The Social & Economic Value of Construction - Crisp

THE SOCIAL AND ECONOMIC VALUE OF CONSTRUCTION
The Construction Industrys Contribution to Sustainable Development 2003
A Report by
Professor David Pearce OBE for nCRISP

the Construction Industry Research and Innovation Strategy Panel
The Author
David Pearce OBE is Professor of Environmental Economics at University College London. His special interests are environmental economics with special reference to European environmental policy, and environmental and economic development in less developed countries. Professor Pearce is author or editor of the acclaimed Blueprint series, beginning with Blueprint for a Green Economy in 1989 through to Blueprint 6: Blueprint for a Sustainable Economy published in 2000. He is also author, co-author or editor of 50 other books. He was awarded an OBE in 2000 for his services to sustainable development. The Construction Research and Innovation Strategy Panel (CRISP) was established as a joint industry and government panel in July 1995 to identify and develop priorities for research funders and help to set the agenda for construction research and innovation. Until early 2002 it operated as a panel of the Construction Industry Board. In February 2002, Sir John Fairclough produced Rethinking Construction Innovation and Research, his review of government R&D policies and practices. This recommended the development of CRISP under the aegis of the Strategic Forum. In October 2002 Michael Dickson accepted the chairmanship of new Crisp (nCRISP) and the first meeting of the new executive was held in December 2002. nCRISPs principal roles are to act as: a conduit between the research community and industry; a catalyst in developing and promoting research and innovation; a facilitator, linking and making connections among industry, government and the research community; an honest broker for the construction industry, government and the research community
nCRISP
This report has been printed on recycled paper.
THE SOCIAL AND ECONOMIC VALUE OF CONSTRUCTION

The Construction Industrys Contribution to Sustainable Development 2003
A Report by
Professor David Pearce OBE for nCRISP

the Construction Industry Research and Innovation Strategy Panel
New Construction Research and Innovation Strategy Panel 2003 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means except for the provisions given below, without the prior permission, in writing, of the publishers: nCRISP Management Support Unit Davis Langdon Consultancy MidCity Place 71 High Holborn London WC1V 6QS Tel: +44 (0)20 7061 7007 Fax: +44(0)20 7061 7005 E-mail: crisp@davislangdon-uk.com www.ncrisp.org.uk Although this work remains subject to copyright, permission is granted free of charge to reproduce extracts from the work. Unless otherwise agreed with the publisher, all extracts must carry the following clause: From The Construction Industrys Contribution to Sustainable Development by Professor David Pearce OBE, published by nCRISP, the Construction Industry Research and Innovation Strategy Panel. The views expressed in this work are the authors own and may not necessarily reflect those of nCRISP or the other funders of the work.
Foreword
This report brings together in one place the key facts and data on the UK construction industry. These describe an industry that is making an invaluable contribution to the country's economic and social welfare. With this report, nCrisp and Professor Pearce have provided an excellent basis for both a better understanding and future collaboration between the industry and its clients. I am delighted to provide this Foreword.
Nigel Griffiths Minister for Construction
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THE SOCIAL AND ECONOMIC VALUE OF CONSTRUCTION The Construction Industrys Contribution to Sustainable Development
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Preface
In first asking David Pearce to undertake this work, I was addressing a concern of mine that the industry and its contribution to the UK economy and the health and wellbeing of UK society was neither fully understood nor adequately valued. David was asked because he is an eminent economist well versed in the arguments of sustainable development in its widest sense and, not least, because he is not affiliated to any construction industry special interest. David accepted because he saw an interesting challenge but he was emphatic that, while good news would be highlighted, bad news would not be hidden. I am delighted with the outcome. The report takes a wider than usual view of construction. It includes all construction materials and products, not just those used by contractors, and construction professional services provided in-house by public agencies, including local authorities, and commercial organisations, including developers. The task group discussed whether the view should be even wider than that. Should it include land, property and facilities management, for example? The consensus was that it should not, although constructions linkages with these activities are clear and strong. There are three main reasons for drawing the boundary where we did: it seemed sensible and relatively uncontroversial; we had data; and we had to stop somewhere. Construction and its related activities are pervasive throughout the economy and society. It is after all an industry which, through its size and skills diversity is able to work across a wide range of projects major infrastructure and building projects, general building, house building, repair and heritage projects. This report highlights the value of construction both its aggregate value accumulated over time as the greater part of national fixed capital assets and its real and potential value, in term of current construction activity, to sustainable development and sustainable communities. It also presents us with some surprises, particularly in terms of the industrys productivity. We have grown accustomed to being criticised for poor performance and it is good to see that, at least compared to our principal European neighbours, we are doing reasonably well, although we can still learn from the Americans. The report also confirms that we could do more to look after and develop our people and that we could be more prudent in our use of resources. The evidence suggests that we are generally no worse than other countries or industries and that, if anything, we are improving. But there are no grounds for complacency. I think the key messages I take from this work are that: The industry is not significantly smaller than other European countries, Germany apart. The labour productivity and total factor productivity records are good not bad.
Michael Dickson Chairman, nCRISP
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Preface
The environmental record is debatable but improving (climate emissions excepted perhaps). The social record could be much better but the messages seem to be understood. There is a crucial need to get work done on quantifying the social and environmental benefits of good design etc. The health record looks bad but it has improved dramatically. The longevity issue needs more work: I see it as problematic rather than as a benefit (the turnover rates for Japan are startling!). The report provides a unique overview of UK construction for both the industry and government. It also helps to underpin the work of nCRISP. It is published at the same time as nCRISPs first three-year Business Plan and it provides a framework for the implementation of that plan. It is also published at a time of change in relationships between the various government departments and industry, and should assist during these transitions. This report is only the start of a process. The task group has agreed that a colloquium should be held early in 2004 to discuss and debate its contents. To that end, we welcome comments and criticisms. They should be directed to me at: Buro Happold Camden Mill Lower Bristol Road Bath BA2 3DQ Or by email: michael.dickson@burohappold.com
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Authors Acknowledgements
Although I am the principal author of this report, I have been supported and guided by a group of informed individuals from all sides of the industry. These include an nCRISP task group comprising myself as Chair and: Michael Ankers Chief Executive, Construction Products Association John Brumwell Construction Sector Unit, Department of Trade and Industry Michael Dickson Chairman of Buro Happold and Chairman, nCRISP Professor David Pearce Rodger Evans Head of Strategy, Construction Sector Unit, Department of Trade and Industry David Gann Professor of Technology and Innovation Management, Business School, Imperial College London Kay Johnson KAL Johnson Associates, Deputy Chairman nCRISP Paul Morrell Partner, Davis Langdon and Everest, and CABE Commissioner Chris Nicholls Construction Market Intelligence, Department of Trade and Industry (until June 2003) Bernard Vogl Construction Market Intelligence, Department of Trade and Industry (from July 2003) Graham Watts Chief Executive, Construction Industry Council Chris Woods Director of Innovation, Wates Construction Research and technical advice was provided by Jim Meikle, Guy Hazlehurst and David Crosthwaite of Davis Langdon Consultancy. Later drafts of the report were commented on by Graham Ive, Bartlett School of Graduate Studies, University College London. The report was edited by Mary-Lou Nash and designed by Richard Tovell. Despite all this help and advice, I take full responsibility for its contents and any errors and omissions remain my responsibility alone.
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Contents
Foreword Preface Authors Acknowledgements Executive Summary i iii v ix
The Issue
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1 2 3
1.1 Sustainability and the construction industry 1.2 Structure of the report Chapter 1: Key points
Sustainable Development
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5 5 6 8
2.1 Defining sustainable development 2.2 The conditions for sustainability 2.3 Construction and sustainable development: a model Chapter 2: Key points
The Construction Industry: Definitions and Measures
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9 12 19 20 21 21 22 23 24
3.1 The scope of the construction industry 3.2 How large is the construction industry? 3.3 International comparisons of size 3.4 Direct labour output 3.5 Do-it-yourself and self-build 3.6 The informal economy 3.7 The size distribution of the UK construction industry 3.8 The implications of small unit size Chapter 3: Key points
Manufactured Capital
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25 26 27 31
4.1 The built environment as a capital stock 4.2 Construction and capital formation 4.3 Longevity of built wealth Chapter 4: Key points
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Contents
Human Capital
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33 33 34 36 37 39 40
5.1 The relevance of human capital 5.2 The labour force in the construction industry 5.3 Training and skills structure 5.4 Labour productivity 5.5 The health of the construction labour force 5.6 Health and safety in the DIY sector Chapter 5: Key points
Construction and the Natural and Social Environment
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41 41 44 44 46 48 50
6.1 Introduction 6.2 The materials balance 6.3 The energy balance 6.4 Construction and pollution 6.5 The benefits of the built environment 6.6 Sustainable communities Chapter 6: Key points
Technical Progress
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51 51 52 52 53
7.1 Total factor productivity 7.2 Comparative research and innovation 7.3 Design and whole-life costing 7.4 The technological challenge Chapter 7: Key points
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8.1 8.2
Key Points and Next Steps

