Introduction
In this portfolio, I will attempt to achieve a better understanding between changes in the population and its subsequent impact on economic activity within specific regions and how this influences the construction industry. The primary method of data collection will come from the ONS website with various academic articles and sources contributing to the other facts and views that will be presented in this portfolio.
Economics is about people and choice
The latest data involving population estimates for the UK showed that there is an upswing in population growth. It was revealed that the population grew by roughly 64.1 million in 2013 (an increase of 400,600) from the previous year. A broader look at the UK’s population growth shows that its size has increased by 5 million people since 2001 and, when looking at population estimates from 1964, shows that the population has grown by 10 million since then.
Do note though that while an increase in 10 million people from 1964 is impressive given the declining population rates in much of Western Europe, the fact remains that it pales in comparison to the growth rates seen in much of Asia (Almor 2013). Except for Japan, countries such as China, the Philippines Indonesia, Malaysia, and India have experienced exponential growth rates since 1964 resulting in a large workforce that many foreign companies have been taking advantage of through the outsourcing industry (Almor 2013).
Going back to the topic of population growth within the UK, data from the office of national statistics showed that there is a positive birth to death ratio (i.e. there are more births than deaths) wherein there were 212,000 more children born than adults who died within the same year. This is a positive sign for the country since progressive birth rates contribute to greater levels of economic activity. The article “Country Intelligence: Report: United Kingdom (2012)” explains this correlation by comparing the declining birth rates in Western Europe to drops in economic activity.
The article also states that consumer demand was the main driver of economic activity which, along with robust industrial, manufacturing, and construction sectors, influenced the economic growth of a country. Higher birthrates are thus seen as a positive indicator for a country’s economy since this equates to more people entering into the general workforce, more individuals purchasing products, and concurrently more families resulting in higher rates of real estate purchases (Country Intelligence: Report: United Kingdom 2012).
About this data, it should be noted that there are currently 26.4 million households within the UK with two-person households accounting for a vast majority of the estimate (34 percent of all households within the UK consist of two people only). Based on the data that has been presented and given the progressive level of population growth within the UK that has been occurring since 1964, it can be stated that the population of the country should continue to grow positively well into the future (at least within the next 20 to 40 years).
This will reflect positively on the country’s economy resulting in steady growth rates when it comes to demand for consumer products with real estate becoming a prime consumer commodity. Given the trends that have been presented, construction companies within the UK can invest in the development of affordable two-person household units since the statistics show that this is the largest household sector and thus has the highest level of demand for real estate.
Economic Trends and their effect on the built environment sector
Based on the latest census data, it was shown that the current population of the Ladywood district is 126,693 residents with roughly 47,748 households. What is interesting though when examining Ladywood is that the entire area has differing levels of affluence resulting in areas where there are high rates of unemployment and direction which are then contrasted with areas with relatively new buildings and better wages.
For instance, housing data involving Ladywood showed that more than 50% of the children in the area are living in poverty with the area having significantly higher rates of mortality from preventable diseases as well as high rates of alcoholism. Based on the analysis of Carassus, Andersson, Kaklauskas, Lopes, Manseau & De Valence (2006), the reason behind these cases is due to the low wage environment as well as the lack of local investment into business and infrastructure development which further exacerbates the economic problems of the district. It should be noted though that in stark contrast to the problems of Ladywood, Brindleyplace has experienced an upsurge in economic development.
This is primarily due to the placement of various office buildings, apartments, and service centers that serve the various office workers in the district. Further analysis of the history behind Brindleyplace and the sheer difference between it and the rest of Ladywood reveals that the area used to house a variety of factories and supply depots yet over the years these businesses were shut down.
It was only when significant outside investment in the form of property developers came in that the economic activity of the area was rejuvenated. From a peaks and troughs standpoint, the rejuvenation of Brindleyplace and its effect on the local economy showcases the positive effects of real estate development on local economies. It is based on this that when it comes to the rest of Ladywood, this paper advocates further development in the form of real estate rejuvenation projects as well as the creation of various new office buildings to offset cramped city centers (Sawyer 1972).
Financing Construction projects
Bank Financing
Bank financing is one of the common ways in which construction firms pay for their projects. Construction firms take out a loan from a major bank which they use to pay for construction materials, employee salaries, and other related expenses that they may be needed when it comes to a variety of construction projects (Young 2014). While a bank loan is one of the most effective methods of getting the necessary funding for a project, it does come with some disadvantages in the form of interest rates (Young 2014).
Do note that in the case of some condominium projects it takes a considerable amount of time for all the units to be sold, during this period the interest rate of the loan continues to mature. The result is the construction company paying higher rates the longer some units go unsold (Warszawski 2003).
Such a situation is further exacerbated in cases where an economic downturn occurs (as seen in 2007) resulting in lower consumer spending (Chen & Chen 2012). This would be a potentially catastrophic case for a construction company that has just finished a project and is looking to sell its units to pay for the loan yet no one is buying due to the environment of economic uncertainty (Chen & Chen 2012).
