The construction industry is considered a great indicator industry to the overall health of a nation’s economy. When the construction demand increases, that means that many other industries are growing as well, and vice versa. The construction industry is composed not only of companies that actually build structures, but also those that design, develop, repair, or maintain structures. The construction of infrastructures such as roadways, railroads, or airports is included in our transport manufacturing industry.
There are several types of construction; heavy construction, including civil projects such as dams, sewer systems, and infrastructure; commercial building, including apartments, offices, retail, hotels, schools, and public buildings; and residential building. In addition to new structures, these categories include remodeling, renovations, additions, and removals.
For globalEDGE's purpose, businesses that supply raw materials for construction, including cement, brick, timber, and steel, are considered part of the Mining/Minerals/Metals industry. Businesses that engage in the construction of transportation infrastructure are listed in the Transport Manufacturing industry.
The construction industry began back in ancient times when humans began to build their own shelters, such as huts, out of the natural resources they had available around them. The industry has evolved a lot since those times, especially in modernized economies, but the basics are still the same. Construction is still humans using the natural resources available to them to build objects, such as private shelter, roads, or public buildings that are of use to them.
The construction industry is characterized by cycles of growth and depression. The outcome of companies that make construction materials is tied closely to the amount of new construction taking place; that, in turn, is influenced by interest rates and the growth of the other industries in the economy. Recent construction history has been largely determined by the rising interest rates and economic outlook.
On January 31, 2006, Alan Greenspan stepped down as the U.S. Federal Reserve Chairman and was replaced by Bob Bernanke. The housing market, which experienced a boom in the early 2000s due to record low-interest rates and political policies, was already slowing down. Under the new Fed leadership, interest rates increased, leading to a depressed housing market as people examined the interest rates for their loans and decided against purchasing a home. The economic collapse of 2008 further crippled the construction industry by killing nearly all growth in other industries in the economy. This has caused global builders and supplies of the construction industry to suffer.
The supplier market is highly consolidated, with only a few companies leading the rest. USG dominates in the sheetrock sector, Lafarge S.A. for cement, and Weyerhaeuser Company for timber. Among design-build and commercial construction firms, Bechtel, Turner, and Zachry are the big names. However, the biggest chunk of the industry is residential builders, accounting for between 54 and 57 percent of the industry. In this arena, DR Horton, Pulte Homes, and Lennar are the leading companies. The contractor segment of the industry is highly fragmented, with many smaller companies working as subcontractors on smaller projects.
One trend in the industry is green building, a method of production through the use of recycled, reused, or renewable resources to construct a more environmentally friendly and sustainable building. Techniques to increase water and energy efficiency are also employed, such as a careful orientation of the building to take advantage of natural breezes or sunlight and green roofs or walls, a roof or wall covered in soil and/or vegetation. Solar panels or other eco-friendly technologies may also be used. LEED certification is also becoming much more popular now and is almost a necessary requirement for new buildings.
There are several issues that are currently of concern to construction companies. First, is the rising cost of energy. Fuel and building supplies, which account for a substantial portion of construction, are increasing in cost which then affects production. Also, creating materials such as cement and bricks also consumes a lot of energy. Safety is the other main concern. In Europe, there are over 1000 job-related deaths recorded per year, and a good deal more are injured or sickened.
The future outlook for the construction industry depends on location. There is still a high demand for construction in Asia, and it is one of Europe’s largest industries, with over 900 billion euros spent annually. In emerging markets, such as Bahrain, India, and China, demand for construction will likely increase as the market grows.
In the United States, the forecast is not as promising, at least in terms of housing stats. Residential construction is in one of the worst downturns in history. The burst of the housing bubble, combined with rising interest rates, overbuilding, and the subprime mortgage meltdown have combined for a bleak outlook.