Summary of key points Next steps
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55 59
References
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Glossary of Terms
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Statistical Annex
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Executive Summary
The background
Early in 2003 nCRISP established a Socio-Economic Task Group with the aim of producing a report and other material which would paint a picture of the UK construction industry and the role it plays in contributing to the over-arching goal of sustainable development. This report is the outcome of the deliberations of the Task Group. The construction industry suffers a self-image problem. Those within the industry, and some outside it, criticise what they see as a poor economic performance relative to some other countries. They point to problems of adapting to rapid technological change, and to the highly skewed size structure of the industry with many thousands of small firms inhibiting the capture of economies of scale. They worry about the social image of the industrys workforce, about the health and safety record of the industry, and about skills structures and international competitiveness. Numerous reports and committees have reported on all these issues and many valuable suggestions have been made for improvement. But how far is the critical image of the industry justified? Surprisingly, few comprehensive descriptions of the industry exist and those that have been produced do not try to embed the description in the context of sustainable development. In this report, nCRISP sets out to establish the broad facts, in as quantitative manner as possible. Indeed, the rule in writing the report has been to gather statistics first and to treat qualitative material as secondary. This evidence-based approach is not without its problems. Indeed, one major finding of the study is that the industry needs to be the subject of more and better analysis. Data are not always consistent or reliable and there are special problems of gathering a detailed picture of the broad industry beyond on-site construction. It is perhaps because of data problems that some of the poor image of the industry has been generated a popular image will multiply rapidly if the evidence is not there to counteract it. This report does not set out to paint a favourable picture. But in seeking a fair and factual image of the industry, some of the popular criticisms have been shown to be false or, at least, in need of serious qualification. The aim of the report is to answer the question: just what is constructions contribution to sustainable development and the delivery of long-term quality of life improvement?
Sustainable development
Sustainable development is a process of ensuring a rising per capita quality of life over time. Improved quality of life reflects increases in per capita real incomes, better health and education, improved quality of natural and built environments, and more social stability. Hence, quality of life is a multi-faceted goal for society and is regarded by the UK government as an over-arching objective for industry and the population in general.
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Executive Summary
A rising quality of life is ensured by increasing the stock of productive assets in the economy since it is these assets the nations true wealth that constitute the capacity to produce goods and services that people need and want. These productive assets consist of man-made, human, social and environmental capital. Man-made capital refers to machinery, buildings and infrastructure. Human capital refers to the stock of human knowledge and skills, and capacities. Social capital refers to the glue that holds society together, and loss of social capital shows up in crime and family breakdown, and loss of community. Environmental capital refers to all environmental assets rivers, the atmosphere, forests and wetlands, oceans and the soil. The productivity of these capital assets - their contribution to social wellbeing - is enhanced by technological progress. In the light of these definitions, the contribution of the construction industry to sustainable development can be gauged by assessing its role in contributing to the capital stocks and to technological change. This sets the structure of the report, which looks at each asset in turn.
The UK construction industry
Before assessing the role played by construction in sustainable development, it is necessary first to understand the nature of the industry its size and structure. The construction industry has narrow and broad definitions. The narrow definition confines attention to the on-site construction activity. The true extent of the industry is broader, and includes the quarrying of construction raw materials, the manufacture of building materials, the sale of construction products, and the various associated professional services. On the narrow definition there are probably some 170,000 firms in the construction sector. On the broad definition the number is closer to 350,000. This doubling rule tends to carry over to many of the indicators of the size of the industry. On the narrow definition, construction contributes some 5% of UK GDP, comparable with the health and education sectors. Value added has grown by around 1.7% per annum in the last decade. On the broad definition the contribution to GDP doubles to some 10%. Annual housing output has remained fairly constant in the last decade, but non-housing output has shown significant growth. Public sector output has been constant for the last decade, while private sector output has increased, albeit cyclically. These trends conceal various factors such as the Private Finance Initiative and privatisation of the utilities. Currently, output is shared equally between new work and repair and maintenance. But new work has shown the faster growth in the last decade. Infrastructure is self-evidently vital for the working of the modern economy, but care needs to be taken in emphasising this feature of construction. No economy can function without infrastructure. The issue is the degree to which infrastructure contributes to faster economic growth and quality of life. There is some evidence of a modest growth effect. Contrary to the perception of many, the narrow construction sector in the UK is larger than in any other European country, apart from
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Executive Summary
Germany, when measured in terms of value-added. Estimating the true size is complicated by the fact that construction activity also takes place in the DIY sector and in the informal economy where data are extremely limited. The exact size of the DIY sector is difficult to measure, but estimates suggest it is worth some 5 billion per annum in terms of product purchases. The size of the informal sector (the black economy) is also uncertain, but, together with the DIY sector, may be equal to a considerable proportion of gross construction output. All sections of the broadly defined industry show a heavily skewed size distribution, with a large number of very small firms. While this feature of the industry raises concerns about the failure to capture efficiency through economies of scale and reduced transactions costs, much of the smallness contributes to customer satisfaction through close communication. It is far from obvious that small is bad.
Man-made capital
Constructions contribution to man-made capital is substantial since a major part of the human created wealth in a country comprises buildings and infrastructure. Built wealth residences, workplaces, public buildings and infrastructure has long accounted for the major part of manufactured wealth, from some 90% at the time of the Industrial Revolution to around 70% now. In turn, dwellings account for about one-third of manufactured capital stock. Of non-residential capital, infrastructure accounts for nearly two-thirds, and machinery and other assets for one-third. On a per capita basis, the UK generally lags behind other European countries in the provision of transport infrastructure. Expressed per square kilometre, however, the UKs road and rail networks compare favourably to other European countries. However, compared to European countries, the UK has one of the lowest proportions of new build and overall construction activity investment relative to total capital investment of all kinds. Much of the built environment is long-lived, with the UK having longer replacement rates than other comparable countries. This has implications for the structure of the industry (e.g. the demand for repair and maintenance), for the chances of securing energy efficient buildings, and for housing conditions. It is not obvious that capital longevity contributes positively to sustainable development, and the arguments need more assessment. There is probably a trade off between long-lived building and the consequent reduced energy use in new construction, and reduced efficiency gains as a result of not replacing the dwelling stock rapidly enough to capture the benefits of technological change.
Human capital
The labour force is a critical ingredient of any industry, but especially so for the construction industry. Around 1.5 million people are employed by the narrowly defined construction sector, and this is probably closer to 3 million for the broader industry. Employment in the narrow sector has been roughly constant over the past decade, but with a 15 % fall in the first half of the 1990s.
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Executive Summary
The (narrow) construction labour force shows an ageing trend and there are concerns about attracting young people into the industry. The educational standards in the industry compare favourably to transport, agriculture, and distribution, but unfavourably with public administration, finance, and energy/water. There are worrying downward trends in entry to construction-related university degrees. Contrary to general impressions, labour productivity in the narrow sector is comparable, though slightly less, to France and Germany, but around 12 % lower than the USA. The accident record of the (narrow) industry still gives cause for concern. In comparison to other industries, construction has the highest level of total fatalities and, by a very substantial margin, nonfatal injuries. . This is partly skewed by the comparatively large size of the industry, and in fact it has only the fourth highest fatalities and injuries per member of the workforce. Using the UK governments money valuations of statistical lives, fatalities and non-fatal injuries in construction impose a social cost of some 2 billion per annum. However, while the data are imperfect, the industrys accident rate has improved dramatically in the last 40 years.
The natural and social environment
Assessing the environmental impacts of the construction industry involves looking at the flows of materials and energy in the construction process, and the effect on pollution of the accumulated built wealth of the economy. A materials balance analysis reveals that the (narrow) construction sector receives around 360 million tonnes of raw materials of which 90 million tonnes reappears as construction and demolition waste, implying a conversion efficiency of 75%. Of the 90 million tonnes construction and demolition waste, half is recycled. While these numbers are interesting, they cannot be used to argue that the industry is good or bad in terms of materials usage: time series or meaningful international comparisons are required. Moreover, much of the construction industrys waste is inert and non-toxic. While inert waste still has to be disposed of, societys relative valuation of inert and noninert waste is revealed in the substantial differential in the UK landfill tax for these two kinds of waste, with inert waste attracting a far lower tax. Defining the industry to include on-site contractors, quarrying, transport of construction products, and transport of waste, the industry uses around 8 million tonnes of oil equivalent energy each year. This is approximately 5% of UK final energy consumption, or some 30% of industrial energy consumption. Construction and related industries account for around 2% of all UK greenhouse gas emissions and 2-4% of other air pollutants. Total air emissions, other than greenhouse gases, have shown significant reductions in the last 30 years. By and large, construction has shared equally in the national decline in emissions, suggesting that construction fares no worse than other industries. Focusing on the stock of buildings, the picture is very different. All buildings commercial, public, industrial and residential account for half of energy use in the UK and half of carbon dioxide emissions.
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Executive Summary
This reinforces the view that energy use on existing buildings is a vital environmental concern. When well designed, the built environment generates significant but, as yet, largely unquantified benefits in terms of human wellbeing. Good design contributes to physical and mental health, to a sense of identity and wellbeing, to good social relationships, reduced crime, and higher productivity. Bad design and dilapidated capital stock has the opposite effect. There is an urgent need for more and better research into this relationship between buildings, infrastructure and human wellbeing. The impact of poor past design and capital depreciation is the subject of the governments sustainable communities programme. But without the committed cooperation of the broad construction sector, this programme cannot be delivered. Even then, there are some problems with the continued focus on development in already congested areas where infrastructure change may not be able to keep pace with the growth of employment and housing.
Technology
Technological change is one of the keys to UK competitiveness and wealth creation. One measure of technological change is total factor productivity, an indicator of the ratio of output to the main inputs that go into construction activity (labour and man-made). Contrary to the impression of many, the UKs total factor productivity record is on a par with the USA or France, and appears to be significantly higher than in Germany. Despite this reasonable record on existing technological progress, the construction industry faces massive challenges in the next few decades. Failure to meet those challenges by embracing new technologies new materials, IT, off-site manufacture etc. will be at a considerable cost to the UK economy.
Next steps
This report has been produced in a relatively short period of time and with limited resources. It is the start, not the end, of the process. Three inter-related, near term, follow-on activities are outlined in the final chapter: a colloquium to be held in early 2004; a review of construction-related statistical data; and development of a research agenda based on the report. The idea of a colloquium was agreed by the report task group; its purpose will be to review the report and consider what, if any, further work is required for greater understanding of the socio-economic value of construction. It will also address statistical shortcomings and set out research needs arising from the report.
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1 The Issue
1.1 Sustainability and the construction industry
Sustainable development is the over-arching goal of government policy in the United Kingdom. Definitions of sustainable development abound. The UK Governments definition is simple. Sustainable development is about:
ensuring a better quality of life for everyone, now and for generations to come
(UK Government, 1999, p8).
The significance of this definition is that it broadens the traditional concern with the sum of all marketed and publicly provided goods and services (Gross National Product - GNP) to include the non-marketed goods and services that make a significant contribution to the national quality of life. These include changes in the quantity and quality of natural resources and natural environments, social cohesion, heritage and culture, and reduced crime and threats to life. Sustainable development is about enhancing all these factors, not just about increasing the measured incomes of the population, despite its importance. Sustainable development is not just a goal for the United Kingdom. It is central to European Union policy as well. Sustainable development is enshrined as a goal for the European Union in the 1997 Treaty of Amsterdam, expanding on the previous goal of sustainable growth protecting the environment. Since so much of the policy context for the UK is set in Brussels, the way the European Union interprets sustainable development matters for UK industry. The UK construction industry, however, operates well beyond Europe and is part of a global industry. Even at this world level, sustainable development is increasingly being adopted as a policy goal with the United Nations confirming its goal of promoting sustainable development at the various Earth Summits since the Rio de Janeiro Summit of 1992. The notion of sustainable development is leading to a fundamental reevaluation of the contribution that industries and services make to the quality of life. It is no longer enough to focus on profits and sales. The role that industry plays in contributing to the wider aspects of the economy and society also matter. This is the springboard for the current report. The construction industry has suffered an image problem in two respects. First, it has not established itself as being at the forefront of the dynamic economic change that contributes to the traditional, but vitally important, goals of economic growth, employment, and technological change. In the words of one report: there is a deep concern that the industry as a whole is under-achieving (DTI, 1998). This problem has been identified and analysed in a number of reports (e.g. DTI, 1998; Strategic Forum for Construction, 2002). It is not the purpose of this report to revisit these concerns in detail, but it is essential to comment on the industrys achievements and problems in
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The Issue
contributing to economic growth and the prospects for economic growth. Second, since the political agenda has changed with its focus on sustainable development, it is also necessary to identify the role that construction plays in meeting this broader goal. This means looking at the contribution of the industry to education and training, to research and innovation, to the built and natural environment, to resource conservation, and to social goals. The end product of construction activity is the built environment, the stock of all built infrastructure, dwellings, and commercial, industrial and public buildings. That stock is a major part of the wealth of the nation. As that stock depreciates, it is either demolished and replaced, or renovated. New construction over and above depreciation levels adds to the stock. The economic value of the built environment is what people are willing to pay for it, and an initial lower bound on this value is the price paid in the market place for assets where ownership can be transferred, such as houses. The costs of providing built assets that remain in public ownership most roads, for example provide an initial lower bound on the value of those assets. But willingness to pay can exceed the market price or cost of provision, so that the true economic value of the built environment can be considerably higher than these approaches suggest. Willingness to pay also varies according to the quality of the built environment its role in generating human wellbeing. If the built environment contributes positively to wellbeing, willingness to pay is likely to exceed the ruling price. If it contributes negatively, through bad design or pollution, say, then the economic value of that part of the built environment may be less than the ruling price. Hence the notion of the economic value of the built environment the value of constructed wealth is not straightforward. Nonetheless, this concept of economic value is the one employed in this report, as far as possible. It justifies the focus on flows (construction activity), on the stock (the assets that comprise constructed wealth), on unmarketed benefits (the wellbeing produced by the built environment) and on unmarketed costs (any pollution or loss of aesthetic quality). The issue to be addressed, then, is one of the public and political profile of UK construction. What is needed is a documentation of the role that the construction industry plays in contributing to sustainable development, i.e. what value construction adds to society. Its successes should be brought to the attention of decision-makers, to the industry itself, and to the wider public. Where it is judged to fail, in that it could do more or better, those shortcomings must be pinpointed so that future action can be taken to improve what can be called the sustainability profile of the industry. This is the purpose of this report.
1.2 Structure of the report
The report is structured round the themes of added value and sustainability. To this end, Chapter 2 sets out a brief sketch of the meaning of sustainable development and the conditions for achieving it. The general requirement is that the stocks of all assets in the economy, expressed in per capita terms and, or, their productivity should be rising on a consistent basis over time. These stocks constitute the productive capacity of the economy and hence the means of adding value for the UK economy in both the traditional
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The Issue
sense of rising real incomes per head, and in the more modern sense of contributing to a sustainable future. The forms of capital are manmade capital, human capital, natural (or environmental) capital, and social capital. The productivity of these forms of capital depends on how they are combined and on technological change. Chapter 3 focuses on the issue of defining the construction sector. Narrow and broad definitions are provided and the chapter looks at alternative indicators of the size and importance of construction. Chapter 4 returns to the notion of capital structure, focuses on manmade, or manufactured, capital and notes the role that the built environment plays in total capital wealth. It also takes note of a special feature of some parts of the built environment that distinguishes it from most other forms of capital: its longevity. The focus on longevity arises because of the potential gains and losses to the economy at large, to the environment, and to social conditions from having a built stock with a high average age. Chapter 5 looks at human capital in the construction sector its labour force, its embodied skills and knowledge, and the health of the labour force. Problems of matching demand and supply for skills are highlighted, and there is a special concern in the industry about the intake of younger people into the building sector. Chapter 6 investigates the relationship between the construction sector and the natural and social environment. A particular feature is the positive link between good design and human wellbeing, a hitherto neglected issue but one of potentially great importance. Chapter 7 looks at the relationship between construction and technological change and casts light on the overall productivity of the sector. Contrary to many commentaries, the record of construction is not a bad one. The report ends with a summary of the highlighted issues that emerge from the previous chapters and outlines a series of next steps. As far as possible, the approach taken in this report is a quantitative one. Unfortunately, statistical sources are not always in agreement with each other and some problems of definition also arise. Accordingly, an Annex to the report assembles the statistical information used to construct the diagrams in the report.
Key points: Chapter 1
The report is structured round the themes of added value and sustainability. It outlines the contribution that the construction industry makes to the over-arching goal of sustainable development. The construction industry suffers from an image problem. There is a need to show its positive and negative contributions to value and sustainability in a transparent manner. The statistical data related to the construction industry need improvement.
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2 Sustainable Development
2.1 Defining sustainable development
In order to determine the part played by the construction industry in sustainable development, it is necessary to be clear what sustainable development means, how it might be measured, and therefore how the construction sectors role can be evaluated. Sustainable development means that some indicator of quality of life (QOL) must be rising over time. How far into the future this sustained rise has to persist is an open question. Certainly, sustainability forces consideration of a longer time horizon for policy concern than might traditionally be encompassed by, say, the electoral cycle. As global concerns about the long-term effects of actions taken now have grown in recent years, so political time horizons have changed to encompass the longer term. Issues such as climate change, ozone layer depletion, and the loss of biological diversity have risen up the political agenda. Nonetheless, few would argue that todays citizens should concern themselves with what happens one million years hence, or even one hundred thousand years hence. The issue of how far into the future we should look remains debatable.
2.2 The conditions for sustainability
The easiest way of thinking about sustainability is not to dwell on definitions of what it comprises, but to ask what needs to be done by each generation to ensure a reasonable chance that succeeding generations will have a rising QOL. However the QOL is defined, the means of generating it will lie in the possession of various capital assets and in advancing their productivity through technological change. Traditional economics focused on machinery and infrastructure (man-made capital) as the main engine of economic growth. Later, the role of human capital a trained and educated labour force was found to be a vital ingredient of economic success. At the same time, technological change an increase in the productivity of capital assets was emphasised. The wider notion of QOL has recently brought to the fore two other capital notions: social capital and natural capital. Social capital refers to interpersonal relationships, most often summarised as trust between individuals (Fukuyama, 1995). The greater the degree of trust the lower the costs to society of entering into contracts, bargains and exchanges, and the greater the effort that can go into production or the provision of services. Social capital reduces societys need to engage in unproductive activities that arise because of the need to ensure that contracts, whether legalised or customary, are honoured. Finally, natural capital refers to environmental assets. All environmental assets generate flows of services to humankind. Those services may take the form of direct amenities which facilitate recreation or aesthetic appreciation, or they may take more subtle forms such as the cleansing of water or the air, or as a provider of personal wellbeing through greater contentment.
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The economic approach to sustainability therefore now focuses on all four forms of capital asset man-made, human, social and environmental and on technological change as a means of raising the productivity of each form of capital, the ability to generate more QOL per unit of capital asset. The resulting conditions for sustainability are then fairly easy to derive. Future QOL depends on the assets available to future generations, and on technological change. So sustainability is (reasonably) assured if this generation leaves a greater per capita stock of capital assets to future generations, and if it encourages technological innovation. This has come to be known as the constant capital rule for sustainable development (Atkinson et al. 1997).
2.3 Construction and sustainable development: a model
Figure 2.1 shows how the various components of the capital approach to sustainable development interact. The requirement is that the real value of the total stock of assets must rise through time in order to ensure that the QOL deriving from those assets is rising through time. If human population grows, then the strict requirement is that the value of per capita assets rises through time, so that the value of the total stock of assets needs to rise faster than population growth. Offsetting this to some degree, the scope for technological change would, strictly speaking, permit a decline in the volume of assets if their productivity rises. In Figure 2.1, the wider notion of the quality of life is captured by decomposing QOL into market outputs, and environmental and social impacts. The inputs into construction each have two dimensions: their scale and their productivity (i.e. their quality). Materials and energy going into construction have as their quality dimension the level of output they achieve per unit of input. Thus various notions of energy and materials efficiency can be used to measure the productivity of these inputs in much the same way as labour productivity is measured by output per man-hour or employee. Recent advances in economic accounting now enable the sustainability of the industry to be measured directly. Building on the idea of a savings rule, whereby no enterprise can be regarded as sustainable if it fails to save more than the level of depreciation on its assets, it should be possible to look at the profitability of the industry and to ask if this is greater than the depreciation on the industry's assets, and the depreciation on environmental, social, and human assets. This requires that depreciation be measured in money terms, including environmental damage, workplace accidents etc. Again, advances in economics now enable this to be done and a research project of this kind should require fairly modest resources to complete. Any positive contribution the industry makes to the environment and social wellbeing, e.g. via the built heritage, can be regarded as additions to saving. The remainder of this report is concerned with tracing the various linkages shown in Figure 2.1, building up a picture of the construction industry and its role in sustainable development, specifically: Chapter three defines and measures the scope of the construction industry. Chapter four addresses man-made capital. Chapter five is concerned with human and social capital.
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Chapter six considers the interaction between construction and the natural and social environment. Chapter seven addresses technological change. Chapter eight summarises the key points in the preceding chapters and suggests some next steps.
Figure 2.1 A schema for sustainable development
7
Sustainable development is a process of ensuring a rising per capita quality of life over time. Quality of life reflects increases in per capita real incomes, better health and education, improved quality of natural and built environments, and more social stability. Rising quality of life is ensured by increasing the stock of productive assets in the economy. Those assets consist of man-made, human, social and environmental capital. The productivity of these capital assets - their contribution to social wellbeing - is enhanced by technological progress. The contribution of the construction industry to sustainable development can be gauged by assessing its role in contributing to capital stocks and to technological change. Economic accounting enables sustainability of the industry to be measured directly by building on the idea of a savings rule whereby no enterprise can be regarded as sustainable if it fails to save more than the level of depreciation on its assets.
8
3 The Construction Industry: Definitions and Measures

Determining just how significant the construction industry is depends 3.1 The scope of the construction industry in part on how the industry is defined. By and large, definitions vary according to the focus. One focus could be on contractors and speculative housebuilders1 those who construct, repair and maintain buildings or engineering works in situ. Alternatively, the focus could be on contractors plus all those who quarry raw materials, plus those who manufacture and sell the materials, products and assemblies used by contractors, plus those who supply professional management, design, engineering and surveying services to the industry or its clients, plus construction and repair works undertaken by households and other non-contracting organisations. More recently, land and facilities management have also been included in some definitions although this is not included here, primarily due to a lack of reliable data. Figure 3.1 shows a summary schema of the structure of the industry. The bold line encloses the traditional narrow definition of construction value.
Contractors generally build for clients.
Speculative housebuilders build first and then seek a client. Both are part of Standard Industrial Classification (SIC) 45. Housebuilding developers are also part of SIC 45. Other property developers are not part of SIC 45.
Figure 3.1 Broad and narrow industry structures
The alternative classifications can be termed narrow and broad. The narrow sector is essentially the contractors box in Figure 3.1 and refers to on-site assembly and repair of buildings and infrastructure, including site preparation, construction of buildings and civil engineering works, building installation (e.g. electrical wiring, plumbing), building completion (e.g. painting, plastering) and renting of construction or demolition equipment supplied with an operator.
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This narrow definition conforms to the SIC 45 category used in official statistics. In turn, contractors tend to be defined to exclude those who engage in self-build, construction in the informal sector, and direct labour. The broader sector can be seen to include the supply chain for construction materials, products and assemblies, and professional services such as management, architecture, engineering design and surveying and, as noted above, perhaps land and facilities management. The links between these various components of overall construction activity are explored shortly. The wider definition has the virtue of drawing attention to the economic activities that directly depend on the narrower definition of the construction industry. The fortunes of these activities are critically inter-dependent with the fortunes of the contractors.
Construction Output
Both the narrow and broad definitions are legitimate for the purposes of profiling the industry, and both are adopted in this report. The linkages between the narrow and broad definitions are captured in Figure 3.2 which shows the broad magnitudes of gross output of each part of the broadly defined sector (Dickson, 2003). Figure 3.2 shows that significant construction activity takes place outside the narrowly defined construction sector. (Care needs to be taken in interpreting these figures. Gross output is not the same as contribution to GDP. The relevant figure is value added see Section 3.2, page 14). Figure 3.2 attempts to illustrate the gross output of the broadly defined UK construction industry using a Venn diagram. It is based on work done for nCRISP on the size structure of construction (CFR, 2003). The various components of output are represented by circles (and, in one case, an oval), indicative of their relative significance by value. The overlaps indicate the extent to which each component contributes to the output of other components. The thick line around the diagram, therefore, encloses the gross output of all the components and excludes double counting. The figure is only indicative, the sizes of components and the extent of overlaps are not precise. The largest component is contractors and public sector direct labour output. This is what is commonly taken to be construction output. A large proportion of this output, however, is construction materials and products; a smaller but significant proportion is provided by construction professional services (largely design work by private consultants on design, construction and Private Finance Initiative (PFI) schemes, etc, commissioned by contractors and charged by them to their clients); and self build includes construction materials and products and work done by professional firms and contractors as well as the efforts of pure self builders. Private sector direct labour output is construction work undertaken by employees of commercial and industrial organisations; this will normally be repair and maintenance but could include some capital works. It should be noted that construction professional services relates only to work by construction professional firms; it does not include the output of professionals working for public or private commercial organisations.
10
Figure 3.2 The overall gross output of the UK construction industry
The output of intermediaries (the oval) is included in construction materials and products. Most materials and products purchased by non-contractors are purchased via wholesalers or retailers. The hatched area is a residual; it indicates construction materials and products not used by other categories. It will include materials and products purchased by individuals for do-it-yourself (DIY) installation. It is likely to be one of the less accurate components of the diagram. Informal construction output is indicated by a cloud shape because it is rather more uncertain than other kinds of output. It includes what is commonly called the black economy and other construction work that, for one reason or another, is not included in any other category. Exports and imports are indicated only for materials and products; in national economic statistics, the output of contracting or professional services is allocated to the country where it is undertaken.
Construction Stock
Finally, a distinction is needed between construction the act of adding value to the existing stock through new build and repair and maintenance and the stock of constructed assets constituting the built environment. The former is a positive flow that adds to the latter
11
stock, with natural depreciation being the negative flow. The activities of Repair and Maintenance (R & M) tend to offset at least some of the stock depreciation, and usually add value to the stock. The value of the stock also changes with real price2 movements regardless of any change in physical assets. It follows that, measured solely in terms of materials (e.g. weight) or value (money) we have:
Stock at time t = Stock at time t-1 + appreciation in time t depreciation in time t

