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Construction Industry Economics and Policy

A BLOG ABOUT THE STRUCTURE AND PERFORMANCE OF THE BUILDING AND CONSTRUCTION INDUSTRY

Updated: May 1




There are three methods for 3D printing: stereolithography, patented in 1986: fused deposition modelling, patented in 1989: and selective laser sintering, patented in 1992. It didn’t take long before research into 3D concrete printing (3DCP) began, focused on developing the equipment needed and the performance of the materials used. Twenty years later there were over a dozen experimental prototypes built, extensively documented in the 2019 book 3D Concrete Printing Technology: Construction and building applications,[i]which also has details on the materials science required to identify successful mixtures and admixtures. The information needed to create a 3D blueprint is generated during design, and it is a relatively small step to move from a BIM model to instructions for a 3D printer.


By 2022 the commercialisation of 3DCP was underway, with two types of systems available. One using a robotic arm to move the print head over a small area, intended to produce structural elements and precast components, the other a gantry system for printing large components, walls and structures. The Additive Manufacturing Marketplace had 34 concrete printing machines listed, ranging from desktop printers to large track mounted gantry systems that can print three or four story buildings. Companies making these machines are mainly from the US and Europe, and the table also has details on the type and size of a selection of machines. There are also several companies offering 3DCP as a service at an hourly or daily rate.


One of the most advanced 3DCP companies is Black Buffalo, a subsidiary of South Korea’s Hyundai group based in New York. Their NexCon gantry system takes around 11 hours to build and eight hours to take down. Using a proprietary ink developed over a few years of research involving a lot of trial and error (and getting approval for building codes), the machine can print up to four stories with a crew of five people. One person is required to monitor the nozzle and insert stiffening frames every few layers to provide structural strength, the pump needs two people and a helper, plus a site foreman or engineer. As well as walls it will print floors and precast elements. Black Buffalo expects to sell over 100 of these printers in 2022-23, and they are available for rent at $1,000 a day.


Some companies making 3D concrete printers


Concrete printing is only one part of the development of additive manufacturing. In mid-2022 the Additive Manufacturing Marketplace listed 2,372 different 3D printing machines from 1,254 brands. The number of printers and materials used were: 364 metal; 355 photopolymers; 74 ceramic; 61 organic; 34 concrete; 24 clay; 20 silicone; 19 wax; and 19 continuous fibres. Many of these printers could be used to produce fixtures and fittings for buildings. Producing components onsite from bags of mixture avoids the cost of handling and transport, and for large items avoids the load limits on roads and trucks. There are also printing services and additive manufacturing marketplaces being set up. These link designers to producers with the materials science, specialised equipment and print farms capable of large production runs and manufacture on demand. Examples are Dassault Systems 3DExperience, Craft Cloud, Xometry, Shapeways, 3D Metalforge, Stratasys and Materialise.


Additive manufacturing is a major part of a broader system of production known as digital fabrication. Neil Gershenfeld described digital fabrication as turning ‘bits into atoms and atoms into bits’ using fabrication laboratories (fabs) producing ‘assemblers’ that provide the cutters, printers, millers, moulders, scanners and computers needed for designing, producing and reproducing objects. These tools include traditional subtractive ones for cutting, grinding or milling, but the focus has been on research into new methods of additive manufacturing using different methods of layering materials using 3D printers. Printing of metal, ceramic and plastic objects from online design databases is spreading from hobbyists and initial users to industry applications and wider acceptance.


Gershenfeld, who founded the first fab in 2003, defined digital fabrication, as ‘the seamless conversion of design and engineering data into fabrication code for digitally controlled tools.’ The definition in a Construction 4.0 book is less focused, a ‘method or system which relies on digital fabrication entirely or to a significant degree, either in prefabrication or on-site construction. Examples of digital fabrication processes in construction include robotic fabrication and assembly, large scale additive manufacturing, and the use of specialized automation systems for material processing in areas ranging from advanced fabrication of metal or timber assemblies to various forms of concrete processing to the fabrication of multi-material composites.’ The chapter on digital fabrication has over a dozen examples, with many of the projects shared with other chapters in the book on 3D concrete printing, robotics and automation.


