving they can, if necessary, partner up with larger networks of suppliers, offer services and maintenance on assets once built, include equipment hire, and yes, even offer or manufacture some modular units or components. It all adds up to an urgent need for better, more integrated digital management of complex, demanding projects."
  • "Prediction #2: IN 2019 MORE CONSTRUCTION COMPANIES THAN EVER BEFORE WILL START TRYING OUT INTEGRATED BUSINESS SOFTWARE—FOR THE VERY FIRST TIME Competition around delivery and productivity will be fierce. On the other, shrinking profit margins and increased competition will mean unprecedented pressure on productivity and delivery. A recent Deloitte report found that construction companies’ profit margins are under pressure in several European submarkets, with Western Europe particularly vulnerable. In the UK, Belgium, the Netherlands and Ireland profit margins are so narrow they may not even be offset by higher order intake. 31% of the UK’s largest contractors reported a fall in margins in November 2017, with the country’s largest 10 contractors having a negative average margin of -0.5%. "
Quotes
  • "For a number of personal, business, or strategic reasons, that number – also known as net profit margin – tends to remain the purview of owner(s) and accountants. Despite these company-specific realities, however, industries have a strong interest in understanding aggregate levels of profitability and measures of financial stability over time. For this reason, the National Association of Home Builders periodically conducts the Builders’ Cost of Doing Business Study – a nationwide survey of single-family home building companies designed to produce profitability benchmarks for the industry."
  • "The 2019 edition of the study shows that profit margins have continued to increase, reaching their highest point since 2006. On average, builders reported $16.4 million in revenue for fiscal year 2017, of which $13.3 million (81.0%) was spent on cost of sales (i.e. land costs, direct and indirect construction costs) and another $1.9 million (11.4%) on operating expenses (i.e. finance, S&M, G&A, and owner’s compensation). As a result, the industry average gross profit margin for 2017 was 19.0%, while the average net profit margin reached 7.6%."
Quotes
  • "Gross revenue of leading home builders in the United States in 2018. Lennar Corp, a home construction company headquartered in Miami Florida, was the leading home builder by gross revenue in the United States in 2018. They earned 18.8 billion U.S. dollars in that year. Lennar Homebuilding was their most profitable segment in terms of revenue in 2018. There were approximately 1.24 million new privately-owned housing units starts in the United States in 2018. The lowest point for housing starts over the past decade was in 2009, just after the 2007-2008 global financial crisis. Since 2010, the number of housing units started has been on the increase and the housing market has rebounded. "
  • "The number of private housing units started fell around the time of the global financial crisis (2007-2009), but has since recovered – though not to the heights of 2006. Home construction expenditure has been steadily increasing since 2011. This trend is set to continue through 2022, which indicates that the revenues earned by home construction companies, such as D.R. Horton, will also continue to increase. "
Quotes
  • "Global construction costs are expected to rise 4.3% on average. [Turner & Townsend]"
  • "55% of construction firms use Building Information Modeling (BIM) software, while 27.5% intend to adopt the technology within the decade. [JBK]"
  • "38.2% of companies cite “lack of IT staff” as the most limiting factor in adopting new technology. [JBK]"
  • "Apple is the most used mobile operating system, with 78.7% of companies using it. |JBK|"
Quotes
  • "This research report categorizes the residential building construction industry market by type. Segment type include new single-family housing construction and new multi-family housing construction and others. "
  • "Global residential building construction market growth outlook is positive with significant growth potential for single-family housing construction and multifamily housing units. There is mounting pressure to reduce costs, improve quality and satisfy customers as it has been moving from a provider-driven model to a consumer-driven model. At the same time, emerging market growth, low interest rate environment, rising disposable income, rapid urbanization, rising population, technological advances is driving the residential building construction market. "
  • "The market for residential building construction is highly fragmented with a few large players dominating the market. Major players in the market include China State Construction Engineering Co., Ltd.., Country Garden Holdings, DR Horton, Lennar Corporation and Pulte Group others. "
Quotes
  • "1. Skilled Labour Shortage The construction industry is on a steady rise and remains heavily dependent on manual labour, even with the uptake of construction technology. However, Australia has an ageing workforce, and as the construction industry continues to grow, the industry is having a hard time recruiting skilled workers to satisfy the rising demand."