where appreciation consists of physical additions to the stock and real price rises, and depreciation refers to reductions in the physical stock and any price reductions. (For a detailed discussion of stock and flow concepts, see Ive and Gruneberg, 2000, Ch.4). The stock at any point in time is therefore the built environment. The built environment is sometimes used interchangeably with the built heritage or patrimony, but the latter terms tend to be used to distinguish different qualities of the stock. A Georgian mansion might be regarded as part of the built heritage on this latter interpretation, whereas a 1960s high-rise block of apartments might not. Stocks are measured in money value terms, so that the value of the built environment should reflect both quantities and qualities of the stock, regardless of whether the stock is capable of being bought and sold on the open market. The final value of a unit of the built stock embodies all the inputs from constructors and the other activities directly relevant to producing construction output. Measuring the size of the construction sector is not straightforward. Definitional problems abound, and various indicators can be adopted. Foremost amongst these are: Number of firms Employment Gross output Value-added Other than employment, which is discussed in more detail in Chapter 5, these indicators are considered below. Each tells a story that is relevant to any analysis of the role that the construction industry plays in sustainable development. The last two output and value added provide the traditional measures of scale, but, as Chapter 1 showed, sustainable development encompasses concerns that are wider than traditional measures of production. Output and value added need to be supplemented with indicators that reflect these wider social and environmental concerns.
Real price changes refer to rates of price
increase faster than the rate of general inflation.
3.2 How large is the construction industry?
Number of firms
For the exact scope, in terms of SIC codes, of the broad definition used in this report, see the Statistical Annex at the end of the report. For the analysis in this section we primarily use data gathered from the Annual Business Inquiry (ABI) as this is currently the most comprehensive and consistent source available. Figure 3.3 shows the distribution of firms in the construction sector. The picture is fairly
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clear. The ABI data suggest that contractors account for just over half the total number of firms in the broader definition of the industry, and the sale of construction products accounts for a further quarter of the total number of firms.
Figure 3.3 Number of construction and construction related firms 2001
Source: ABI (2003)
The firms represented here and their output, discussed later are broadly similar to the firms producing the output presented in Figure 3.2, but there are differences. The most notably difference is professional services. The data for professional services in Figure 3.2 is based on a survey undertaken for the Construction Industry Council in 2000, and is specific to construction professional services; the data in Figure 3.3 are drawn from SIC data and include a range of engineering and other consultancy not related to construction. Figure 3.2 also includes output by individuals and non-construction firms. There are other more detailed comments on the SIC data in the Statistical Annex. Figure 3.4 shows time series data for the number of contracting firms during the period 1995 to 2001. The series shows a steady decline in the number of firms from 1995 to 1998 by some 4%. Between 1998 and 2001, the number of firms expands by a modest 6%, indicating that the number of firms has remained fairly constant over the period.
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Figure 3.4 Time series for the number of contracting firms (SIC 45) 1995-2001
Source: ABI (2003)
Output and value added
There are at least two measures of industry output. The first gross output - records the sum of the values of sales by all firms in an industry and would normally correspond to notions of turnover or sales. The second definition records the value added by the firm to the value of inputs received from suppliers. This is value added. Whereas this measure of output can be added across all firms to provide a measure of aggregate output, it would amount to double (and multiple) counting to add up gross outputs. For example, if firm A supplies materials to firm B at a cost of, say, 2 million to firm B, and firm B produces output valued at 5 million, the total output of A and B is not 7 million since As output is already embodied in Bs output. Rather, the true combined output is 2 million for A (assuming, unrealistically, that A has purchased no inputs) plus 5-2 million = 3 million for B, or 5 million in all. While the gross output measure is useful for measuring the general level of economic activity in a sector, value-added is the more relevant measure since it indicates the contribution that the sector makes to gross domestic product i.e. GDP. This is because GDP is the sum of all value-added across all sectors in the economy. Figure 3.5 records value-added for a single year, 2001. Again, contractors account for just over half of the value-added (about 48 billion) in the broader definition of the industry (about 90 billion).
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Figure 3.5 Value-added in the construction sector 2001 (%)
Source: ABI (2003)
The comments made in the section on the number of firms on the differences between this data and the data referred to in Figure 3.2 also apply to the industry output data. The data for professional services in Figure 3.2 is specific to construction professional services; the data in Figure 3.5 include a range of engineering and other consultancy not related to construction. The wider definition of the industry implies an approximate doubling (10%) of the contribution to GDP made by the narrowly defined sector (5%). Figure 3.6 compares the contribution of the narrow construction sectors contribution to GDP with the contribution of other economic sectors for a single year.
Figure 3.6 Value-added as a proportion of UK GDP 2001
Source: ONS (2002), National Accounts
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Figure 3.6 reveals that (narrow) construction is roughly equal in size to the transport and communications sector, or the public administration and defence sector. It exceeds in size all of the largest manufacturing sectors. Figure 3.7 traces the evolution of real output and real valueadded for the past decade, both having grown at 1.7% per annum. This can be compared to GDP growth of some 2.3% per annum during the same period.
Figure 3.7 Output and value-added by contractors 1993-2001 ( billion at constant 1995 prices)
Source: Value added from ONS (2002, Table 2.2 value added at current prices - and Table 2.4 index numbers of real value added). Output from DTI (2003, Table 2.2).
Figure 3.8 charts the change in gross construction output (narrow definition) from 1985 to 2001, showing the division between housing and non-housing output. Significantly, housing output has remained constant for the whole period apart from a cyclical upwards movement in the late 1980s mainly due to increases in private house construction. In contrast, non-housing output has grown and accounts for the higher overall annual growth in output in the last half-decade (2.1%) compared to the rate for the whole period (1.1%). Figures 3.8 to 3.10 show the composition of gross construction output as it is presented in DTIs Housing and Construction Statistics.
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Figure 3.8 Housing and non-housing output 1985-2001 ( million at constant 1995 prices, seasonally adjusted)
Source: DLC based on DTI Housing and Construction Statistics gross output data
Figure 3.9 shows the same output data as Figure 3.8, but revealing the public/private sector split. Public output has been constant over the period, while private output has grown, but in a cyclical manner.
Figure 3.9 Public and private output 1985-2001 ( million at constant 1995 prices, seasonally adjusted)
Source: DLC based on DTI Housing and Construction statistics gross output data and assuming infrastructure is 50% private and 50% public
However, some specific factors influencing the public/private split are concealed by the data. First, privatisation of public utilities means that infrastructure previously classified as public has now become private
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output. With the advent of privatisation, significant modernisation of utilities has taken place, the modernisation under public ownership having been limited by strict financial controls. The second factor is, the Private Finance Initiative (PFI) which began formally in 1992 but did not really take off until 1994 (Grout, 1997). Under PFI, the private sector funds, builds and owns the assets in question, with the public sector purchasing the flow of services, so that some previously classified as public output has shifted into the private sector. It should be noted that public output is significantly less than the 40% usually assumed and currently stands at around 31% of total output. Finally, figure 3.10 shows the division of output between new work and repair and maintenance (R&M). It can be seen that, currently, the two activities each account for roughly 50% of overall output. However, R&M output is currently about the same level as it was in 1990, whereas new work has shown significant growth, most of it concentrated in the second half of the 1990s.
Figure 3.10 R&M and new output 1985-2001 ( million at constant 1995 prices, seasonally adjusted)
Source: DLC based on DTI Housing and Construction statistics gross output data and assuming infrastructure is evenly split between new build and work to the existing stock.
This may well be an accurate picture for contractors construction output but many other types of construction output DIY, self build, direct labour and the black economy are significant and very likely to involve work to existing buildings (mainly R&M).
Infrastructure output
New infrastructure output in 2002 was approximately 8 billion, or approximately 10% of total construction output (CFR, 2003). The composition of infrastructure output can be seen in Figure 3.11. Significantly, over half of all infrastructure output is accounted for by road and rail. Without infrastructure, economic activity would largely cease in its current form. In this narrow sense, infrastructure is an essential ingredient of modern life, but this is true of other sectors,
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goods and energy, water and waste disposal. Of more interest is the difference in human wellbeing made by improved infrastructure systems. Care has to be taken when trying to measure this effect. What are often cited as external benefits of infrastructure are, in fact, already reflected in the price paid. For example, better road transport lowers transportation costs, but these effects show up in the market place. It would be incorrect to add these alleged external benefits to the market value of the transportation system (Verhoef, 1996). Nonetheless, there is an argument that, by stimulating competitiveness, especially through cost reductions, improved infrastructure generates dynamic change in the economy which benefits everyone. These growth effects were studied by SACTRA (1999) who concluded that they are important when an economy is under-developed with a limited transport infrastructure (see also Creightney, 1993), but they are small for economies with developed transport systems. Other assessments reach similar conclusions e.g. T&E (1996). Therefore, while infrastructure is clearly essential for the operation of any economy, the value of improving an already well-developed system is largely captured in the benefits that are traditionally estimated, e.g. time-savings. Adding in benefits for dynamic growth affects is legitimate, but those affects are likely to be modest.
Figure 3.11 The composition of UK infrastructure expenditure 2002
Source: CFR (2003)
3.3 International comparisons of size
The same source reports comparisons of
gross output but doubts have been cast on the reliability and comparability of these estimates.
International comparisons of sector size are complex due to differing definitions and because of the need to convert national currencies to a common base. Table 3.1 reports comparisons of relative size based on value added3 using Purchasing Power Parities (PPPs) for the UK, Germany, France and the USA. In value-added terms, the UK industry is some 25% smaller than German construction, but 30% larger than the French industry. All European sectors are small relative to the USA.
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Table 3.1
Relative size of construction industry [SIC 45] in four countries 1999 (UK = 100)
Value added 100 131 76 651
UK Germany France USA
Source: Experian Business Strategies (2003), Table 10
Eurostat (2002) provides data on comparative value-added for SIC 45 (the narrow definition). Unfortunately, data for Germany are not available. Table 3.2 reports some of the available data. The size comparison with France shown in Table 3.1 is confirmed, with the French industry being about 75% of the size of the UK sector. The UK sector is also larger than any other European country (other than Germany) although in per capita terms the Netherlands is larger.
Table 3.2
Relative size of construction activity in Europe 1999

UK 58.31 59,623 977.8 France 44.01 59,226 742.9 Netherlands 15.64 15,864 983.4 Belgium 8.25 10,239 810.6 Italy 34.06 57,680 589.5
Total value-added ( bn) Population (000s) VA/capita ( )