At is broadest, digital fabrication is any means of turning design information into physical products using automated processes. There is a well-established global maker movement behind the growth of digital fabrication. In 2009 the Fab Foundation was established at MIT as a non-profit with annual conferences and providing educations and training. The Foundation coordinates an international network of 1,500 fabrication laboratories (fabs) in 90 countries, many in university design and architecture schools, and the ‘FABLAB Movement’ is an even broader collaborative effort that includes hobbyists and tinkerers working on digital design and fabrication code. This network takes existing technologies used in fabrication like cutting, milling and rolling done by numerically controlled machines, which have been around for decades, but uses them for design, which is new. The digital linking of design to fabrication is the beginning of another stage of development. The World Economic Forum also has a network of 14 Centres for the Fourth Industrial Revolution, and Autodesk has three BUILDSpace laboratories. The 2017 UK industrial strategy included funding for a manufacturing hub and along with aerospace and automobiles targeted construction, 3D concrete printing and OSM.


Gershenfeld argues digital fabrication will follow a similar exponential development path as digital computers, with the number of fabs doubling every two years and their cost halving, making local production of many objects and items possible. Gershenfeld suggests the technology is now ready to become widespread, and is at a similar stage to PCs in the early 1990s:

Digital fabrication shares some, but not all, of the attributes of communication and computation. In the first two digital revolutions bits changed atoms indirectly (by creating new capabilities and behaviours); in the third digital revolution, the bits will enable people to directly change the atoms …. Across the global network of fab labs, we can already see a steady stream of innovations around cost-effective models for individuals and communities to make clothing, toys, computers and even houses through designs sourced globally but fabricated locally.


Digital fabrication is at or close to the tipping point, as its use extends from hobby to experimentation and adoption. Just as concrete in the early 1800s moved from the fringe toward the centre of construction as the underlying technology and equipment improved, fabs can follow a similar path over the next few decades of the twenty-first century. Although Construction 4.0 concluded ‘Today, industry adoption of digital fabrication is still very limited and is not deployed at scale in the industry’[vii], the technology is advancing rapidly and many demonstration 3D concrete printing projects have been completed successfully. In a 2020 report that has many examples of current use, ARUP argues: ‘The opportunities unfolding with digital fabrication not only demonstrate new techniques in full-scale pavilion fabrication, but also provide new methods to solve design, business and societal challenges. Arup is one of a number of specialized consultants providing digital twins and design to fabrication capability on projects.



Onsite and Nearsite Production with Digital Fabrication


Digital fabrication is a technology whose use has a high probability of becoming ubiquitous. In construction, the focus so far has been on 3D printing of concrete, with experimental systems by the early 2000s,[ix] and by 2019 there were over a dozen examples of buildings completed using the technology.[x] However, the potential of 3D printing in construction is not limited to concrete. Once a BIM model of a project has been created it can be used to provide instructions for production of both structural and decorative components of a building. Mobile digital fabs in shipping containers can produce some of those components onsite. Local firms offering manufacturing on demand from print farms can produce large runs or specialised components, a nearsite form of production rather than OSM.


The combination of digital twins and digital fabrication would be transformational if it allows onsite and nearsite production of some or many building components, by fundamentally altering existing economies of scale in the industry. As well as 3D concrete printing, other materials like steel and plastic can be used to make components and fittings on or near the building site. A modular fab in a container customised for construction, or even a specific construction project, can be set up onsite to produce components as the schedule requires. Large sites might need a fleet of fabs. Restorations and repairs can be done with replacement parts made onsite from scans of the original.