  • "2. Rising Cost of Raw Materials Contractors bear the risk of cost changes due to fixed price contracts and speculative home construction. The cost of land and raw materials can change rapidly. With rapid change in prices, small construction companies have less leverage, and are greatly affected by cost variations between the time the project commences and when it ends"
  • "3. Slow Invoicing and Payments Small construction businesses often have a problem regulating cash flow because they don’t employ suitable invoicing systems. A progress payment schedule can help outline what is expected at different phases of the project and determine when each phase of the project is considered complete."
  • "4. Undercapitalisation Capital requirements to pursue the most profitable projects can never be underestimated. Many small construction businesses underestimate how much money they are going to need to fund projects until they receive progress payments. Working capital is critical to the success of every construction project "
  • "5. Inadequate Planning It is critical that you lay out a comprehensive business plan. It should cover finances, operations, and marketing your construction business, among other aspects. "
  • "9. High Insurance Costs Most contractors today pay high premiums for various types of insurance. This includes; general liability for construction delays and defects, and accidents."
  • "6. Lack of Safety Training Poor safety training is a recurring problem in the Australian construction industry. As demand grows in the industry, companies can cut corners as they try to maximise profitability. They can reduce their spend on safety and training which puts them at a risk of incurring heavy losses due to increased insurance and litigation costs caused by building non-compliance."
Quotes
  • "Real Estate Development and Managemen in China industry trends (2015-2020) poll Average industry growth 2014–2019: 10.3% Revenue for the Real Estate Development and Management industry in China is expected to increase at an annualized 10.3% over the five years through 2019, to $1.96 trillion. This trend includes expected growth of 7.5% in the current year. Strong housing demand has supported rapid industry development over the past decade. With China's large population and rapid urbanization, demand is growing for residential buildings developed by enterprises in the industry. Increased household income levels and low interest rates have enabled more people to purchase housing. Approximately 108,273 developers are expected to operate in the industry, and employ nearly 3.2 million workers with total wages of $74 billion."
  • "2020-2025 China's Residential Real Estate industry has grown alongside its economy. The industry is expected to grow at an annualised 7.8% over the five years through 2019 to reach $1.5 trillion. In recent years, an overheated market has led to issues of speculation and inflated housing prices. As a result, the Chinese government has implemented property-purchasing and loan limitations, price restrictions, and housing tax reforms to regulate the development of the industry and limit speculation. Due to these new government policies, ACMR-IBISWorld anticipates that industry revenue will grow at steadier pace over the next five years. Industry revenue is forecast to increase 4.2%."
  • "Over the five years through 2018, revenue for the Building Construction industry has been growing at an average annualized rate of 6.1% to $2.11 trillion. There are about 27,000 construction firms in this industry, remaining the same level with that in 2013. Most of the building construction major players also have operations in civil engineering, real estate development (IBISWorld report 7210), professional engineering services (7671), plan designing, building materials manufacturing, and construction equipment manufacturing (3613). By operating across different sectors, they are able to decrease costs and maintain stable supply sources. Large general contractors are relatively stable and less vulnerable to industry changes"
Quotes
  • " Russia Residential Building Construction Coverage: 10-year market size & forecast in value and volume (area and units) terms by Housing type (multi family, single family) Key cities (Tier - 1, Tier - 2, Tier - 3 segmentation) Top 10 cities in Russia Price point / income level (luxury, mid-tier, affordable) Construction stage (new construction, re-development, maintenance) "
Quotes