Source: Eurostat (2002)
Looking at the relative sizes of the workforces, we can make some further comparison, although even here there are quite extensive data problems. Experian (2003) has a preferred estimate of 1.83 million people employed in the sector in the UK compared to: 1.44 million in France, 2.77 million in Germany and 8.6 million in the USA. The figure for France is consistent with the value-added comparison. The figure for Germany suggests a 50% larger sector than the UK, compared to 30% on the value added comparison. Overall, the available data suggest that the UK sector is smaller than the German sector but larger than the French sector. All European industries are substantially smaller than the industry in the USA, as would be expected. Figure 3.6 above indicated that value-added by the narrow construction sector was some 5.4% of UK GDP. This is confirmed by Eurostat National Accounts (Eurostat, 2002) which also show a comparison with other countries. The UK share is equal to the average for EU-15. The lowest share is Sweden at 4.5% and the highest is Ireland at 6.0%.
3.4 Direct labour output
Direct labour output can be either public or private. Public sector direct labour organisations (DLOs) have an output, value-added, and productivity profile that is very different from that of private contractors. They mainly engage in works to existing structures, especially repair and maintenance. Official statistics recognise construction output by public sector direct labour organisations
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(2.7 billion at current prices in 2001). Public direct labour output is less than half of the value it was in real terms a decade ago. Private sector direct labour construction output (construction activity undertaken in-house by non-construction firms) is estimated to be of the order of 2 billion (CFR, 2003). It comprises construction work undertaken by private commercial and industrial organisations using their own employees.
3.5 Do-it-yourself and self-build
Do-it-yourself building is a common and legitimate activity of substantial market size. For quantitative estimates, DIY and the informal sector (see Section 3.6) are considered together simply because of the availability of data. Euroconstruct has produced estimates of the combined DIY/other services and informal economy for several European countries. These data are shown in Table 3.3 below. The data suggest that these activities are equal in output to 11-19% of all construction activity, with the UK being at the higher end of this range. Davis Langdon and Everest (2000) suggests that the UK DIY market is at least 5 billion.
Table 3.3
Estimates of the DIY and informal construction sector in various European countries (Euros/capita and %)
Denmark 388 11% France 400 19% Netherlands 292 12% UK 318 17%
DIY+informal output DIY/informal output as % of total output
Source: Davis Langdon and Everest (2000) based on Euroconstruct data.
Self-build housing includes housing built by contractors for private individuals, housing built entirely by individuals, and a range of alternatives in between. Some of this output will be included in contractors output but some will not. It is estimated that around 1 billion of self-build is not included in conventional measures of construction output.
3.6 The informal economy
The informal, or black, sector of an economy refers to economic activity that is unrecorded by design (illegal activities) or default and which, if recorded, would contribute to a nations GDP. Estimation of the size of the informal sector is complex and controversial and there are competing figures in the available literature (for a review, see Schneider and Enste, 2000). Nonetheless, there are indications that, globally, the informal sector has grown rather than diminished, despite numerous policies aimed to capture the sectors potential tax and social security contributions. Schneider (2002) suggests that the informal economy may amount to 18% of GDP in European OECD countries, compared to 29% in Asia and over 40% in Africa and South America. Within Western Europe, the UK has one of the lowest fractions 13% compared to 29% in Greece, 27% in Italy, and 23% in Spain, Belgium and Portugal. Only Austria (10%) and Switzerland (9%) have smaller informal sectors than the UK, relative to their GDP. The UK informal
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sector also appears to have grown, from just under 10% in 1989/90 to 12.5% in 2001/2, with a peak of 13% in 1997/8. Using data on labour forces, Schneider (2002) shows that informal economy participants may constitute as much as 20-48% of the official labour force in Italy, 8-23% in Germany, and 13-20% in Sweden. Unfortunately, no estimates are given for the UK. Nor is detail offered of the sectoral distribution of informal GDP and employment. It is widely believed that construction (narrow definition) has one of the largest informal sectors, probably not less than 10 billion in terms of gross output.
3.7 The size distribution of the UK construction industry
The vast majority of construction firms tend to be small. Figure 3.12 shows the size distribution of contractors and building materials producers. In 1991, 94% of all contracting firms employed 7 persons or less. Almost half of firms had a single employee. By 2001, there was a slight shift away from very small firms, with 90% of all firms employing 7 persons or less (CFR, 2003), and 46% of firms having a single employee. At the other end of the distribution, about half of 1% of firms had 80 or more employees in 1991, and this fraction had increased just slightly by 2001. Large firms employing over 1200 people in 2001 produced some 12% of all contractor output (CFR, 2003). Similar skewed distributions exist for the non-contractor sectors of the wider definition of the construction industry. Figure 3.12 shows that in the building materials sector, 80% of materials are being produced by the largest 15-20% of firms.
Figure 3.12 Percentage distribution of turnover and enterprises for UK contractors and building materials producers 1999
Source: Davis Langdon & Everest (2000)
Similarly over 80% of professional service firms have fewer than ten employees (24% of all firms have just one employee), and only 3% of firms have over 50 employees. The distribution is similar regardless of the discipline.
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Firms with a fee income over 7.5 million p.a. generate around 60% of all professional services fee income, but account for just 1% of the number of firms. A third of firms have fee revenues of under 150,000 p.a. Nearly 80% of firms have revenues of less than 750,000.
3.8 The implications of small unit size
The size distribution of the broader industry is heavily skewed towards small firms. This size structure poses special problems for adding value and contributing to sustainable development. First, the preponderance of small companies precludes the exploitation of economies of scale and hence cost reductions, with all the implications for competitiveness. The norm for many jobs is for small units to combine in consortia, resulting in considerable transaction costs in ensuring consistent work patterns and effective communication among participants, and low levels of investment in IT and R&D. There is widespread consensus that the fragmented nature of the industry is not conducive to efficiency (e.g. DTI, 1999; Strategic Forum for Construction, 2002; Sorrell, 2003; Be and CIRIA, 2003). The consortium nature of construction projects places major demands on communication between the relevant components. It is estimated that forms of communication are still very traditional: personal meetings still dominate, followed by telephone and fax, but with only a few, although increasing, percentage points of communication being accounted for by electronic sources (Byfors, 2002). Industry fragmentation is also problematic for sustainability, which is not a spontaneous activity. It requires persuasion and encouragement, and fragmentation means that messages about sustainability and corporate social responsibility will be more difficult to diffuse among many thousands of small firms. Indeed, the evidence is that wider notions of social responsibility have filtered through only to large firms. Second, some aspects of social responsibility and sustainability may involve financial sacrifices being made, at least in the short run. It is extremely unlikely that the triple bottom line of profitability, and environmental and social responsibility comes without a cost to the firm (Pearce, 2003). If so, this cost is less likely to be affordable to small firms working to low margins. But there are positive features of smallness. Small units can and do compete with each other for smaller tasks, and they can offer tailormade job specifications for customers. Customer-firm relationships can be closer than if large anonymous firms are involved. Quality assurance may also be higher where there are strong links between customer and firm. Moreover, the size distribution in construction is similar to that for many other industries, so that construction does not face a unique problem in this respect. Furthermore, it is worth reflecting on the fact that the current structure of the industry has not, contrary to much comment, prevented the industry securing a reasonable productivity record, as Chapters 5 and 7 show. Overall, there is a balance to be struck between the potentially higher productivity that could ensue from increasing the average size of firms, and the closeness of customer-firm relationships for small firm tasks.
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The purpose of this chapter is to paint a statistical picture of the UK construction sector. The construction industry has narrow and broad definitions. The narrow definition confines attention to the on-site construction activity by contractors. The true extent of the industry is broader than this and includes the extraction of construction raw materials, the manufacture and sale of building materials, products and assemblies, the sale of construction products, and the various related professional services. On the narrow definition there are probably some 170,000 contracting firms in the construction sector. On the broad definition the number is closer to 350,000. The number of contractors (i.e. the narrow definition) has fallen in the last decade by around 15% but there was some expansion of numbers in the second half of the 1990s. On the narrow definition, construction contributes around 5% of UK GDP, comparable with the health and education sectors. Value added has grown by around 1.7% per annum in the last decade. On the broad definition, the contribution to GDP doubles to some 10%. Annual housing output by contractors has remained fairly constant in the last decade but non-housing output has shown significant growth. Public sector output by contractors has been constant for the last decade, while private sector output has increased, albeit cyclically. These trends conceal various factors such as the Private Finance Initiative and privatisation of utilities. Currently, contractors output is shared more or less equally between new work and repair and maintenance. New work has shown the faster growth in the last decade. Contrary to the perception of many, the narrow construction sector is larger in size than any other European sector, apart from Germany, when measured in terms of value-added. The exact size of the DIY sector is difficult to measure but estimates suggest it is worth approximately 5 billion per annum in terms of materials and products. The size of the informal construction sector (the black economy) is also uncertain but may be around 10 billion. All sections of the broadly defined industry show a heavily skewed size distribution with a large number of very small firms. While this feature of the industry raises concerns about efficiency through economies of scale and reduced transaction costs, much of the smallness contributes to customer satisfaction through close communication.
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4 Manufactured Capital
The schema presented in Chapter 2 showed that the sustainability of economic activity rests on four pillars of capital stock: man-made or manufactured capital, human capital, natural capital and social capital. This chapter looks at manufactured capital and shows how important construction is in terms of accounting for a significant part of the nations wealth (the stock of manufactured assets), and in terms of adding to that wealth each year (investment).
4.1 The built environment as a capital stock
A nations true wealth comprises the sum of all its capital assets: manmade, human, environmental and social. Time series of total wealth for recent years, excluding social capital, have been computed by the World Bank for over 100 countries (World Bank, 1997). These data suggest that human capital dominates the total wealth of advanced European economies, accounting for some 75% of the value of all assets, and with man-made capital accounting for most of the remainder. Environmental capital accounts for a small fraction of total wealth. The exact contribution of the built environment to these fractions is difficult to estimate. Nonetheless, focusing on man-made wealth alone, the built environment has always comprised the major part of that component of total wealth. Figure 4.1 records the data from 1760 to 1980.
Figure 4.1 The built environment and man-made wealth ( million at constant 1958 prices)
Source: adapted from Mitchell (1988)
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Figure 4.1 indicates that, from the Industrial Revolution to the present day, built assets have accounted for around 66-90% of all man-made wealth. If, in turn, the World Bank estimates of the composition of total wealth could be extrapolated historically, built wealth would comprise around 16-22% of all wealth. While the data are uncertain, there is also a suggestion that built wealth, while rising substantially over time, has fallen as a fraction of all man-made wealth. This would be consistent with the rise of machinery and plant as industrialisation advanced. The historical data even permit an approximate breakdown of built wealth into dwellings, and other buildings and infrastructure. In 1920, dwellings accounted for nearly 25% of the total (net) capital stock, and other buildings/infrastructure for a further 55%. By 1948 the dwellings fraction had risen to 37% and the other buildings/infrastructure fraction had fallen to 41%, i.e. the values of dwelling stock and other constructed capital were approximately equal. By 1980, the fractions had further changed to 32% and 41% respectively. Maddison (1995) provides further estimates of non-residential built capital for 1992. Of the $1,650 billion of this stock (at 1990 prices), infrastructure accounted for 62%, or some $1, 000 billion. Some idea of the infrastructure stock can be obtained from Table 4.1 which shows the comparative length of road and rail tracks per head of the population and per square kilometre for selected countries. Since road and rail are jointly supplied goods (provision to one person does not exclude others up to the point of congestion), the indicators in Table 4.1 are not ideal: for example, more road length per capita does not necessarily reflect more ease of travel. Nonetheless, the data give some idea of relative capital stocks. By and large, the UK lags behind other European countries in the transport infrastructure available to the population. However when the comparison is made by area the relative position of the UK is improved.
Table 4.1
Roads and railway tracks in Europe: kilometres per 1000 people and kilometres per 1000 square km
Rail Km/000 pop 0.58 0.91 0.82 0.39 0.68 0.92 Km/000sq km 0.14 0.21 0.09 0.08 0.07 0.01 Road Km/000 pop 7 na 16.4 na 12.8 20.2 Km/000sq km 1.7 na 1.8 na 1.3 0.3
UK Germany France Italy Austria Norway
Source: Eurostat NewCronos (2003); World Bank (2003)
4.2 Construction and capital formation
Construction adds to the stock of built wealth and is therefore a form of investment. There is a view that, compared to its international competitors, the broad UK construction sector lacks a sufficient share in total UK investment to allow modernisation and upgrading of the UK built stock to keep pace with that of the stock of machinery, equipment and vehicles. Davis Langdon and Everest (2000) suggests
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that there is an element of truth in this observation. Table 4.2 shows the ratio of new build construction to gross capital investment, and the ratio of all construction output to gross capital investment in several countries. The data suggest that the UK construction industry secures much lower fractions of total new investment than other countries, with the exception of France.
Table 4.2
Construction as a share of total man-made capital formation: selected countries 1998 (%)
Germany Neths 35 53 29 53 UK 24 46
Belgium Denmark Finland France New build/ GDFCF 43 28 36 23 All construction output/GDFCF 68 50 59 46
Source: Davis Langdon and Everest (2000)
Interestingly, for real estate activities (SIC70)
the UK also has a surplus of outflow over inflow, but the EU has an overall deficit.
Construction investment flows occur internationally. In 1999, for SIC 45 activities, the UK invested 4.3 billion Euros abroad, with 68% of it going to the USA, compared to an inward investment by other countries of 0.9 billion Euros (Eurostat, 2002). This pattern holds for the European Union as a whole, but with the UK having a larger ratio of balance of investment surplus compared to the EU4. The physical stock of constructed assets changes according to the rate of new construction and the rate of asset depreciation. So long as the former exceeds the latter, built wealth increases in physical terms. In monetary terms the net change in total wealth is made up of the value of the new stock plus real price appreciation on the existing stock plus appreciation due to repair and maintenance, less the value of consumption of assets and any real price depreciation that might occur. The data in Figure 4.1 strongly indicate that the real market value of the built environment has increased rapidly through time, and especially so in the 20th Century. Part of the built stock is the stock of dwellings, and one feature of dwellings in the UK is that they tend to last a long time. Put another way, the rate of depreciation of the dwelling stock is very low. Meikle and Connaughton (1994) estimate that for the second half of the 1980s, average annual losses of houses accounted for just 0.08% of the total housing stock. The effect is that the stock is steadily getting older in the sense that the proportion of old houses in the total stock is increasing. Figure 4.2 summarises the data and shows a steady decline in the net gains to the dwelling stock from the mid 1960s. Over the 40 years from 1960, the average loss rate was about 0.2% of the final stock, but with a variation between 0.4% in the late 1960s and under 0.1% in the late 1980s.
4.3 Longevity of built wealth
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Figure 4.2 Gains and losses to the housing stock 1961-2000 (thousands)
Source: adapted from Meikle and Connaughton (1994)
Figure 4.3 highlights the growth rate of the (physical) stock in England. Average annual growth has been just under 1% per annum (from 14.9 million dwellings in 1961 to 21.1 million dwellings in 2000). The data suggest, in crude terms, that just over 7 million dwellings were built, while just over 1 million were demolished during the period.
Figure 4.3 Housing stock development 1965-2000 (million)
Source: adapted from Meikle and Connaughton (1994); ODPM (2003)
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The replacement rate of the UK housing stock is lower than comparable European countries. Potter and Meikle (2002) report early 1990s new dwellings completions as a proportion of the stock of dwellings as follows: UK 0.83%; West Germany 0.96%; France 1.18%; Netherlands 1.64%; Spain 1.60% and Italy 1.20%. Self evidently, low replacement rates have implications for the construction industry since new build will be restricted and hence the size of the domestic industry constrained. Offsetting this, the repair, maintenance and conversion sectors of the industry are likely to face greater demand than would otherwise be the case, as would the DIY industry. This will be especially true if the age-profile of the housing stock changes in favour of older houses. Meikle and Connaughton (1994) show that the average age of the housing stock has increased since 1960. In 1971 the average age of the stock was not below 46 years, and in 1991 it was not less than 53 years. In 1970, 60% of the housing stock was less than 50 years old, and less than 10% was over 100 years old. In 1990 those proportions had changed to 50% and 15% respectively. The housing stock is ageing. Another way of thinking about the longevity issue is to calculate a crude replacement rate how long each dwelling would have to last if each new dwelling replaced a unit of the existing stock, and assuming no growth in demand. For the UK this replacement rate is around 133 years, compared to 103 years in France, 78 years in the USA, and just 28 years in Japan (Meikle, 2000). Yet another way of viewing the same issue is to consider house-building rates per unit of population. The lower the rate, the more the population is occupying existing rather than new properties. Meikle (2000) estimates that in the mid 1990s, the UK completed only 3 new dwellings per 1000 persons. This compares to 5.2 for the EU as a whole, 5.3 for the USA, and a staggering 13.0 for Japan. At first sight, the longevity of the housing stock would appear to be a good thing. The more durable an asset is, the less likely it is to be replaced in any given year, reducing the quantity of natural resources used in construction activity and so also reducing the level of pollution associated with that activity. Indeed, product durability has long been one of the measures advocated by those concerned with environmental damage. Formally, product life extension is equivalent to source reduction the reduction of wastes at source by reducing output. However, the issues are more complex and there is a fine balance between the environmental gains in extending product life and the potential environmental losses from doing so. First, longevity locks in the prevailing technology and design of the building, making it more, rather than less, difficult to adapt for newer technologies, whether energy-saving, more productive organisation of space, etc. The older the stock the more likely it is to be energy-inefficient so that, without aggressive energy-saving policies, even the available energy efficiency measures may not be taken up. Older dwellings occupied by the older generations also present problems of fuel poverty and risk to health and life. Meikle and Connaughton (1994) show that a significant fraction of the housing stock remains in a state of poor maintenance and repair, and this may be correlated to the ageing of the stock. There can be no guarantee that the reduced resource use and emissions from reduced new build is greater than the environmental impacts of
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increased conversion and repair, although it seems likely. Even health and safety can be an issue. If low new build is compensated for by extra repair and maintenance, much of it will be carried out by house owners and tenants as DIY. It is suggested that expenditure on DIY may be roughly the same as total recorded output on housing maintenance and repair. Accident rates from DIY are likely to be far higher as result. What at first sight appears to be an environmentally and socially benign feature of the UK housing sector the longevity of its assets may turn out to be an inhibitor of technological change in the housing stock and a barrier to energy efficiency. Policies to reduce asset life do not appear to be sensible current asset lives must, to some extent, reflect property owners preferences. On the other hand, other factors operate to keep older properties in existence. As properties age, rates of return to repair and maintenance tend to fall. With normal market forces, this should provide an incentive for owners to sell properties for redevelopment. But if asset values fall because of growing disrepair, owners could find themselves with negative equity and the option to sell for redevelopment appears unfavourable compared to remaining in the property. Moreover, the planning system tends to discriminate against piecemeal redevelopments so that the demolition of old properties tends to occur mainly under official regeneration schemes only. Overall, then, the systems of mortgage finance and land use planning and, to some extent, owners preferences sustain an ageing dwelling stock which may not be socially the best thing. One suggestion is for a fresh look at building design. Here there may be a need to follow trends that have taken place in, for example, the automobile industry where legislation (such as the End of Life Vehicles Directive) has prompted design for easier recycling and re-use of vehicle components. Again, however, such measures can only affect new properties, with little impact on the average age of the dwelling stock. Such measures could be more effective for industrial and commercial buildings where lives are shorter. Otherwise, the focus needs to be on the planning regulations and on systems of property finance to see how they might be changed to secure a better age-profile of buildings. But there are alternative views of the longevity issue. Some argue that older buildings can generally be retrofitted for energy efficiency, and that this process is itself less polluting than the production of new buildings: In global environmental terms, the balance of advantage strongly favours the retention of existing building stock, particularly when performance in terms of energy consumption in use can be improved (BS 7913: 1998 Building Regulations and Historic Buildings). It appears, then, to be a matter of balance as to how far longevity of fixed assets is a good thing, and an issue that can be resolved only by detailed analysis of environmental and social gains and losses.
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Built wealth residences, workplaces, public buildings and infrastructure has long accounted for the major part of manufactured wealth, from some 90% at the time of the Industrial Revolution to around 70% now. Dwellings account for about one-third of manufactured capital stock. Of non-residential capital, infrastructure and non-residential building accounts for nearly two-thirds and machinery and other assets for one-third. On a per capita basis, the UK generally lags behind other European countries in the provision of transport infrastructure, however when the comparison is made by area the relative position of the UK is improved. The UK has one of the lowest proportions of European capital investment in new build and overall construction activity relative to total capital investment of all kinds. Much of the built environment is long-lived, with the UK having longer replacement rates than other comparable countries. This has implications for the structure of the industry (e.g. the demand for repair and maintenance) but also for the chances of securing energy efficient buildings and for housing conditions. It is not obvious that capital longevity contributes positively to sustainable development.
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5 Human Capital
5.1 The relevance of human capital
Human capital refers to the stock of knowledge embodied in the relevant labour force, and the health status of that labour force. The available data on the wealth of nations strongly suggest that human capital comprises the largest part of total wealth, accounting for perhaps three-quarters of wealth in advanced economies (World Bank, 1997). The stock of human capital can only be increased by a) having a larger labour force, b) a better trained and educated labour force, and c) a labour force that keeps pace with technological change. Figure 5.1 shows a snapshot of employment in 2001 in the broad definition of the construction sector. The data are drawn from the ABI and include an estimate for working proprietors. However it is likely that the data understate the total construction workforce, particularly the self-employed. Figure 5.1 indicates that around 3 million people are employed in the broader definition of the industry. Since total employment in the UK is approximately 27.9 million, construction accounts for 10.7% of employment on the broader definition5.
5.2 The labour force in the construction industry
As at July 2003.
Figure 5.1 The labour force in the construction industry 2001 (all manpower)
Source: ABI (2003)
Figure 5.2 shows employment trends for contractors only. The data reveal the impact of the declining economic conditions in the early 1990s. Whereas the number of firms fell by only 6% 1991-5, employment fell by nearly 15 %. The data also suggest a decline in the proportion of self-employed relative to employees. This may reflect the changes in Inland Revenue definitions and treatment of labour only sub-contractors (from treating them as unregistered small enterprises to treating them as employees of firms) at about this time.
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Human Capital
Figure 5.2 Time series for employees, self-employed and all manpower in the construction industry 1991-2001 (thousands, based on last quarter of the year)
Source: DTI (2002)
5.3 Training and skills structure
The narrow construction industry faces a serious problem in matching the supply of available skills and its demand for labour. In essence, there is a skills mismatch that shows up in various ways. As far as employed workers are concerned, and based on CITB data: Since 1990 there has been a sharp reduction in the numbers of manual workers employed in the age group 16-29. Numbers employed of manual workers in the age group 30-39 have increased slightly. Numbers of manual workers employed in the 40+ age group show a variable picture, with some age groups increasing in employment and others decreasing. This declining employment pattern also holds for non-manual workers in the 16-29 age group, and the 30-39 group also shows an increase. The 40-49 group shows a decline for non-manual employment. The 50+ age group shows a significant increase. The extent to which this pattern holds for the self-employed is not easy to gauge. Overall, the employed labour force in the narrow sector shows an ageing trend, partly due to non-recruitment in the 1990s recession but also due to educational changes whereby young people who would otherwise have entered the industry stay on at school and college, then enter other industries.
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Age structure
Human Capital
Skills, occupations and industries
The problems of matching the demand for, and supply of, skills arises partly because of the declining employment of younger people in the industry, but also because narrow construction has to compete with other sectors for the skills that it needs. More construction professionals (engineers, architects, surveyors etc.) are employed outside the narrow industry than in it (CITB, 2002). The picture is less dramatic for building services but even here only half the supply of electricians is employed in construction. The prevailing skill structure can be summarised. Only 13% of employees (all occupations, and taking the broader definition of the industry) have an NVQ-equivalent level above 4, but 46% have a level of 3 or above (CITB, 2002). This compares favourably to fractions in the range 31-37% for transport, agriculture and distribution, but unfavourable to fractions of 57-61% in public administration, banking and energy and water. Just over 40% of employees have gone through an apprenticeship. In terms of available skills, therefore, there is a fairly strong profile. The concern is with the future and whether the industry will be competitive without some improvement in the skills base. Various surveys suggest difficulties already exist in recruitment, i.e. a tight labour market, especially carpentry/joinery and bricklaying (CITB, 2002). CITB (2000) estimates that the period to 2006 will require 76,000 new recruits each year, with special focus on carpenters/joiners, managers, electricians, clerical workers, bricklayers and plumbers.
Skills structure
Training
Increasing human capital implies increasing numbers of workers and their skill levels. CITBs Trainee Numbers Survey provides an insight into these two dimensions. The trend in first-year starters on construction courses at Further Education Colleges and Training Centres was fairly constant up to 1996, fell to a low point of just over 29,000 in 1997, and has risen since. However, training intake is not the same as entry to the industry and there is significant fall-out, with perhaps 20-40% of intake leaving the industry (CITB, 2002, p60). Figure 5.3 shows the picture at the level of university degrees, and the figures suggest a downward trend in entry to constructionrelated degrees. University construction-related degree entry has fallen in recent years and is a cause for concern within the industry. Only degrees in environmental technology, town and country planning, and architecture show any signs of constancy or increase. Civil engineering and building and construction show quite marked falls (DTI, 2003).
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Human Capital
Figure 5.3 Applications and acceptances to undergraduate courses in built environment subjects 1994-2000
Source: UCAS (2002)
Skills shortages
Bringing the supply and demand sides together, CITB (2002) estimates that the supply of bricklayers (fully plus partially qualified) may just match the demand up to 2006, but that there will be significant shortfalls of supply for plasterers, painters and carpenters (these estimates assume the higher level of fall-out from training schemes). The picture is worse still for civil engineering and specialist building trades (glaziers, roofers, floorers etc.), and uneven but still problematic for building services (electricians etc). Manual skills are attracting significant wage differentials relative to the rest of the economy, a clear sign of labour shortages. Overall, the mismatch of skills supply and demand could prove to be serious for the construction industry and there is an acknowledged need to invest more substantially in the human capital aspects of the sector.
5.4 Labour productivity
Central to the competitiveness of the construction sector is labour productivity (LP) and overall total factor productivity (TFP). Since the latter is a proxy for the contribution of technological change it is discussed in Chapter 7. This section looks at the available evidence on labour productivity. Table 5.1 shows measures of labour productivity for the UK, the USA, France and Germany, and for the total economy, manufacturing and construction separately. The striking feature of Table 5.1 is that UK labour productivity lags behind productivity in other countries regardless of the sector analysed or whether it is the total economy that is of concern. However, construction shows a much smaller UK deficit compared to France and Germany which are, respectively, only 8 % and 1% higher than the UK, and these differences are probably
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Human Capital
within the relevant margins of errors of the statistics (Ive et al. 2003). Nonetheless, construction as a sector has low productivity relative to other sectors, as typified by manufacturing.
Table 5.1
Comparative labour productivity levels 1999 (output per hour worked) UK=100
US 126 155 114 France 124 132 108 Germany 129 129 101
UK Economy 100 Manufacturing 100 Construction 100