Mass production will always have a role, but market niches currently occupied by some or many manufacturing firms may be replaced by new production technologies based on BIM, linking localised digital fabrication facilities with online design databases. Combined with robotic and automated machinery and assemblers, digital fabrication and standardised parts opens up many possibilities. Adding new materials to the 3D palette through molecular design and engineering, or upgraded versions of existing materials, may unlock other unforeseen design and performance options.


If this eventuates some, possibly a great deal, of the current construction supply chain based on mass-production of standardised components will become redundant. For example, an onsite or nearby fab with printers and moulders might produce many of the metal, plastic and ceramic fittings and fixtures for a building during its construction. These parts might be delivered by autonomous vehicles. The digital twin of the project, which might be outsourced, can link the design and fabrication stages to the site and the project. Digital fabrication produces components and modules designed to be integrated with onsite preparatory work and assembled to meet strict tolerances. Project management would become more focused on information management, and the primary role of a construction contractor might evolve into managing this new combination of site preparation work and integration of the building or structure with components and modules, some of which may be produced onsite in a fab if economies of scale permit. The strength of this effect will be determined by those economies of scale. Beyond site preparation other site processes may be restructured around components and modules that are designed to be assembled in a particular way, and machines to assemble those components and modules can be fabricated for that purpose.


If onsite and nearsite production becomes steadily cheaper the industry would, perhaps slowly, reorganise around firms that best manage onsite and offsite production and integration of digitally fabricated parts. Contracting firms would become more vertically integrated if they are fabricators as well, reinventing a business model from the past when large general contractors often had their own carpentry workshops, brick pits, glass works and so on. With outsourced business processes and standardized site and structural work, that fabrication and integration capability would be a key competitive advantage of a construction firm. Firms will be integrating automated production of components with design and construction using offsite manufacturing and onsite fabrication, using platforms that coordinate building design and specification with manufacturing, delivery and onsite assembly. Open platforms will be like new digital ecosystems. Closed, internal platforms will be developed by larger, vertically integrated firms with the resources to manage the system.


Industrialised materials like concrete, steel and glass affected the organisation of onsite processes as they were improved with incremental innovations. The development of digital fabrication should follow a similar path to concrete, where over decades the machinery (mixers, pumps), processes (formwork systems) and materials (reinforcement, concrete strength, setting agents) were developed. Growth in digital technologies is faster than analogue, so instead of the many decades of innovation taken for concrete technology to develop, it might take a decade for digital fabrication to become cost effective if the cost of fabs falls and the supply chain of raw materials develops as it did for personal computers in the 1990s. Contractors would become more vertically integrated as they also become fabricators, managing a combination of onsite and nearsite production to deliver projects.




References

ARUP, Designing with Digital Fabrication, 2020: 8. Gershenfeld, N. 2012: 45. How to Make Almost Anything: The Digital Fabrication Revolution. Foreign Affairs, 91(6), pp. 43–57. Gershenfeld, N. 2017. The Science, and The Roadmap, in Gershenfeld, N., Gershenfeld, A. and Cutcher-Gershenfeld, J. Designing Reality: How to Survive and Thrive in the Third Digital Revolution, in New York: Basic Books. 95-116, also 159-182.

Kaseman, K. and Graser, K. 2020: 187. Digital fabrication in the construction sector, in Sawhney, A., Riley, M. and Irizarry, J. (eds.) Construction 4.0: An Innovation Platform for the Built Environment, Abingdon: Routledge. Sanjayan, J. G., Nazari, A. and Nematollahi, B. 2019. 3D Concrete Printing Technology - Construction and Building Applications. London: Elsevier.


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Rises in Non-residential and Declines in Residential Construction Labour Productivity



The tools, techniques, components and materials used in modern construction can be seen on every building site. As anyone who works in construction knows, they have greatly increased the productivity of workers, but that increase in productivity cannot be seen in construction statistics. For decades there has been little or no growth in construction productivity as measured by national statistical agencies.