  • "In 2018 the Russian economy seemed to have registered the highest growth over the past 6 years. According to Rosstat, GDP grew from 1.6% in 2017 to 2.3% in 2018; the highest value since 2012 (+3.7%). Such pronounced growth came as a surprise since all official and unofficial forecasts were much less optimistic: an average of 1.5%-1.8%. To a large extent, the successes of the Russian economy in 2018 derived from artificial manipulations, i.e. Rosstat’s review of the growth rate of the construction sector in 2017-2018. The indicator of the volume of construction works completed over 12 months has drastically changed: 2018 was to amount to RUB 8.4 trillion, 5.3% higher, or RUB 422 billion higher (at current prices) than in 2017. It was astonishing as previously Rosstat estimated construction works for 11 months of 2018 to post a modest growth of 0.5%. The 2018 growth in construction was a record for the last 10 years: it was only in 2008 when the sector grew at a higher rate (by 12.8% per year). On the contrary, between 2014 and 2017, construction industry saw a steady decline, which, according to official statistical calculations, gave way to a rather sharp increase in 2018. The final contribution of the construction sector to Russian GDP in 2018 was 0.3pp, although in 2017 it was previously negative (-0.1 pp). Such drastic changes caused a wide discussion for the following reasons:"
  • "Over the last year, official statistics was at the center of public discussion in the scientific community due to regular adjustments and revisions. And construction is not the only area of statistics affected by data manipulation, there are examples for other important macroeconomic indicators being revised:"
Quotes
  • "1. They’re mostly apartments “Where are all the houses?” says the average foreigner within the first 20 minutes of his/her first trip to Russia, before realizing shortly afterwards that those enormous, somber-looking concrete blocks they see all round them are the houses. You see, the Russian notion of “suburbia” is slightly different to that of the West. As a country that was transformed into an urban society in a matter of decades, the Soviet Union housed its upwardly mobile peasants as cheaply as possible in communal apartments. As a result, the only fenced-off, gardened house the average Russian city-dweller stays in is the family dacha (unless he/she is a multi-millionaire with a suburban mansion). For most, a three-room apartment in a block of flats is deemed a perfectly acceptable place to settle down and raise a family. 2. They’re usually in tall buildings. generally speaking, the smallest residential apartment blocks in Russia will have at least five floors (the least luxurious being the Khrushchev-era “pyatietazhki” built in the 1950s or 1960s). Even the sight of a massive courtyard full of five-story buildings can seem pretty ominous to Europeans – not to mention that it’s also common to find modern residential blocks as high as 20 stories. 3. They’re way nicer on the inside than on the outside Soviet flats were divvied out to citizens based on their work, so the average citizen had absolutely no say in the outer appearance of his/her block of flats. This created a culture of prioritizing interiors over exteriors."
Quotes
  • "The Brazilian construction industry suffered a downturn for a fifth year in a row in 2018, where it contracted by 2.5% in real terms, preceded by annual declines of 7.5% in 2017, 10% in 2016 and 9% in 2015. This decline can be attributed to economic slowdown and a fall in oil prices, which worsened the business environment in the country. Factors such as austerity measures adopted by the government to reduce the budget deficit and corruption allegations against politicians had an adverse impact on the construction industry. Consequently, the industry's output value measured at constant 2017 US dollar exchange rates declined from US$239.3 billion in 2014 to US$176.7 billion in 2018."
  • "Accounting for 33.3% of the industry's total value in 2018, residential construction was the largest market in the industry during the review period. The market is expected to retain its position over the forecast period, driven by the government's plans to meet the increasing demand for housing in the country. "
Quotes
  • "the house is 95% ready, the completion date is as planned - 1 year. The cost of construction was about 220,000 euros. Taking into account the cost of land and all fees, the total amount was about 350,000 euros. In principle, this amount corresponds to the purchase of a similar house in a similar area. However, in this case, the owners had to wait one year, but they received a completely new house, designed and built according to their needs and wishes."
  • "Many people dream of their own house. This type of property is in great demand in Germany. However, no less popular option is to buy land for the construction of your own home."
  • "The land is located in Bad Zarow, one hour from the center of Berlin and only 30 minutes from Frankfurt an der Oder. Bad Zarov is a town with a population of about 6,000 people. For those who do not like the city bustle, a leisurely city with picturesque landscapes, forests and lakes, is the ideal place to live. At the same time, proximity to major cities, first of all to Berlin, and developed infrastructure give flexibility in the choice of work and the ability to quickly get to it, even in the absence of a personal car."