Source: OMahoney and de Boer (2002)
Analysis of rates of change in labour productivity shows the construction sector in a better light. From 1973-1995 UK construction labour productivity grew at around 2.6% per annum, higher than France (2.4%) and substantially higher than Germany (1%) and the USA (minus 0.8%). For 1995 1999 the rate of change slows down dramatically in the UK (to 0.6%), rises in Germany (to 1.4%), remains negative in the USA (minus 0.2%), and becomes dramatically negative in France (minus 2.8%). The UK rates of change mirror those in manufacturing and in the economy as a whole. Not too much can be read into these comparisons because of formidable data problems, but, taken at face value, they suggest that the UK construction sector may be catching up on the productivity levels of continental Europe. Indeed, given the data problems, the UK could be ahead in terms of levels. Moreover, as Ive et al. (2003) note, the comparatively good performance of UK labour productivity in construction is all the more surprising given evidence of low capital-to-labour ratios.
5.5 The health of the construction labour force
Construction is by nature a dangerous industry. Heavy materials being moved about on and off site pose risks to workers and others. Contracting work is also an all-weather activity, adding to risks, and a good deal of work involves activities at heights where further risks are involved. Table 5.2 shows injuries in the contracting sector, expressed both in absolute numbers and relative to output. By and large, overall injuries appear to have increased slightly, although changes in data collection make comparisons with years before 1996 difficult. Certainly, employee injuries appear to have risen by around 15% between 1996 and 2001. Expressed relative to output, however, the aggregate injury rate has been constant and possibly declining slightly.
Table 5.2
Contracting sector injuries

1993/4 11,378 2,360 122 13,860 2.7 1996/71 11,930 1,880 408 14,218 2.6 2000/1 13,767 863 320 14,950 2.6
Employees Self employed Public Total all injuries Injuries per 10m output (current prices)
Source: accident data from DTI (2002, Table 12.21). Output data from DTI (2002) Table 2.2. Note: 1. Change in data collection makes comparison with earlier years difficult. The changes involved RIDDOR - Reporting of Injuries, Diseases and Dangerous Occurrences Regulations. Injuries refer to fatal injuries, non-fatal major injuries and all other injuries requiring absence from work of 3 days or more.
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Human Capital
Table 5.3 shows how construction (contractors only) fares compared to other high-risk sectors in terms of injuries and illness in the UK.
Table 5.3
Industry
Construction injuries relative to other sectors in the UK, 1998/9 to 2000/1 combined
Fatalities Rate per worker (fatalities per 100,000 workers) 10.4 9.0 8.9 4.8 3.4 3.2 2.7 2.3 2.0 1.6 1.6 0.9 Non-fatal major injuries 363 1,850 511 12,943 4,690 1,023 1,247 8,710 1,898 4,353 37,588 83,567 112.8 Major injuries per worker (injuries per 100,000 workers) 449.7 212.2 392.6 392.1 297.7 420.5 302.8 258.9 274.4 306.9
Quarrying Agriculture Fossil fuel extraction Construction Metal manufacture Wood manufacture Manufacture of other non-metal products Manufacturing n.e.c. Transport Electricity, gas, water Manufacture of rubber and plastic products Manufacturing of food and beverages Total National all industries
9 128 12 252 58 9 12 17 80 6 12 595 764
Source: HSE (2001, Tables 1,19 and 1.20). Worst performance shown in bold for each measure of impact. N.e.c = not elsewhere classified.
In the case of fatalities, also known as the
value of a statistical life.
Construction has the worst record for number of fatalities and major injuries. When expressed as a percentage of the labour force, construction is ranked fourth worst for fatalities behind quarrying, agriculture and energy resource extraction. Construction also has the fourth worst record in terms of major injuries expressed relative to the workforce. Some idea of the economic cost of these figures can be derived by multiplying fatalities and injuries by the average value of prevention6 per casualty as used by the UK Department for Transport (DfT, 2000). For 2000 these values are 1,144,890 for a fatality and 128,650 for a serious injury. The results of this exercise are that construction fatalities have a social cost of 365 million and
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Human Capital
serious injuries have a cost of 1,665 million, a grand total of just over 2 billion in a year. To a considerable extent this social cost reflects the intrinsically hazardous nature of construction. But high-risk levels clearly have major social consequences: not only are lives lost and individuals injured, but families and friends are affected as well. There are also other implications since high risks deter workers from entering the labour force. Technological change should help to reduce on-site risks, for example through pre-fabrication off-site. Table 5.3 shows that the wood and wood product manufacturing sector has a lower risk rate than the construction sector, although the difference is not dramatic. The negative story implied by the accident figures should not be exaggerated, although it remains a source of concern for the industry and for commentators. An historical look at the accident rates gives some perspective. Table 5.4 shows fatality and non-fatal injury rates for 1961 to 1996. There are problems with the data (see notes to table 5.4) but taking the data in Table 5.4 to be measuring the same categories of accident, the long-run trend is very clearly downwards.
Table 5.4
Long run accident rates in UK construction

Average 1960s Per annum 257 40,598 Average 1970s Per annum 170 35,496 Average 1980s Per annum 106 27,7984 Average 1990s Per annum1 733 12,7873
Fatalities Non-fatal injuries2
Source: HSE (1998). Notes: 1 1990 to 1996 only. 2- some caution is needed when interpreting these figures since definitions and scope change over time. 3 non-fatal injuries are consistent with the data in 5.3 but the fatalities data are well below those in Table 5.3. It is not clear why the discrepancy occurs. 4-excludes 1983-5 for which data on injuries requiring more than 3 days absence are not available.
5.6 Health and safety in the DIY sector
Chapter 2 noted that the UK do-it-yourself sector is sizeable and can legitimately be regarded as being part of the construction sector. Accident rates from DIY are not known with accuracy since many are treated at home and visits to GPs are not always recorded by cause. There are 84,800 DIY accidents (excluding ladder accidents) each year necessitating a visit to Accident and Emergency facilities. It is thought that there is at least an equal number involving visits to GPs (DTI, 1999). Ladder-related incidents, not all of which are associated with DIY as such, account for around 50 deaths each year and the total nonfatal falls amount to 16,000.
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Human Capital
The labour force is a critical ingredient of the construction industry. Around 1.5 million people are employed by the narrow construction sector and probably closer to 3 million for the broadly defined industry. Employment in the narrow sector has been roughly constant over the past decade but with a 15% fall in the first half of the 1990s. The (narrow) construction labour force shows an ageing trend and there are concerns about attracting young people into the industry. The educational standards in the industry compare favourably to transport, agriculture and distribution, but unfavourably with public administration, finance, and energy/water. There are worrying downward trends in entry to construction-related university degrees. Contrary to general impressions, labour productivity in the narrow sector is comparable to France and Germany, if perhaps slightly less, but somewhat lower than the USA. The accident record of the (narrow) industry still gives cause for concern. The industry has the highest level of total fatalities of all industries but is fourth worst when computed as a rate per member of the workforce. Similarly, non-fatal injuries are highest in (narrow) construction by a very substantial margin but, per member of the workforce, the industry is fourth worst. Fatalities and non-fatal injuries in construction impose a social cost of some 2 billion per annum. However, while the data are imperfect, the industrys accident rate has improved dramatically in the last 40 years.
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6 Construction and the Natural and Social Environment

6.1 Introduction
The beginning of this report emphasised that a true measure of the impact of the construction sector can only be appreciated by broadening the traditional indicators of success GNP, productivity etc.- to include environmental and social impacts. This chapter reports on the contributions that the sector makes to these wider concerns. Construction activity affects the environment in several ways. By creating additions to the built environment, construction can add to the built stock, raising the aesthetic profile of towns and cities. The role of the professional services, and especially architecture, plays a leading role in this beneficial environmental effect. Construction utilises materials and energy, the extraction, processing and transportation of which creates environmental impacts. For example, the quarrying of materials gives rise to negative local impacts e.g. visual amenity; produces noise and dust; and the transportation of the resulting materials adds to congestion, noise, and air pollution. The energy used in the on-site construction sector is largely fossil fuel energy, and the extraction of oil, coal and natural gas creates environmental impacts e.g. particulate matter, sulphur and nitrogen oxides, volatile organic compounds, through generation and distribution. Construction also creates waste at the design, construction and demolition stages. These waste arisings have to be disposed of to landfill if not recycled for further use. Construction waste arisings account for 90 million tonnes of materials per annum of which some 44 million tonnes per annum typically goes to landfill sites, the subject of increasingly strict legislation.
6.2 The materials balance
The first law of thermodynamics dictates that whatever materials and energy are removed from the environment must reappear in equal weight at the end of the life of the product in which they are embedded. Materials and energy cannot be created or destroyed, but are simply rearranged by economic activity. Accordingly, the less efficient industry is at using materials and energy, not only the more materials and energy are used, but also the more waste is disposed of to the environment. Two causes for concern arise. Resources are finite and hence the faster they are used, the faster the existing stock will deplete. Fewer resources are then available to future generations. Second, the capacity of natural environments to receive waste is also finite: either in the physical sense (e.g. landfill space), or in a qualitative sense in that waste can affect the quality of the receiving environment. While both these resource and environmental issues figure prominently in the environmental literature, the latter is almost certainly more important. Few materials or energy sources show signs of running out, but receiving environments are under serious threat. Examples include local air quality, global warming, landfill space and the disposal of materials to the sea.
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The recent UK Construction Industry Mass Balance Study has documented the materials and energy balance for the UK construction sector (Smith et al, 2002). Figure 6.1 shows a simplified form of the balance for materials only for the year 2000. Data are in millions of metric tonnes.
Figure 6.1 Materials balance for construction
On the basis of the numbers available, some 364 million tonnes of materials flow into the built environment in a given year. Of this, about 80% comes from primary materials, mainly quarry products (126 mt) and cement, plaster etc. (98 mt). A further 21 mt comes from secondary materials such as road planings, coastal dredged material, and mineral wastes including pulverised fuel ash from power stations. A further 46 mt enters as recycled material, primarily recycled aggregates and construction and demolition waste (C&DW), and this may be an underestimate since recycling on site was not included. Finally, there is a modest 3 mt of reclaimed materials (salvaged materials, architectural antiques). Of the 364 mt of materials being added to the built environment, some 90 mt reappear as waste, the vast part of which is C&DW and soil. Of this 90 mt, about 46 mt (around 50%) is recycled, completing the loop to the recycled input. These data can be utilised to derive some crude indicators of resource efficiency. The construction sector operates at a gross conversion efficiency of 75% (274/364) i.e. every tonne of material consumed produces 0.75 tonnes of useful material input to the construction
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sector. Thus, some 25% of the inputs into the built environment sector reappear as waste (90/364), but the net waste figure is 12% because roughly half the waste is recycled ([90-46]/364). While materials balances of this kind are interesting, the numbers as they stand have little policy import. Nothing can be said, for example, about the changes in efficiency (for better or worse) over time until similar balances are constructed for other years. While the numbers may appear large there is no benchmark against which to judge them. Thus it is not possible to say whether, for example, the 75% overall input-output ratio is low or high. Obvious bases for comparison would be (a) past years, the data for which are not available, or (b) international data, which are also not available on the same basis. Moreover, the materials waste emanating from construction is dominated by inert waste. As such, this waste does not generate pollution of the kind associated with organic (bio-degradable waste) especially carbon dioxide and methane. Its transport is obviously associated with air pollution, noise and dust, and other environmental impacts. That society places a lower negative value on inert waste compared to organic waste is reflected in the current structure of the UK Landfill Tax which is 2 per tonne of inert waste but 14 per tonne, and rising, for organic waste. Regardless of the exact nature of the materials balance, the construction industry does have significant potential for moving towards higher levels of recycling, and more sustainable waste management practices. In the European Union as a whole, around 25% of construction and demolition waste is recycled. In some Member States, however, this fraction is very much higher, and it is not clear why success rates vary. Part of the problem in raising recycling levels is the need for certainty about the quality of the recycled products. The consistency of quality tends to favour primary over secondary materials. Secondary materials may carry contaminants that are not easy to identify on all occasions and may result in positive risks of structural failure at a later date (Powell and Craighill, 2001). Waste exchanges can help to reduce informational problems by labelling materials and indicating location and quantity available. In the UK, these issues of market failures to inhibit the increased use of secondary and recycled materials, are being addressed by the Waste and Resources Action Programme (WRAP, www.wrap.org.uk). However the economics of recycling can be disadvantageous with high volume, low value materials in the wrong place leading to high transport costs. Furthermore the need for cleaning of some materials, e.g. reclaimed bricks, tends to make costs very high. The notion of waste, and the use of recycled and reclaimed materials in construction, is changing within the UK. Some designers and clients emphasise the process of deconstruction rather than demolition, the former having a focus on re-use of existing materials. For example, in the UK, the recycling of pre-1940 bricks has increased (the use of lime mortars making it possible to reclaim whole bricks, whereas cement mortars are more difficult to remove), partly in response to consumer preferences for the decorative effect they produce. Similar increases are being recorded for paving, tiles, wood, glass, and whole products such as chimneys and fireplaces (BRE, 2003). Construction waste (as
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opposed to demolition waste) presents greater problems for recycling since small quantities of waste are generated over long periods of time, and the waste is likely to be commingled. Around one quarter of construction waste is packaging materials, followed by approximately 10% each for timber, concrete, ceramic material, plaster and cement, and insulation.
6.3 The energy balance
Smith et al (2002) compute estimates of the energy used in construction. Table 6.1 shows the data for energy. These data exclude any estimates of energy use in buildings once constructed, an issue addressed below. Some 50% of energy consumed in construction is accounted for by mineral extraction and product manufacture. A further 39% of energy use is accounted for by transport of materials, waste, and products. How significant is the energy consumption figure? The total of just under 8 mtoe is a little less than 5% of UK final consumption of energy, but around 22% of UK industrial energy use. The 5% figure is close to that for the share of (narrow) construction value-added in UK GDP.
Table 6.1
Activity
Energy use in the construction sector (millions of metric tonnes)
Energy consumed Mtoe % Mineral extraction, product and material manufacture 3.93 50 Transport of products and materials 1.63 21 Transport of secondary and recycled materials 0.43 5 Construction and demolition site activity 0.87 11 Transport relating to construction and demolition site activity 0.83 11 Transport of wastes from product and material manufacture 0.01 neg Transport of construction and demolition waste 0.14 2 Total 7.84 100
Source: Smith et al. (2002)
6.4 Construction and pollution
Since construction is a major energy user (see Section 6.3) it is unsurprising that it is also a significant emitter of energy-related pollutants. Two considerations are relevant. First, pollution associated with construction activity, then pollution associated with the stock of built assets. Table 6.2 shows the emissions of various air pollutants from construction activity and the share of construction-related emissions in total emissions. With two exceptions, construction contributes only a tiny fraction of total air emissions. The two exceptions are particulate matter and volatile organic compounds. The contribution to total emissions becomes greater, however, once other related sectors are included. In this case, Table 6.2 adds in the manufacture of cement, lime and plaster. In all cases other than VOCs, the addition of this sector significantly increases emissions.
Air pollution and construction activity
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Table 6.2
Air pollution emissions from construction activity 2001