Pre-selling
Another strategy often utilized by construction companies when it comes to private sector development projects is the use of pre-selling tactics to get money from clients while a construction project is still being built. Pre-selling works by selling flats, apartments, or other types of real estate before the infrastructure being built (Kraus & Cressman 2009). Potential buyers get a range of discounts depending on how far along the construction period a company is. For instance, if there is merely a vacant lot in a construction site then potential buyers could get as much as 40% off, if the initial foundations have been built then 30% and so forth until the project is completed and the discount no longer applies (Shingler 2013).
While this is an effective method of gaining liquidity to complete the project, it does have the disadvantage of lowering the total amount of profit that the company can derive from the project (McKee 2013). It should also be noted that this method of financing is directly related to the level of demand associated with the project. If the economy is experiencing a downturn, then the likely demand for real estate units would below, this results in fewer clients that would be willing to buy a pre-selling contract (McKee 2013). This would of course hamper the availability of funds resulting in issues when it comes to the viability of the project.
Partnerships
Another of the most commonly utilized methods for financing public sector development projects is through the use of partnerships (Tang, Shen & Cheng 2010). This can often involve an agreement between two companies or between a company and a bank wherein in exchange for a share of ownership of the project the partners combine funds to finance its completion. One of the inherent problems though with this method of financing is the potential for one of the partners to simply run out of money (Gransberg & Dillon 1999).
Reflection
Based on everything that I have learned thus far in this activity, I have come to develop an understanding that economic development, real estate trends, and private sector projects are often intertwined with changes in local populations. Not only that, based on the section involving Ladywood and its inhabitants, I have learned that it is often necessary to invest in social projects that create opportunities for employment rather than merely focusing on charity work.
The reasoning behind this is related to my observations regarding the interrelation between job growth and how it creates beneficial effects for local communities. As seen in the case of the UK’s population as a whole, its subsequent increase has led to numerous economic boons for the region, this has helped in improving the lives of many of the region’s residents. However, as seen in the case of Ladywood, there is unequal development in the UK which is often the result of particular trends in real estate and industrial development (Khashan 2008).
Particular regions within the UK become the preferred destination for factories and housing development simply due to the presence of other similar projects that have already laid the groundwork for similar types of infrastructure (i.e. energy infrastructure in the case of factories and the presence of communities and shopping centers in the case of housing developments). It is based on this observation that when it comes to my analysis of Ladywood and other similar locations, I have developed the notion that to improve the status of residents it is necessary to lay the groundwork for future infrastructure projects that would make the location attractive enough for business and developers.
Reference List
Almor, T 2013, ‘Conceptualizing Paths of Growth for Technology-Based Born-Global Firms Originating in a Small-Population Advanced Economy’, International Studies Of Management & Organization, vol. 43, no. 2, pp. 56-78.
Carassus, J, Andersson, N, Kaklauskas, A, Lopes, J, Manseau, A, Ruddock, L, & de Valence, G 2006, ‘Moving from production to services: A built environment cluster framework’, International Journal Of Strategic Property Management, vol.10, no. 3, pp. 169-184.
Chen, J, & Chen, W 2012, ‘Contractor Costs of Factoring Account Receivables for a Construction Project’, Journal Of Civil Engineering & Management, vol. 18, no. 2, pp. 227-234.
‘Country Intelligence: Report: United Kingdom’ 2012, United Kingdom Country Monitor, pp. 1-30.
Gransberg, D, & Dillon, W 1999, ‘Quantitative analysis of partnered project performance’, Journal Of Construction Engineering & Management, vol. 125, no. 3, p. 161.
Khashan, A 2008, ‘Successful Launch’, Civil Engineering (08857024), vol. 78, no. 8, p. 70.
Kraus, W, & Cressman, K 2009, ‘Selling Recognition and Acceptance of AACE International Recommended Practices’, AACE International Transactions, pp. EST.S03.1-EST.S03.8.
McKee, R 2013, ‘Story Works. Use It’, Sales & Service Excellence, 13, 10, p. 25.
Sawyer, GC 1972, ‘Forces for social change vs. near-term strategic decisions’, Academy Of Management Proceedings (00650668), p. 254.
Shingler, D 2013, ‘Housing market constructs hope here’, Crain’s Cleveland Business, vol. 34, no. 13, p. 1.
Tang, L, Shen, Q, & Cheng, E 2010, ‘A review of studies on Public–Private Partnership projects in the construction industry’, International Journal Of Project Management, vol. 28, no. 7, pp. 683-694.
Warszawski, AA 2003, ‘Parametric analysis of the financing cost in a building project’, Construction Management & Economics, vol. 21, no. 5, pp. 447-459.
Young, T 2014, ‘DEAL: UK project bond solves negative carry’, International Financial Law Review, vol. 33, no. 4, p. 65.