A major problem is the inclusion in Construction sector statistics of residential building, non-residential building and engineering construction. These are three separate industries with significant differences in their characteristics, but statistical classifications group them together despite these differences. For example, non-residential construction uses heavy machinery and equipment and is much more capital intensive than residential building. Most construction productivity research uses this aggregate data for construction because in the statistics published by national statistical agencies data on employment and hours worked at the level of the three industries is missing.


Productivity estimates require both a measure of labour inputs, such as hours worked or people employed, and a measure of output, usually industry value added (the difference between total revenue and total costs) adjusted for changes in prices of materials and labour. That deflated measure of output is known as real construction value added.


The main reason for the low rate of measured productivity growth in construction are the deficiencies found in construction deflators. If real construction value added is underestimated due to the deflators used, construction productivity has also been understated. Thus the graphs of flatlining construction productivity, despite the obvious improvements in materials, tools and techniques over the last few decades.


The major problem is a downward bias to output estimates because there is no adjustment for quality changes in buildings and structures. Also, the application of a single deflator to heterogeneous goods, especially durable goods, overlooks the differences in age and function between different buildings and structures. This problem becomes more severe with long-life assets like buildings and structures.



New Data on US Construction Productivity


Three economists at the US Bureau of Labour Statistics recently published productivity estimates for four constructionsub-industries using four different deflators, providing high quality estimates of real construction value added per hour worked in these industries, including subcontractor hours. The BLS research improves on previous research by using appropriate output deflators to develop measures of productivity growth, and their measures are more reliable because the deflators are specifically designed for each industry. Their data and analysis is a significant advance on the aggregate construction productivity estimates that people are familiar with. The four industries are:

· single-family residential construction

· multiple-family housing construction

· industrial building construction

· highway, street, and bridge construction


As the figure below shows productivity fell in single-family residential and multiple-family housing construction, but rose in industrial and highway, street, and bridge construction. Between 2007 and 2020 overall productivity was flat because these rises and falls balanced out. Also, 2007 was the peak of a business cycle, followed by a recession from December 2007 to June 2009 that ‘had both immediate and lasting impacts on the construction industries’ as the following figures show.



Two of the four industries show clear and strong productivity growth. Productivity growth in these industries remains positive with subcontractor labour included. Productivity grew fastest in industrial building construction



Labour Productivity in US Construction


The BLS figures below show trends in output, hours worked, and labour productivity for each of the four industries. Importantly, ‘labour hours always include partners and proprietors (P&Ps), who account for almost 20 percent of labour input in construction.’ Because of data limitations, the reference periods of the industries begin at different points. The BLS comments are under each figure. A short discussion on construction deflators follows.


Single-family residential construction


For single-family residential construction labour productivity rose during the 2000-2005 period, primarily driven by a large increase in output. Starting in 2005, output fell through 2009 at a considerably faster rate than hours worked, leading to a sharp decrease in productivity in the period. These years correspond with the collapse of the housing market. Labour productivity grew from 2009 to 2013 but steadily weakened through 2019.


Multiple-family housing construction


Multiple-family housing had large gains in productivity from 1993 to 2007, as output increased far faster than hours worked, followed by a sharp decrease in output and a moderate drop in hours worked, leading to decreasing productivity until 2010. From 2010 to 2016, output rebounded substantially, leading to significant productivity growth. However, productivity dipped from 2017 to 2020 due to growth in hours worked outpacing growth in output


Industrial building construction


For the industrial building construction industry, from 2006 to 2018 the productivity and output indexes rose until 2009, then fell sharply in the 2007-2009 recession, recovered from 2011 to 2015, and then declined again through 2018. The change in hours worked was slow and uneven, but positive over the 2006-2018 period. In 2019, the rising output and falling hours worked series moved in opposite directions, which led to the first gain in productivity since 2015.


Highway, street, and bridge construction


Productivity in the highway, street, and bridge construction industry increased during the 2007-2009 recession. Output rose as hours worked declined during this period. Then, until 2018, productivity fell most years as output saw no net growth while hours worked did. Since 2018, there has been little change to output, hours worked, or productivity.