All GHGs CO2 only PM10 3.9 3.8 5.5 713.7 0.5 2.1 613.5 0.6 2.4 200.0 2.3 4.4 SOX 1.5 1296.0 neg 2.4 NOX 17.4 2190.0 0.8 3.0 VOCs 58.6 1565.0 3.7 3.9
Construction (narrow definition) All sectors Construction (narrow definition) as % of all emissions Construction (narrow definition), plus manufacture of cement, lime and plaster as % of all emissions
Source: data from www.statistics.gov.uk/environmentalaccounts. Notes: GHGs = greenhouse gases in million tCO2 equivalent. PM10 = particulate matter of less than 10 microns diameter in 000 tonnes, SOX = sulphur oxides in 000 tonnes, NOX = nitrogen oxides in 000 tonnes, VOCs = volatile organic compounds in 000 tonnes.
Of more importance is the change in emissions over time since this reflects the environmental performance of the industry. Table 6.3 shows these changes for total emissions and for emissions from construction (only).
Table 6.3
Pollutant PM10 GHGs SOx NOx VOCs
Changes in emissions over time

Change in UK total emissions 1970-2000 -68% Change in total emissions 1990-2000 -8% -67% -28% -42% Change in construction emissions 1970-2000 - 50% Change in construction emissions 1990-2000 -1% -80% -33% -31%
Source: estimated from data in www.statistics.gov.uk/environmentalaccounts
Table 6.3 suggests that (narrow) construction has generally mirrored the national decline in air pollutants, reflecting national, EU, and UNECE policies for the control of air pollution. While construction has perhaps slightly under-performed relative to the total economy in particulate matter, VOCs and greenhouse gas reductions, it has over-performed in nitrogen and sulphur oxides reduction.
Pollution, energy use and the built environment
Unsurprisingly, when pollution is related to final users, the stock of built assets is a major emitter.
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Table 6.4
Sector
Final energy consumption and carbon dioxide emissions by final user

Final energy use PJ % total 880 282 1960 3122 1231 2294 49 6696 13.1 4.2 29.3 46.6 18.4 34.3 0.7 100.0 Carbon emissions MtC % total 21.2 5.6 39.2 66.0 27.7 46.0 1.1 140.8 15.1 4.0 27.8 46.9 19.7 32.7 0.8 100.0
Commercial and public buildings Industrial buildings Domestic buildings Total buildings Industrial processes Transport Agriculture Total
Source: Sorrell (2003), based on data from Building Research Establishment
Table 6.4 shows energy use and carbon dioxide emissions. The total, all buildings commercial, industrial and domestic accounts for just under half of final energy used and similarly for carbon emissions. Significantly, while domestic buildings are the greater source of carbon emissions, non-domestic buildings account for just under 20% of all emissions. Some commentators have noted that, while energy efficiency has a strong focus in the design of domestic dwellings, far less attention has been paid to non-domestic buildings (Sorrell, 2003). As far as the new housing stock is concerned, thermal insulation in use or set by standards has increased in England during the last twenty years (Ecofys, 2002). Nonetheless, within Europe, the UK lags behind the Scandinavian countries, France and the Netherlands. Ecofys (2002) estimate that, since 1975, European countries have reduced the dwelling stocks energy consumption and CO2 emissions by 43% because of thermal insulation measures introduced since that date. An additional 8% reduction could be achieved by 2010 by further retrofitting of the existing stock.
6.5 The benefits of the built environment
The built environment is the outcome of the entire history of construction activity. Our understanding of the interaction between the built environment and human wellbeing has changed over time. It is increasingly, but perhaps still not widely, recognised that the nature of the built environment affects human health, social behaviour including crime, and a general sense of cultural identity and civic pride. In terms of the capital concepts introduced in Chapter 2, the built environment is the major part of man-made capital, but it affects human and social capital as well. Of course, not any built environment
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is beneficial in this respect. It is easy to cite examples of unplanned, poorly designed, built structures that have the opposite effect on human wellbeing. But this underlines the point that good design can be beneficial. Lorch (2003) provides a useful list of built environment benefits which, he argues, should be the basis of the industrys mission statement: Economic productivity, quality of life, health, safety, education, a sense of identity, accessibility to services etc Long-lived assets with a capacity to accommodate changes of use in its lifetime Reinforcing shared social values, and continuity of form and fabric. A number of studies have shown that careful design of hospital and other healthcare units help to speed patient recovery, reduce patient abuse of staff, and raise staff morale. By and large, modern units fared far better than older units and design issues, such as the presence of accessible windows, improved patient health (CABE, 2002). Indeed patient treatment times in new hospitals compared to old hospitals have been reduced significantly, resulting in financial savings of 2,000 to 7,000 per bed year in two sample cases (Lawson & Phiri, 2003). Human health is known to be affected by poor housing. Barrow and Bachan (1997) estimate that the 7.6% of public housing considered unfit for habitation produces poor health that costs the nation 3 billion, crime that costs 1.8 billion, and a further 0.1 billion in increased fire service costs. The British Medical Association has urged public action on poor housing because of the close link between the condition of properties and human health (BMA, 2003). Schools with higher levels of capital investment in the physical environment have better learning and achievement records. Similar associations have been found between educational performance and per capita floor space and natural lighting (CABE, 2002). As many as one in five schools in England have unsatisfactory accommodation to the extent that delivery of the curriculum is affected (DfES, 2003). To a considerable extent, better design is capitalised into the price of housing, the price premium reflecting societys willingness to pay for higher levels of design. It is not just the design of houses themselves that matters, but the layout and impression of the whole neighbourhood. Similar premia have been identified for commercial properties that meet higher architectural standards (Vandell and Lane, 1989). Design also influences social capital by fostering a sense of civic pride and involvement in the neighbourhood. Careful use of open land for recreational purposes produces higher property values and a better sense of social responsibility. Integrating cultural features, such as museums and art galleries, into urban and rural developments can improve local incomes through tourism, and can improve educational achievement (Heilbrun and Gray, 2001). Finally, good neighbourhood design - for example, the use of open spaces, minimising cul-de-sacs and obscure areas - has been shown to reduce the incidence of crime (CABE, 2002).
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While these interactions between design and human health and wellbeing are often subtle, the direct relevance of the built heritage for human wellbeing is more obvious. Fine buildings, especially those with historical features, attract many visitors, are admired by those who reside in them or just occasionally visit, and are valued by those who may never visit them but wish them to be preserved. As yet, there are no sets of monetary accounts for the built environment as there are for, say, agriculture, but the research necessary to begin the construction of heritage accounts has now started in earnest (Pearce et al, 2002). More than a third of overseas visitors to England cited heritage sites as being a significant influence on their decision to visit. Annually, some 16 million visits are made by overseas visitors to the top ten most visited English cities and towns. Annually, over 1.2 billion visitor-days were spent in the English countryside, generating spending of over 11 billion. A quarter of these visits were to heritage sites. Some of the economic value embodied in heritage buildings can be gauged from estimates of the financial rate of return to listed office buildings compared to unlisted ones. In the last five years a premium of 1.5% per annum has been calculated (all data from English Heritage, 2002). Some 380,000 buildings and scheduled ancient monuments in England alone are listed and around 8% of those are at risk. The surest way of guaranteeing the future of listed buildings is to convert them in a sympathetic manner. A significant part of the heritage industry concerns planning, development, and repair and maintenance. It is therefore the skills of the modern-day construction sector that help to maintain the built heritage.
6.6 Sustainable communities
The UK Government is committed to the development of social capital through the improvement of communities and relationships within communities. The goal is:
..to create communities that can stand on their own feet and adapt to changing demands of modern life. Places where people want to live and will continue to want to live
(ODPM, 2002)
The built environment is crucial to this goal. Run-down and dilapidated town centres and housing estates contribute to crime, ill health and mistrust. Well-designed and planned land use, and structures with open spaces and facilities for recreation help to maintain and enhance the community. Transport links are crucial. Government acknowledges the central role played by buildings and infrastructure. Buildings should meet different needs over time and minimise the use of resources, while housing should be diverse in order to support a range of household sizes, ages and income (ODPM, 2002, p.3). The resulting sustainable communities investment programme comprises around 5.5 billion in 2002-3, rising to 7.7 billion in 2005-6.
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One of the most problematic concepts within the notion of sustainable communities is that of the affordable home. Market forces, combined with restrictions on the supply of land for development via the land use planning system, result in houses prices in some areas that are beyond the means of first-time buyers and other lower income groups. In other areas, houses stand empty and abandoned. While markets can be expected to equilibrate to some extent, with different groups buying houses in different areas according to price, one effect (both rural and urban) is to price out of markets key workers and public servants needed for any vibrant community. Government policy, through the planning system, is to ensure developers provide social housing. The policy is not without risks. Housing prices will remain low only if substantial additions to supply are made. Otherwise, targeted subsidies or restrictions on who can purchase such properties will be needed to ensure that properties remain affordable. Without such measures, market forces will again force the prices of those properties upwards, as some have warned (for example, the House of Commons Select Committee on ODPM, 2002). Clearly, as the policy develops, the construction sector has the major role to play in the provision of affordable homes. The second risk in developing the sustainable communities programme is that supply will be managed to respond to demand mainly in those areas where demand appears highest. Rather than reducing regional imbalances, policy could enhance the disparities. It makes more sense from a social standpoint to direct investment of all kinds to areas where the various capital stocks, and especially infrastructure, housing and labour, are under-utilised. One response to this concern is that restricting demand in high demand areas, such as the Southeast, could result in investment not taking place at all, or taking place abroad. There is clearly a balance of risks the social and environmental costs of allowing demand to expand in areas where infrastructure is already congested, and the risk of lost investment. If supply is to be mainly demand-led, a substantial responsibility falls on planners, architects and designers to meet that demand in the least environmentally destructive manner. Government is aware of these requirements see, for example, ODPM (2003). It remains to be seen how the balance between the competing interests of environment, social inclusion, and housing and infrastructure demand will be struck. A third risk is identified by Young (2000). The drive for affordable properties means that far more houses must be built per hectare to keep unit prices down. A minimum density of 30 houses per hectare is recommended by the government but Young suggests that this level of density may still be insufficient to justify the necessary investment in associated infrastructure, especially public transport. Given the potential for increasing travel speeds on rail journeys, it can be questioned whether better use could not be made of existing underutilised infrastructure outside the Southeast, combining property development there with high-speed links to workplaces in the Southeast. One other feature of the link between social capital and construction deserves mention. If social capital declines and indicators such as crime, family break up, terrorism and vandalism are measures of such loss then society has to invest more and more in unproductive
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construction activities. Buildings such as courts of justice, police stations and prisons remind us that a significant fraction of construction activity goes into structures the purpose of which is to compensate for the decline in social capital. From a national income accounts standpoint, the resulting buildings and institutions still constitute real output. From a social standpoint, they are defensive expenditures designed to counteract the failure to invest in communities and trust.
A materials balance analysis reveals that the construction sector receives around 360 million tonnes of raw materials of which 90 million tonnes reappears as construction and demolition waste, implying a conversion efficiency of 75%. Of the 90 million tonnes of construction and demolition waste, half is recycled. While these numbers are interesting, they cannot be used to argue that the industry is good or bad in terms of materials usage: time series or international comparisons are required. However, this snapshot provides a basis for future assessment of change. Defining the industry to include on-site contractors, quarrying, transport of construction products, and transport of waste, the industry uses some 8 million tonnes of oil equivalent energy each year. This is around 5% of UK final energy consumption, or some 30% of industrial energy consumption. Construction and related industries account for around 2% of all UK greenhouse gas emissions and 2-4% of other air pollutants. Total air emissions, other than greenhouse gases, have shown significant falls in the last 30 years. By and large, construction has shared equally in the national decline in emissions. Focusing on the stock of buildings, the picture is very different. All buildings commercial/public, industrial and residential account for half of energy use in the UK and half of carbon dioxide emissions. This reinforces the view that energy use in existing buildings is a vital environmental concern. When well designed, the built environment generates large, but as yet largely unquantified, benefits in terms of human wellbeing. Good design contributes to physical and mental health, to a sense of identity and wellbeing, to good social relationships, reduced crime, and higher productivity. Bad design and dilapidated capital stock has the opposite effect. The impact of poor past design and capital depreciation is the subject of the governments sustainable communities programme. Without the committed cooperation of the broad construction sector, this programme cannot be delivered. Even then, there are problems with the continued focus on development in congested areas where infrastructure change may not be able to keep pace with the growth of employment and housing.
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7 Technical Progress
7.1 Total factor productivity
Total factor productivity (TFP) refers to the change in output that ensues when all inputs (labour, capital etc.) are varied. It is widely used as an approximate measure of technological progress. Table 7.1 shows measures of TFP for the UK, USA, Germany and France for the total economy, manufacturing and construction.
Table 7.1
Total factor productivity levels: four countries (1999) UK=100

US 115 143 102 France 102 110 98 Germany 100 121 85
UK Economy 100 Manufacturing 100 Construction 100

Source: OMahoney and de Boer (2002)
The table suggests that the UK lags behind the USA in respect of levels of TFP at the economy level, but that the UK has about the same productivity level as France and Germany. However, the picture is far worse when the focus is on manufacturing, with the UK lagging behind by 10%, 20% and over 40% compared to the other countries. Interestingly, the picture is reversed for construction, with the UK having very similar TFP levels compared to the USA and France and being over 15% ahead of Germany. Overall, for whatever reason, and despite the fragmented nature of construction, the UKs total factor productivity record is remarkably good.
7.2 Comparative research and innovation
Research and Innovation (Research and Development) expenditures in the UK construction industry amounted to some 140 million p.a. in the late 1990s (Clark and Simmonds, 2001). Nearly all of this is accounted for by expenditures by higher education institutions (55% in 1999) and research/trade associations (33%). Adding in R&I for firms whose output is mainly supplied to construction brings the total to 236 million in 1999, but with a downward trend since 1996 when expressed in real terms. The reduction is entirely accounted for by the allied industries. Adding in R&I for all other suppliers whose products benefit the performance of buildings and structures, brings the 1999 total to approximately 337 million. Two thirds of this grand total is financed by the private sector and one third by the public sector. Of this 337 million, just over 60% is conducted by private sector organisations and around 20% by higher education institutions. Figure 7.2 gives an indication of construction R&D as a proportion of construction output for various countries. The relative position of the UK appears poor. The construction industry has been addressing this poor record, for example via involvement with HM Treasurys consultation on the tax treatment of R&I (Be & CIRIA, 2003).
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Technical Progress
Table 7.2
Construction R&D as a proportion of construction output 1999 (%)

France 0.1 Japan 0.3 USA 0.2
Netherlands Finland Denmark UK R&D as a share of 1.0 2.5 0.7 0.1 output (%)
Source: adapted from Manseau, A & Seaden, G (2001)
7.3 Design and whole-life cost costing
Whole life costing refers to the costs of constructing, maintaining and operating a building or works, and operating the business or activity housed in that building or works. For commercial buildings an approximate rule of thumb is that over the buildings whole life the cost of operating the business in the building is 200 times the cost of construction and 40 times the costs of maintaining and operating the building (the 1:5:200 rule) (Evans et al. 1998). The significance of the ratios, however approximate, is that substantial levels of economic activity are affected by relatively small design, construction and maintenance inputs. Failure to think ahead when designing and constructing buildings could condemn the businesses occupying the buildings to productivity levels lower than they otherwise could be. In other words, labour and factor productivity reflect building productivity. It is not only original designs that matter for building productivity, but the nature of the materials used, and the manner in which buildings are monitored, maintained, and re-evaluated over the whole life cycle. Good design and construction does not, therefore, end at the erection of the building it involves the provision of building services over the product lifetime. In terms of the capital assets approach adopted in this report, buildings need to be seen as the focal point at which the various capital stocks are congregated and combined. Notable factors affecting labour productivity within buildings are levels of floor space, layout, noise, indoor air quality, ventilation, light, natural features (e.g. views from windows), most of which can be varied through design and choice of building materials. Flexible design can also allow buildings designed initially for one form of occupation to be converted fairly readily to alternative uses thus reducing whole-life costs. To some extent these are issues of R&M, but in another respect they reflect issues of education and the culture of the industry since the perspective required is a longer term one than is currently adopted.
7.4 The technological challenge
Section 7.1 showed that, contrary to the expectations of many, the UK construction sector does not lag behind other countries in terms of technological progress (as measured by total factor productivity). But this cannot be used to disguise the huge technological challenge the industry will face in the next few decades. Numerous committees and organisations have started to address these issues (see, for example, Technology Foresight, 2002). The real cost of construction must fall if UK construction is to improve its competitive position. The kinds of improvements needed include: standardisation of building components development of lighter weight and super-strength materials
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Technical Progress
wider use of information technology increased use of off-site manufacture improved design for occupants health and wellbeing flexibility of design for changing uses over time more customer-centric thinking an holistic view of construction focusing on integrating the supply chain and thinking ahead to the management of the built environment stronger investment in education and training
Technological change is one of the keys to UK competitiveness and wealth creation. Contrary to the impression of many, the UKs total factor productivity record a measure of technological change is no worse than the USA or France, and appears to be significantly higher than in Germany. However the UK construction industry has a relatively poor record in terms of R&D as a proportion of output. A longer term perspective is required - for instance consideration should be given to flexible design which can allow buildings designed initially for one form of occupation to be converted fairly readily to alternative uses thus reducing whole-life costs. Despite a reasonable record on existing technological progress, the construction industry faces massive challenges in the next few decades. Failure to meet those challenges by embracing new technologies new materials, IT, off-site manufacture etc. will be at a considerable cost to the UK economy. This chapter has been the most difficult to collect data for, and draw conclusions on. It is important that understanding of technological change in the construction sector is better understood and measured.
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8 Summary of Key Points and Next Steps