  • "The most common in this region are single-family villas. In accordance with your own preferences, you can realize the truly "home of your dreams." Turning to a construction company, you choose the layout and design of the house from existing samples, or develop an original version. Design and construction of the house will begin immediately after coordination with the relevant government agencies."
  • "The construction of a single-family home on average takes about 40 weeks, that is about 10 months. Various factors, such as the size and structure of the house, season, weather, number of days off, can reduce or increase this period. In this regard, the period from the filing of an application to completion of construction is defined as one year."
  • "An area of ​​about 1,000 square meters was purchased for 110,000 euros. The main communications are already connected to the site: water supply, electricity, gas, sewage. Therefore, immediately after the purchase can contact the construction company."
  • "On this plot it is planned to build a two-story single-family house with a living area of ​​180 square meters. The design was developed in accordance with the neighboring houses, so that it does not stand out from the general view, the owners decided to choose the simple and practical style of "Stadtvilla". It is characterized by outlines with right angles and a sloping roof with a slight angle of inclination."
  • ""
Quotes
  • "BERLIN, Sept. 19 (Xinhua) -- From January to July 2019, the construction of a total of 196,400 homes was permitted in Germany, 3.4 percent fewer than in the same period of the previous year, the Federal Statistical Office (Destatis) announced on Thursday. The building permits were valid for new residential buildings as well as for construction measures on existing residential buildings in Germany, Destatis explained. In the first half of 2019, Destatis had already recorded a 2.3 percent decline in building permits. The decline was particularly strong for new residential buildings, where 4.1 percent or 7,300 fewer apartments were approved than in the same period of the previous year."
  • "The German association of free real estate and housing companies (BFW) believes that a key factor for the decreasing number of building permits in Germany was a problem with the "designation of sufficiently affordable building land by the municipalities." "New apartments can only be planned if you know where to build them," said BFW President Andreas Ibel on Thursday. "
Quotes
  • "in Germany, renting a home is the norm. Homeownership in Germany does exist, but typically one has to put 30-50% down up front on top of high property and building costs. That’s not to say that this doesn’t happen, but the investment is usually made to build a home and then rent it out. And, renting is different too in Germany. In the US, it is common to sign a 1-year lease, but Germans will rent the same place for many years. Our landlord thought us wanting to rent for only 3-years was too short and he almost did not allow us to move in."
  • "n Germany, wood is generally not used as a building material, but rather homes are built using Kalksandsteinmauerwerk (sand/limestone brick masonry) — a type of concrete mixture. Metal rebar frames are created and the Kalksandsteinmauerwerk blocks fill in the sections to form the foundation, walls, and ceilings. The outside of the blocks then have a layer of stucco applied and then painted (normally white, but other colors are sometimes used). Inside the blocks, a product like Styropur (styrofoam) will be used as insulation. The roofs are typically covered using slate shingles."
  • "However, in Germany, most homes do not have air conditioning, and if they do they are small portable units on wheels. The summer weather in Germany is typically not very humid, but warm. Typically, there may be a stretch of 90+ (30+) degree heat on multiple days, but it usually does not last. "
  • "In Germany, most homes are heated via hot water, radiated heat, whether from wall units or in-floor piping. With the insulated walls of the Kalksandsteinmauerwerk it does not take much to heat the house. One problem though in Germany with this type of heating is that inside humidity levels can increase, but this is handled by “airing out” the house, by opening windows for about 15 minutes to allow fresh air in (even during the winter)."
  • " the windows do not have window screens. This means that anything flying or crawling can come inside. You can buy screens to cover the openings, but 90% of the homes will not have them. In the warm months when insects are out this can be a problem"
Quotes
  • "Property stands out, in response to Government efforts to address the acute housing deficit, particularly among the urban populations in the cities of Kinshasa and Lubumbashi. However, the price of units (above US$ 25,000) is well above the affordability scale for a typical working lower middle income household in Kinshasa (about US$ 500). DRC has a housing deficit of about 4 million units, while the annual housing requirement is close to 250,000 units. The housing requirement in Kinshasa alone, is estimated at about 140,000 units annually, according to the Centre for Affordable Housing Finance in Africa (CAHF) 2018 report. Although the demand for affordable housing is evidently high, the few past and ongoing housing projects are skewed towards the needs of middle-income and wealthy individuals. These individuals earn above US$ 1,000, and constitute less than 10 percent of the population)."