Construction Productivity


Construction productivity has been notable for its absence for decades. The low rate of growth in Australia, the United Kingdom, the European Union and the United States and elsewhere became an issue in the late 1960s, when declining output per hour worked and output per person employed in the construction industry first attracted attention. The measured rate of growth of productivity of the construction industry since then has been poor even by comparison with a long-run overall industry average in the order of two to three per cent a year. Construction productivity in the US has been falling since the late 1970s, as in the figure below.


Possible reasons for the low growth of construction productivity are many and various. They include the high labour intensity of the residential industry, the number of small firms, few economies of scale in the industry, a lack of competition, regulatory impediments, low R&D, poor innovation and management practices, and a low level of training and skill development. Alternatively, it is possible that the data and methods used to estimate the level of productivity in the industry might be faulty, and we have a false picture of construction productivity.


A second and more technical problem is the method used to adjust industry output for changes in prices of materials and labour to find changes in the quantity of output of completed buildings and structures. This deflation of output is typically done with input price indexes or producer price indexes. The problem with input price indexes is they assume a constant relationship between input and output over time, so there is an assumption of no change in productivity which means that, if productivity is increasing, input price indexes will be upwardly biased.


There is an extensive literature on deflators, the problems of deflation, and the effects on estimates of construction output of commonly used deflators. The issues raised by the use of price indexes for deflation have not been solved to date, and appear to have no simple, or readily available solutions. These include the fact that the deflator used to adjust for price changes will systematically overstate the rate at which prices increase and underestimate growth in output if indices for labour and material costs are used instead of output price indices (which are generally not available). I have a 2001 paper on Construction Deflators and Measurement of Output.


Another problem is the application of a deflators to the diverse range of buildings and structures, and differences inquality and function between them. As the energy efficiency and quality of finishes has improved, and as the share of building costs due to mechanical and electrical services has increased over time (providing greater amenity), the deflators used have not been adjusted to take these trends into account. In effect, the deflators assume there has been no change in the quality of buildings, and their inability to capture quality changes in the buildings and structures delivered by the construction industry has adversely affected the measurement of productivity.


The US Bureau of Labour Statistics recently published productivity estimates for four construction sub-industries used four deflators from different government databases. Their research addresses the problem with new data: ‘The main difficulty is that buildings differ widely in their characteristics and features. Similarly, the nature of the underlying terrain varies widely among construction projects. Consequently, economists, both in general and within the BLS productivity program, have found it exceptionally difficult to develop reliable output price deflators to convert observed revenues into meaningful measures of output growth over time. Good output price deflators are therefore the key to more accurate measures of productivity growth in construction.’


The researchers say: ‘we examine only those industries in which the deflators exactly match the industry boundaries. Previous work generally looked at the total construction sector. Since the many new deflators now available did not exist then, these prior studies had to use the single-family housing deflator and an associated cost index to deflate production in most or all of construction.’




Leo Sveikauskas, Samuel Rowe, James D. Mildenberger, Jennifer Price, and Arthur Young, "Measuring productivity growth in construction," Monthly Labor Review, U.S. Bureau of Labor Statistics, January 2018, https://doi.org/10.21916/mlr.2018.1.


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Growth in real GDP per worker and five types of infrastructure per worker


There is a new paper from three World Bank researchers on the relationship between expenditure on physical infrastructure and economic growth, a difficult topic they tackle with some sophisticated econometric techniques using data from the World Bank and the Penn tables. Disentangling the economic effects of infrastructure investment from the effects of other macroeconomic factors requires long time periods and a method to extract estimates from the data. The researchers use a pooled mean group estimator to compare differences between countries in growth of real GDP per worker and investment in five types of infrastructure between 1992 and 2017.