8.1 Summary of key points The Issues (Chapter 1)
This section brings together the key points at the end of each of the previous chapters. The report is structured round the themes of added value and sustainability. It outlines the contribution that the construction industry makes to the over-arching goal of sustainable development. The construction industry suffers from an image problem. There is a need to show its positive and negative contributions to value and sustainability in a transparent manner. The statistical data related to the construction industry needs some improvement.
Sustainable Development (Chapter 2)
Sustainable development is a process of ensuring a rising per capita quality of life over time. Quality of life reflects increases in per capita real incomes, better health and education, improved quality of natural and built environments, and more social stability. Rising quality of life is ensured by increasing the stock of productive assets in the economy. Those assets consist of environmental capital. man-made, human, social and
The productivity of these capital assets - their contribution to social wellbeing - is enhanced by technological progress. The contribution of the construction industry to sustainable development can be gauged by assessing its role in contributing to capital stocks and to technological change. Economic accounting enables sustainability of the industry to be measured directly by building on the idea of a savings rule whereby no enterprise can be regarded as sustainable if it fails to save more than the level of depreciation on its assets.
The Construction Industry: Definitions and Measures (Chapter 3)
The purpose of this chapter is to paint a statistical picture of the UK construction sector. The construction industry has narrow and broad definitions. The narrow definition confines attention to the on-site construction activity by contractors. The true extent of the industry is broader than this and includes the extraction of construction raw materials, the manufacture and sale of building materials, products and assemblies, the sale of construction products, and the various related professional services.
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Summary of Key Points and Next Steps
On the narrow definition there are probably some 170,000 contracting firms in the construction sector. On the broad definition the number is closer to 350,000. The number of contractors (i.e. the narrow definition) has fallen in the last decade by around 15% but there was some expansion of numbers in the second half of the 1990s. On the narrow definition, construction contributes around 5% of UK GDP, comparable with the health and education sectors. Value added has grown by around 1.7% per annum in the last decade. On the broad definition, the contribution to GDP doubles to some 10%. Annual housing output by contractors has remained fairly constant in the last decade but non-housing output has shown significant growth. Public sector output by contractors has been constant for the last decade, while private sector output has increased, albeit cyclically. These trends conceal various factors such as the Private Finance Initiative and privatisation of utilities. Currently, contractors output is shared more or less equally between new work and repair and maintenance. New work has shown the faster growth in the last decade. Contrary to the perception of many, the narrow construction sector is larger in size than any other European sector, apart from Germany, when measured in terms of value-added. The exact size of the DIY sector is difficult to measure but estimates suggest it is worth approximately 5 billion per annum in terms of materials and products. The size of the informal construction sector (the black economy) is also uncertain but may be around 10 billion. All sections of the broadly defined industry show a heavily skewed size distribution with a large number of very small firms. While this feature of the industry raises concerns about efficiency through economies of scale and reduced transaction costs, much of the smallness contributes to customer satisfaction through close communication.
Manufactured Capital (Chapter 4)
Built wealth residences, workplaces, public buildings and infrastructure has long accounted for the major part of manufactured wealth, from some 90% at the time of the Industrial Revolution to around 70% now. Dwellings account for about one-third of manufactured capital stock. Of non-residential capital, infrastructure and non-residential building accounts for nearly two-thirds and machinery and other assets for one-third. On a per capita basis, the UK generally lags behind other European countries in the provision of transport infrastructure, however when the comparison is made by area the relative position of the UK is improved.
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The UK has one of the lowest proportions of European capital investment in new build and overall construction activity relative to total capital investment of all kinds. Much of the built environment is long-lived, with the UK having longer replacement rates than other comparable countries. This has implications for the structure of the industry (e.g. the demand for repair and maintenance) but also for the chances of securing energy efficient buildings and for housing conditions. It is not obvious that capital longevity contributes positively to sustainable development.
Human Capital (Chapter 5)
The labour force is a critical ingredient of the construction industry. Around 1.5 million people are employed by the narrow construction sector and probably closer to 3 million for the broadly defined industry. Employment in the narrow sector has been roughly constant over the past decade but with a 15% fall in the first half of the 1990s. The (narrow) construction labour force shows an ageing trend and there are concerns about attracting young people into the industry. The educational standards in the industry compare favourably to transport, agriculture and distribution, but unfavourably with public administration, finance, and energy/water. There are worrying downward trends in entry to constructionrelated university degrees. Contrary to general impressions, labour productivity in the narrow sector is comparable to France and Germany, if perhaps slightly less, but somewhat lower than the USA. The accident record of the (narrow) industry still gives cause for concern. The industry has the highest level of total fatalities of all industries but is fourth worst when computed as a rate per member of the workforce. Similarly, non-fatal injuries are highest in (narrow) construction by a very substantial margin but, per member of the workforce, the industry is fourth worst. Fatalities and non-fatal injuries in construction impose a social cost of some 2 billion per annum. However, while the data are imperfect, the industrys accident rate has improved dramatically in the last 40 years.
Construction and the Natural and Social Environment (Chapter 6)
A materials balance analysis reveals that the construction sector receives around 360 million tonnes of raw materials of which 90 million tonnes reappears as construction and demolition waste, implying a conversion efficiency of 75%. Of the 90 million tonnes of construction and demolition waste, half is recycled. While these numbers are interesting, they cannot be used to argue that the industry is good or bad in terms of materials usage: time
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series or international comparisons are required. However, this snapshot provides a basis for future assessment of change. Defining the industry to include on-site contractors, quarrying, transport of construction products, and transport of waste, the industry uses some 8 million tonnes of oil equivalent energy each year. This is around 5% of UK final energy consumption, or some 30% of industrial energy consumption. Construction and related industries account for around 2% of all UK greenhouse gas emissions and 2-4% of other air pollutants. Total air emissions, other than greenhouse gases, have shown significant falls in the last 30 years. By and large, construction has shared equally in the national decline in emissions. Focusing on the stock of buildings, the picture is very different. All buildings commercial/public, industrial and residential account for half of energy use in the UK and half of carbon dioxide emissions. This reinforces the view that energy use in existing buildings is a vital environmental concern. When well designed, the built environment generates large, but as yet largely unquantified, benefits in terms of human wellbeing. Good design contributes to physical and mental health, to a sense of identity and wellbeing, to good social relationships, reduced crime, and higher productivity. Bad design and dilapidated capital stock has the opposite effect. The impact of poor past design and capital depreciation is the subject of the governments sustainable communities programme. Without the committed cooperation of the broad construction sector, this programme cannot be delivered. Even then, there are problems with the continued focus on development in congested areas where infrastructure change may not be able to keep pace with the growth of employment and housing. Technological change is one of the keys to UK competitiveness and wealth creation. Contrary to the impression of many, the UKs total factor productivity record a measure of technological change is no worse than the USA or France, and appears to be significantly higher than in Germany. However the UK construction industry has a relatively poor record in terms of R&D as a proportion of output. A longer term perspective is required - for instance consideration should be given to flexible design which can allow buildings designed initially for one form of occupation to be converted fairly readily to alternative uses thus reducing whole-life costs. Despite a reasonable record on existing technological progress, the construction industry faces massive challenges in the next few decades. Failure to meet those challenges by embracing new technologies new materials, IT, off-site manufacture etc. will be at a considerable cost to the UK economy.
Technical Progress (Chapter 7)
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This chapter has been the most difficult to collect data for, and draw conclusions on. It is important that understanding of technological change in the construction sector is better understood and measured.
8.2 Next steps Colloquium
This section outlines three sets of near term activities designed to take forward some of the issues highlighted by this report. This report has been produced in a relatively short period of time and with limited resources. The author and the task group see it as the start, not the end, of a process. It should be circulated as widely as possible; it should then be subject to rigorous discussion and review. The task group believe that a colloquium should be held in early 2004 to review the report, consider what, if any, revisions are needed, and decide on a plan of action for nCRISP and others. Following publication of this report, a number of individuals will be asked to undertake review papers both on the report generally and on specific topics arising from it. These papers will contribute to the colloquium which will consider whether further editions of the report are necessary and, if so, in what timescale.
Improved data
This report uses a number of sources for construction output, employment and other data including DTI Housing and Construction Statistics, the ONS Annual Business Inquiry and different, sector specific, studies. In each case the most appropriate source is used, for example, because it is complete or consistent or allows disaggregation. It is clear, however, that different sources produce different results and can generate, at best, uncertainty and, at worst, confusion. The main reason for this is that construction is not a tidy industrial sector; it does not fit comfortably into the three basic industrial categories of primary/extraction, secondary/manufacturing and tertiary/services. Construction is an assembly industry. It takes goods and services from other industries to produce its product, the built environment. It is not possible to change the national statistical system for the convenience of the construction industry. It is possible, however, for the industry to influence how data from official, industry, and other sources is collected, analysed and presented. This should be a topic of discussion at the colloquium.
Research agenda
This report identifies a number of topics needing further research, including but not limited to, the issue of improved data discussed above. The colloquium will help to clarify research needs but they are likely to include: widening and deepening understanding of the socio-economic value of construction. This report is one of the first attempts at this; it is an increasingly important topic and includes both positive and negative contributions to value.
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the size structure of the industry. This is partly a statistical topic but, beyond that, it includes the costs and benefits of the structure and operation of the industry for the size of firms. the implication of longevity of built assets for capital investment and the value of the stock. We need to understand better when to build for long or short lives and when to retain or replace built assets. employment, skills and training issues. Human resources are key to a successful construction industry. construction productivity and, particularly, its implications for international competitiveness. the environmental impact of construction- on site and in-use including issues of resource use, transport and pollution. the impact of design on the built environment. It is clear that good design can produce significant benefits and, conversely, that bad design can significantly reduce the value of built assets. Research is needed on this issue as it affects new works and the existing stock. the extent and nature of construction R&I activity. Formal, recorded, R&I is low by the standards of other industries. The reasons for this should be investigated. Finally, the industry cannot assess its performance if it does not have benchmarks to measure improvement. Many of the issues discussed here could be selected and used by industry in the form of sustainability indicators to allow time series analysis and to further facilitate international comparisons.
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References
Atkinson, G., Munasinghe, M., Hamilton, K., Pearce, D.W., Dubourg, R and Young, C. 1997. Measuring Sustainable Development: Macroeconomics and the Environment. Cheltenham: Edward Elgar Barrow, M and Bachan, R. 1997. The Real Cost of Poor Homes: Footing the Bill. London: Royal Institute of Chartered Surveyors Be and CIRIA. 2003. HM Treasury Consultation on the Definition of R&D for Tax Purposes: Construction Industry Response. Be and CIRIA, Reading & London. BMA (British Medical Association). 2003. Health and Housing. London: BMA BRE (Building Research Establishment). 2003. Good Building Guide 57: Construction and Demolition Waste, Parts 1&2, Garston: BRE Byfors, J. 2002. Building and design: benefits to the construction industry of new developments in the field. Presentation to conference on Priorities for Construction Research, ECCREDI-E-CORE, October 2, Brussels CABE 2002. The Value of Good Design. London: CABE. Full report on www.cabe.org.uk CITB. 2002. CITB Skills Foresight Report. February 2002. London: CITB Clark, J and Simmonds, P. 2001. The Funding and Provision of Research and Development in the UK Construction Sector. Brighton: Technopolis Construction Forecasting and Research (CFR), 2003. A Review of the Size and Structure of the UK Construction Industry. Report to nCRISP. London: nCRISP. Creightney, C. 1993. Transport and Economic Performance: A survey of developing countries. Washington DC: World Bank Davis Langdon and Everest, 2000. A Study of the UK Building Materials Sector. Report to DETR and the Construction Products Association Davis Langdon Consultancy and Construction Forecasting and Research, 2002. Survey of UK Construction Professional Services 2001/2. Construction Industry Council and DTI DfES (Department for Education and Science). 2003. Building Schools for the Future. London: DfES DfT (Department for Transport). 2000. Highway Economics Note No 1: 2000. London: DfT at www.dft.gov.uk/stellent/groups/dft_rdsafety/documents/source/f1 Dickson, M. 2003. Modern Construction Achieving a Step Change in Performance. Presentation to nCRISP Awayday, London March 11, 2003. DTI (Department of Trade and Industry), 1999a. Rethinking Construction (the Egan Report. London: DTI. www.dti.gov.uk/construction/rethink/index.htm
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References
DTI (Department of Trade and Industry), 1999b. Research on the Pattern and Trends in Home Accidents. London: DTI DTI (Department of Trade and Industry), 2002. Construction Statistics Annual. 2002 Edition. www.dti.gov.uk/construction/stats DTI (Department of Trade and Industry), 2003. State of the Construction Industry Report Winter 2002/3. London: DTI Ecofys. 2002. The Contribution of Mineral Wool and other Thermal Insulation Materials to Energy Saving and Climate Protection in Europe. Cologne: Ecofys English Heritage. 2002. The State of the Historic Environment Report 2002. English Heritage Eurostat. 2002. European Business: Facts and Figures. 2002 edition. Luxembourg: Eurostat Eurostat. 2003. NewCronos database. www.europa.eu.int/newcronos Experian Business Services, 2003. Sector Competitiveness Analysis for the Construction Industry. (Draft). London: Department of Trade and Industry. Evans, R., Haryott, R., Haste, N and Jones, A. 1998. The Long-term Costs of Owning and Using Buildings. London: Royal Academy of Engineering Fukuyama, F. 1995. Trust: The Social Virtues and the Creation of Prosperity. London: Penguin Books Grout, P. 1997. The economics of the private finance initiative. Oxford Review of Economic Policy, 13, 4, 53-66 Heilbrun, J and Gray, C. 2001. The Economics of Art and Culture. Cambridge: Cambridge University Press House of Commons Select Committee on the ODPM. 2002. 8th Report. Planning for Sustainable Housing and Communities: Sustainable Communities in the South East. HC 77-1. London: UK Parliament HSE (Health and Safety Executive). 1998. Key Facts: Injuries in the Construction Industry 1961 to 1996/6. Bootle: HSE. HSE (Health and Safety Executive), Health and Safety Statistics 2000/1. London: Health and Safety Commission. Ive, G and Gruneberg, S. 2000. The Economics of the Modern Construction Sector. Basingstoke: Macmillan. Ive, G., Gruneberg, S., Meikle, J and Crosthwaite, D. 2003. Sector Competitiveness Analysis of the UK Construction Industry. London: Department of Trade and Industry Lawson, B & Phiri, M. 2003. Architectural Healthcare Environment and its Effects on Patient Health Outcomes. London: The Stationery Office. Lorch, R. 2003. A research strategy for the built environment? Paper to nCRISP Workshop on What Kind of Research and Innovation Strategy does the UK Construction Industry Need? London: nCRISP Maddison, A. 1995. Monitoring the World Economy 1820-1992. Paris: OECD Manseau, A & Seaden, G. 2001. Innovation in Construction: an international review of public policies. London: Spon Press
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Meikle, J. (2000) Do we Build Enough Houses? A Review of the Adequacy of UK Investment in Housing. Discussion Paper. London: Joseph Rowntree Foundation. Meikle, J and Connaughton, J. 1994. How long should housing last? Some implications of the age and probable life of housing in England. Construction Management and Economics, 12, 315-321 Mitchell, B. 1988. British Historical Statistics. Cambridge: Cambridge University Press Office of the Deputy Prime Minister (ODPM). 2002. Sustainable Communities; Building for the Future. London: ODPM Office of the Deputy Prime Minister (ODPM). 2003. Planning for Sustainable Communities in the South East Government Response (to House of Commons Select Committee on ODPM). London: ODPM Office of National Statistics (ONS), 2002. The United Kingdom National Accounts. 2002 edition. London: ONS Office of National Statistics (ONS), 2003. Annual Business Inquiry. London: ONS. www.statistics.gov.uk/abi Office of National Statistics (ONS), 2003. UK Standard Industrial Classification of Economic Activities 2003. London: TSO. www.statistics.gov.uk/methods_quality/sic/download/uk_SIC_vol2( 2003).pdf OMahoney, M and de Boer,W. 2002. Britains Relative Productivity Performance: Updates to 1999. Report to HM Treasury, DTI and ONS. London: NIESR Pearce, D.W., Mourato, S., Navrud, S and Ready, R. 2002. Review of existing studies, their policy use and future research needs, in S Navrud and R Ready (eds), Valuing Cultural Heritage: Applying Environmental Valuation Techniques to Historic Buildings, Monuments and Artifacts. Cheltenham: Edward Elgar. 257-270 Pearce, D.W. 2003. Environment and business: socially responsible but privately profitable? In J.Hirst (ed), The Challenge of Change: Fifty Years of Business Economics, London: Profile Books. 54-65 Potter, M and Meikle, J. (2002) Homes for today and tomorrow: a comparative review in the European context. In K.Bartlett., M.Potter, J.Meikle, F.Duffy, R.Ozaki, J.Hakes, R.Young and A.Hooper. Consumer Choice in House Buying. Joseph Rowntree Foundation, London. 1-20. Powell, J and Craighill, A. 2001. Information: the key to sustainability in the building sector. Paper to OECD Workshop on the Design of Sustainable Building Policies, June, 2001. Paris: OECD SACTRA (Standing Advisory Committee on Trunk Road Assessment), 1999. Transport and Economy. London: DETR Schneider, F. 2002. Size and Measurement of the Informal Economy in 100 Countries Around the World. Department of Economics, Johannes Kepler University of Linz, Austria. Mimeo. Schneider, F and Enste, D. 2000. Informal economies: size, causes and consequences. Journal of Economic Literature, 38/1, 77-114
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Smith, R.A., Kersey, J and Griffiths, P. 2002. The Construction Industry Mass Balance: Resource Use, Wastes and Emissions. Viridis Report No. 4. Crowthorne: Viridis Sorrell, S. 2003. Making the link: climate policy and the reform of the construction industry. Energy Policy, 31, 865-878 Strategic Forum for Construction, 2002. Accelerating Change (the second Egan Report). London: DTI T & E (European Federation for Transport and Environment). 1996. Transport and the Economy. Brussels: T & E Technology Foresight. 2002. Progress through Partnership: Construction. London: Technology Foresight. www.foresight.gov.uk UCAS. 2002. Applications and acceptances to undergraduate courses in built environment subjects. www.ucas.com/figures/sas/index UK Government, 1999. A Better Quality of Life: A Strategy for Sustainable Development for the UK. Cm 4345. London: HMSO Vandell, K and Lane, J. 1989. The economics of architecture and urban design: some preliminary findings. Journal of Urban Economics, 17, 2, 1-10. Verhoef, E. 1996. The Economics of Regulating Road Transport. Cheltenham: Edward Elgar Young, R. (2000) Facilitating Sustainable Development in Europe. Workshop on Easing Housing Shortages. Joseph Rowntree Foundation. London. World Bank, 1997. Expanding the Measure of Wealth: Indicators of Environmentally Sustainable Development. Washington DC: World Bank World Bank. 2003. World Development Indicators, OUP, Oxford.
64
Glossary of Terms
ABI Annual Business Inquiry, an integrated survey of employment and financial information from businesses in most sectors of the economy Collaborating for the Built Environment, known as Be, an independent construction supply chain grouping one thousand million British Medical Association Building Research Establishment Commission for Architecture and the Built Environment, an executive non-departmental public body funded by the Department of Culture, Media and Sport and the Office of the Deputy Prime Minister Construction and demolition waste Construction Industry Council Construction Industry Research and Information Association, a member based organisation Construction Industry Training Board Enterprises that undertake on-site assembly / construction of buildings and infrastructure for clients
Be billion BMA BRE CABE
C&DW CIC CIRIA CITB Contractors
Constructors Includes contractors, housebuilders, and other organisations and individuals undertaking construction work CO2 CPA Carbon dioxide, the main greenhouse gas giving rise to global warming Construction Products Association, the representative organisation for material and product manufacturers and suppliers Department for Education and Skills
DfES
Direct labour Construction work undertaken by organisations using their own employees DIY Do-it-yourself, construction related activity undertaken by individuals / households. The value typically includes only the materials and products used Department of Trade and Industry A measure of human preference for a good, as expressed in money terms through measures of the willingness to pay for that good
DTI Economic value
65
Glossary of Terms
Environmental The stock of natural resources and capital environmental receiving capacities EU GDFCF GDP GHGs HSE European Union Gross domestic fixed capital formation, a measure of investment in man-made capital assets Gross Domestic Product, a measure of UK national economic output Greenhouse gases, of which the main ones are carbon dioxide, methane and nitrous oxides Health and Safety Executive
Human capital The skills, knowledge and education embodied in individuals Intermediaries Builders merchants, DIY stores and other wholesale, retail and distribution enterprises LFS LP Labour Force Survey, a continuous household survey conducted by the Office of National Statistics Labour productivity, a measure of output divided by the labour force. The output measure can be gross output or value-added Buildings, infrastructure, machinery etc.
Man-made capital
Manufactured See man-made capital capital million Mt MtC Mtoe nCRISP one thousand thousand Million tonnes Million tonnes of carbon Million tonnes of oil equivalent (new) Construction Research and Innovation Strategy Panel, a joint industry, research community and government body that helps to set the agenda for construction research and innovation Nitrogen oxides Office of the Deputy Prime Minister Office of National Statistics, the UK national statistical organisation Petajoule Particulate matter Purchasing Power Parities, currency conversion rates that both convert to a common currency and equalise the purchasing power of different currencies Quality of life: a measure of human wellbeing
Natural capital See environmental capital
NOX ODPM ONS PJ PM PPPs
QOL
66
Glossary of Terms
R&D R&I R&M RM&I SACTRA
Research and development, an alternative term for R&I Research and innovation Repair and maintenance Repair, maintenance and improvement Standing Advisory Committee on Trunk Road Assessment
Social capital The set of trusting relationships between individuals, and between individuals and institutions SOX SIC Sustainable development T&E TFP Sulphur oxides Standard Industrial Classification, internationally recognised listing of industries Rising per capita wellbeing over time European Federation for Transport and Environment Total Factor Productivity, a measure of the overall productivity of man-made capital and labour combined. TFP is widely used as an approximate measure of technological change since it reflects the efficiency (ratio of output to inputs) of all inputs to construction University and Colleges Admissions Service United Nations Economic Commission for Europe Value-added The worth of something see economic value Gross output minus the value of all inputs purchased from outside the construction industry. Volatile organic compounds Waste Resourses Action Programme
UCAS UNECE VA Value Value-added VOCs WRAP
67
68
Statistical Annex
Table 1 The overall output of the UK construction industry
This table presents the data used to compile Figure 3.2. All amounts are for 2001 in current prices. The table lists sources and, where appropriate, describes how the amounts for each category of output have been arrived at. DTI Construction output data are based on a declared definition of construction and this understates gross industry output. It embraces contractors and public sector direct works only; it is for Great Britain only (and therefore excludes Northern Ireland); it excludes private sector direct works output and construction consultancy services; it makes an allowance for the informal black economy in construction that is lower than the ONS estimate; and it excludes the materials and labour consumed in DIY activity. Construction output Contractors' output (minus public sector direct labour) Construction materials and products Wholesale and retail trade Construction professional services Self-build Direct labour Amount 70bn 44bn 24bn 12.3bn 2.4bn 4.7bn Source DTI Housing and Construction Statistics, 2002 (Table 2.4). Plus estimate of 1bn for Northern Ireland ABI 2003 ABI 2003 CIC Professional Services Survey, 2002 Homes to DIY For, 2001 Public sector direct labour = 2.7bn (DTI Housing and Construction Statistics, 2002 Table 2.6) Private sector direct labour = 2bn (CFR, 2003) Various
The black economy
10bn
Table 2
Numbers of construction and construction-related firms 2001