Quotes
  • "Housing demand in the DRC outweighs housing supply, and the backlog is estimated at 3 945 555 houses countrywide. Kinshasa alone has a housing deficit estimated at 54.4 percent of the overall national deficit, i.e. an average of 143 092 houses to be built per year. In rural areas, which make the most part (57.4 percent) of the country, the notion of property development is totally absent. Therefore, the limited number of developers are concentrated in urban areas, with very restricted access to finance. Because of this situation, housing supply is limited, and only accessible to the elite minority."
Quotes
  • "Last year developers in Japan put the lowest number of condominium units on the market in 43 years as elevated prices, reflecting higher labor costs amid a labor shortage, plus rises in materials and land prices affected demand, a research firm has said."
  • "New condo supply dropped 15.9 percent in the region, which also includes Chiba, Kanagawa and Saitama prefectures and makes up more than 40 percent of total supply."
Quotes
  • "Labour shortages are a significant problem, with the falling numbers of engineers and labourers, and an ageing population resulting in manpower shortages in most sectors of the economy."
  • "Construction is strong but shortages of labour are driving up labour costs, especially in Tokyo. Land and real estate prices have also risen sharply in anticipation of the 2020 Olympic Games, possibly indicating a bubble forming inthe city"
  • "Market:Hot Tendering:Staying the same Cost escalation 2016–17:3.0%Cost escalation 2017–18:2.0% Contractor’s margin:6.0% Preliminaries:15.0% Location factor (USD):103 PPP coefficient:153.75"
Quotes
  • " According to estate agents, the time has finally come for Tokyo to join the top table of global property destinations. “After more than two decades, Japan’s prime property market has stabilised enough to be viewed alongside the other major developed world markets .... "
  • " First among them is the pullback of Chinese buyers, as their government continues to restrict commercial and residential property investments overseas. Sonny Saito, chief executive of Japan Capital Realty in Tokyo, estimates that 30 per cent of new apartments sold for between $1m and $5m in recent years were bought by Chinese. Privately, local agents now talk about large Chinese developers pulling out of projects or shelving plans to bid for land. "
  • " Spiralling construction costs are another fly in the ointment, helping stem the flow of new apartment developments, which dropped last year for the first time in five years, according to Adam German of Housing Japan, a local agent. Chris Mancini, who runs Savills’ Japan business in Tokyo, says companies are complaining of price hikes for construction materials of around 20 per cent in the past five years, with the lead times for steel delivery for a residential or small commercial building now stretched to 18 months. Delays are blamed on rebuilding efforts after the 2011 earthquake and preparations for the 2020 Tokyo Olympics. "
From Part 09
Quotes
  • "Global residential building construction market growth standpoint is certain with huge development potential for single-family housing construction and multifamily housing units. There is mounting strain to decrease costs, improve quality and fulfill clients as it has been moving from a supplier driven model to a buyer-driven model. Simultaneously, developing business sector development, low-loan fee conditions, rising discretionary cashflow, quick urbanization, rising populace, innovative advances are driving the residential building construction market globally."
Quotes
  • "Modular manufacturing enables affordable houses to be built faster and at higher volume. Driven by a worldwide shortage in skills and housing, increased modular construction will impact the construction industry massively in 2019."
Quotes
  • "Local construction markets are gaining traction all across Europe. Northwestern European markets showed the strongest market growth over 2017. Both Northern and Western Europe are expected to show a stabilizing market growth for the coming years. Southern European markets are expected to grow decently. "
Quotes
  • "Digital planning tools that translate data directly into individually fabricated components will increase the level of prefabrication and modular construction, leading to greater efficiency, fewer errors, and higher-quality work on the construction site."
Quotes
  • "Advanced analytics, digital tools, and advanced automation technologies can together help increase margins, reduce costs, and improve customer satisfaction with better service and quality. "
Quotes
  • "Strategies that account for the long term, as well as the inherent profitability of reducing costs through more energy efficient production, have resulted in the growing demand for sustainable production. "