Because other factors like population growth, education levels, openness to trade and type of exports have significant effects on long-run economic growth, any measured effect of infrastructure investment will be small by comparison. This research estimated the strength of the relationship between real GDP per worker and infrastructure investment by the size of the infrastructure coefficients, shown in the table below. While the coefficient values are indeed small, they also show clearly that higher investment in each of the five types of infrastructure leads to higher income per worker, as shown in the figures below.


This is an important result. Their model credibly finds larger effects for infrastructure investment on economic output than previous studies, and found the effects of infrastructure were higher in the three decades after 1991 than the two before. There are separate estimates for a group of low- and middle-income countries and another for high-income countries. Infrastructure has more effect in the group of developing countries compared to industrialised countries. In the full sample of 87 countries a low level of investment is clearly associated with very low income.


The paper starts by reviewing previous research on the impacts of infrastructure investment on economic growth and development. Some studies showed a strong positive relationship between infrastructure development and economic growth, others found a mildly positive relationship or no relationship. The author’s note “Many factors are responsible for these varying results, such as differences in methods, differing approaches to measuring infrastructure development, the varying development stages of countries included in the sample, varying time periods, and geographical factors such as high or low population density.”


Their study evaluates the contributions to growth in a panel of 87 countries over the period 1992 to 2017 of three main categories of infrastructure: transport, electricity, and telecommunications. The main estimate uses a pooled mean group estimator to estimate their effect on growth, and finds larger effects for infrastructure investment on economic output than found by previous studies. They also find the effects of infrastructure are higher in the three decades after 1991 than the two before.


Although other studies have shown a strong positive relationship between infrastructure and economic growth in less developed countries lacking adequate infrastructure, whether this finding holds for industrialised economies remains an open question because other research has not found a significant effect. Is there a threshold level of economic development (measured in terms of per capita GDP or human development indicator) below which the relationship between the infrastructure and economic growth is stronger, and is the relationship is weak or absent above the threshold?


The paper has separate estimates for 48 low- and middle-income countries and 39 high-income economies. Infrastructure has larger effects in the group of developing economies compared to industrialised economies. The infrastructure coefficients that measure the effect are smaller in the developed country sample than the developing country sample, in Table 11. Railways essentially have a zero effect on both groups, unlike their effect in the earlier period 1970-91. Compared to 1970-91 developing country coefficients for roads, electricity and mobile phones and particularly telephones are all higher.



Their Figures below plot the relationship between real GDP per worker (a measure of average income adjusted for inflation) and the five different infrastructure types in the 87-country panel from 1992 to 2017, with higher infrastructure per worker associated with higher real GDP per worker. This relationship is notably strong for electricity generation capacity (r = 0.77) and the telecommunications variables (r = 0.52 and r = 0.67 for mobile and fixed line telephones, respectively).


Figures 1 - 5. Real GDP per worker and various infrastructure variables, 1992-2017 country means.










Timilsina,Govinda R.; Stern,David S.; Das,Debasish Kumar. How Much Does Physical Infrastructure Contribute to Economic Growth An Empirical Analysis. Policy Research working paper, WPS 9888 Washington, D.C.: World Bank Group.


https://documents.worldbank.org/en/publication/documents-reports/documentdetail/553061639760111979/how-much-does-physical-infrastructure-contribute-to-economic-growth-an-empirical-analysis




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About the Blog

This blog is interested in the organisation of the building and construction industry and its role in the creation and maintenance of the built environment.

Like other industries, it is being reshaped by rapid and widespread advances in materials, technology and capability. How those advances might affect an industry changes slowly over time is, I think, an interesting question.The blog collects data and discusses these trends and their effect on industry structure and performance.

 

The economic perspective focuses on firms and industries rather than individual projects.

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Gerard de Valence

I studied politics, philosophy and economics at Sydney University and worked in the private sector for a decade before becoming an academic in the School of the Built Environment at the University of Technology Sydney and UCL’s Bartlett School of Construction and Project Management in London. The ABOUT page has my bio.