This table presents the data used to compile Figure 3.3. The data are taken from the Annual Business Inquiry, ABI (2003), as reported by CFR (2003). As noted elsewhere, ABI data for construction-related industries includes firms that may not provide goods or services for construction, particularly in the manufacture of construction products and professional services. For example, producers of glass will all be included in SIC 26.1 but not all will produce glass for construction. Fuller notes are provided at Table 16, although the data here and Table 16 differ in detail due to different assumptions and different dates of extraction.
Sector Mining and quarrying of construction materials Manufacture of construction products Contractors Sale of construction products Professional services Total
ABI 2,248 20,863 192,404 81,997 57,636 355,148
69
Statistical Annex
Table 3
Numbers of construction and construction-related firms 2001

This table presents the data used to compile Figure 3.4. The data are taken from ABI (2003).
Construction (SIC 45)
1995 1996 1997 1998 1999 2000 2001 186,962 180,470 178,937 179,868 188,304 190,832 193,084
Table 4
Value-added in the construction sector 2001 ( billion)

This table presents the data used to compile Figure 3.5. The data are, again, taken from ABI (2003) as reported by CFR (2003). Again, there are differences in detail between this table and Table 16 again, presumably due to different assumptions and different dates of extraction. A fuller listing of the value-added for these sector groupings is provided in Table 16. As discussed in the notes to table 16 and in the main text, this excludes double counting but it includes a range of non-construction activity particularly in the manufacture of products and professional services. It is, therefore, a high estimate of construction value-added.
Sector Mining and quarrying of construction materials Manufacture of construction products Contractors Sale of construction products Professional services TOTAL % of UK GDP - contractors only - wider sector
Value-added 1.6 13.3 47.6 13.9 14.6 91.1 5.4% 10.4%
Table 5
Value added as a proportion of UK GDP 2001

This table presents the data used to compile Figure 3.6. The data are taken from the National Accounts, ONS 2002. The total sums to 100%. National GDP in 2001 was 874 billion.
Agriculture, forestry, and fishing Electricity, gas, and water supply Mining and quarrying Public administration and defence Adjustment for financial services Construction Other services Transport & communications Education, health, and social work Distribution, hotels, and catering Manufacturing Business services and finance
2001 (%) 1 2 3 4 4 5 5 7 12 14 16 27
70
Statistical Annex
Table 6
Output and value-added by contractors 1993-2001 ( billion at 1995 prices)

This table presents the data used to compile Figure 3.7. Value-added data are taken from ONS (2002, Table 2.2 Value-added at current prices, and Table 2.4 index numbers of real value-added). Output data are taken from DTI (2003, Table 2.2). Note that the value-added figure of 37.5 billion in 2001 is consistent with the figure of 47.6 billion in Table 4, the former being at constant prices, the latter at current prices.
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Value added (UK) 31.8 33.0 33.0 33.9 34.9 35.3 35.6 36.2 37.5 n.a Gross output (Gt Britain) 51.0 52.7 52.6 53.9 55.5 56.4 57.2 58.1 60.1 n.a
Table 7
Housing and non-housing output 1985-2001 ( million at 1995 prices)

This table presents the data used to compile Figure 3.8. Data are taken from DTI Housing and Construction Statistics (2002). They refer to Great Britain (ie, Northern Ireland is excluded) and include contractors and public sector direct labour output.
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Housing 30036 31690 35323 38801 38615 35868 31901 30640 30721 32260 31854 31717 33159 33086 32089 32502 32748
Non-housing 23395 23688 26176 28526 32169 34761 33401 31620 30127 30568 30913 32333 32985 34132 35862 36260 38431
71
Statistical Annex
Table 8
Public and private output 1985-2001 ( million at 1995 prices)

This table presents the data used to compile Figure 3.9. Data, again, are taken from DTI Housing and Construction Statistics (2002). As above, they refer to Great Britain and include contractors and public sector direct labour output. In the DTI data, infrastructure is not divided into private and public work; the assumption here is that the split is 50:50.
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Private work 26295 28195 32568 36785 38605 37957 34615 31769 30455 31528 31628 33532 36609 38114 38782 39791 41438
Public work 17739 17330 18060 18652 19532 20419 19518 20158 20525 21165 21014 20333 18860 18255 18409 18259 18663
Table 9
R&M and new output 1985-2001 ( million at 1995 prices)

This table presents the data used to compile Figure 3.10. The data, again, are taken from DTI Housing and Construction Statistics (2002). As above, they refer to Great Britain and include contractors and public sector direct labour output. Again, in the DTI data, infrastructure is not divided into new work and R&M; the assumption here is that the split is 50:50. It should also be noted that, while housing R&M includes refurbishment/improvement work, nonresidential building R&M does not. Refurbishment/ improvement work to non-residential building is included in new work. This table and Figure 7.10, therefore, understate work to existing buildings.
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
R&M 24651 25280 27614 29926 31839 32224 29748 28174 27649 28364 28801 29691 30032 29814 29389 29710 31088
72
New work 19383 20245 23014 25511 26297 26151 24384 23752 23330 24328 23842 24173 25437 26556 27801 28340 29013
Statistical Annex
Table 10
The built environment and man-made wealth

This table presents the data used to compile Figure 4.1. The data are taken from British Historical Statistics, Mitchell (1988). Some heroic assumptions have been made to link the series and price levels in order to construct the figure.
Year 1760 1850 1850 1900 1920 1950 1962 1962 1980
Man-made wealth million 1851-60 prices 248 1037 1900 prices 1229 3515 4475 1958 replacement cost 37000 57400 1978 replacement cost 165400 389400
Built wealth million 1851-60 prices 221 860 1900 prices 1052 2784 3257 1958 replacement cost 26000 37800 1978 replacement cost 110300 286900
Built wealth as fraction of man-made wealth % 89 83 86 79 73 70 66 67 74
Table 11
Gains and losses to the housing stock 1961-2000 (thousands)

This table presents the data used to compile Figure 4.2. The data are taken from Meikle and Connaughton (1994) up to 1990 and, thereafter from ODPM Housing Statistics, 2002, ODPM (2003). thousands Gains Losses Net gains 284.3 -58.8 225.5 324.8 -66.9 257.9 261.5 -61.3 200.3 245 -45 200 185.4 -24 161.4 191.3 -15.9 175.4 160.9 -8.2 152.7 156.9 -15.4 141.5
1961-65 1966-70 1971-75 1976-80 1981-85 1986-90 1991-95 1996-00
Table 12
Housing stock development 1965-2000 (millions)

This table presents the data used to compile Figure 4.3. The sources of the data are as for the previous table. millions Pre 1965 stock remaining Total stock 14.9 14.9 14.7 15.9 14.4 16.9 14.2 17.9 14 18.7 13.8 19.7 13.6 20.4 13.4 21.1
73
1965 1970 1975 1980 1985 1990 1995 2000
Statistical Annex
Table 13
The labour force in the construction industry 2001 (all manpower)

This table presents the data used to compile Figure 5.1. The data are taken from ABI (2003) as reported by CFR (2003). Again, there are inconsistencies with Table 16.
Sector Mining and quarrying of construction materials Manufacture of construction products Construction (SIC 45)1 Sale of construction products Professional services TOTAL employees TOTAL employment
Note 1: includes estimate of 525,000 self-employed within SIC 45.2
ABI 23,853 381,989 1,665,147 590,968 308,227 2,445,184 2,970,184
Table 14
Time series for employees, self-employed, and all manpower in the construction industry 1991-2001 (000s based on last quarter of the year)
This table presents the data used to compile Figure 5.2. The data are taken from DTI (2002) Housing and Construction Statistics.
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
All manpower 1626 1478 1405 1381 1388 1385 1399 1426 1411 1485 1567
Employees 994 893 810 772 756 745 846 920 894 974 977
Self-employed 632 585 595 609 632 640 553 506 517 511 590
Table 15
Applications and acceptances to undergraduate courses in built environment subjects 1994-2000

This table presents the data used to compile Figure 5.3. The data is taken from UCAS (2002).
1994 1995 1996 1997 1998 1999 2000
Applications 12379 11635 10536 9748 9117 8246 8010
Acceptances 7792 8224 7822 8009 7525 7168 6964
74
Statistical Annex
Table 16
Gross and net outputs of the construction sector and its constituent and related industries
This table collects together data on the principal industries related to construction activity including quarrying, materials production and sales, construction equipment, and professional services. The data is from the Annual Business Inquiry (ABI) and, therefore, is consistent in the concepts and definitions used. It does not, however, comprise a completely accurate view of construction industry activity. A number of industries (for example sawmilling, manufacture of paints etc, and manufacture of glass and glass products) supply industries other than construction. Some industries on the list (for example, manufacture of concrete products) purchase materials from other industries on the list (quarrying, manufacture of cement). The turnover of wholesalers includes the materials and products they sell. Architectural and engineering activities include a significant proportion of non-construction-related consultancy activity (mechanical, electrical, and specialist engineering relating to the manufacturing and process industries). The figures in the Turnover column include purchases from other industries and from each individual industry: construction turnover of 131 million includes sub-contracting (purchases by the construction industry from the construction industry). They can be added together to provide total turnovers but include a significant proportion of double counting in terms of construction industry output. The figures in the Value-added column exclude inter-industry purchases and can be added together to arrive at total output, but not necessarily total construction output. As indicated above, the figures include non-construction-related activity. And a number of categories of construction activity are not included: DIY and (some) self-build activity; private sector construction, direct labour activity (which will be allocated to the industry that undertakes it) and the black economy. Despite these problems the ABI data is currently the best official source available for providing a consistent picture of both gross and net outputs of the construction sector.
All data in cols.3 to 6 are in millions. Data in col.7 are in thousands.
1 SIC 45 14.1 14.2 20.1 20.2 20.3 24.3
2 Industry Construction Quarrying of stone Quarrying of sand and clay Saw milling etc of wood Manufacture of plywood and board Manufacture of builders carpentry and joinery Manufacture of paints, etc
3 Turnover of all enterprises 131,179 568 3871 1193 876 3332 3544
4 GVA at basic prices 47,647 215 1427 320 206 1291 1180
5 Purchases 85,208 352 2475 878 670 2022 2350
6 7 Employment Employment costs during year 23,798 86 589 203 142 756 636 1370 4 25 13 7 49 29
continued page 76
75
Statistical Annex
continued from page 75
1 SIC 25.23 26.1 26.22 26.3 26.4 26.5 26.6 26.7 28.1 28.2 28.63 29.23 29.52 31.3 31.5 51.53 51.54 51.62 71.32 74.2 Total for constr. sector By SIC section: F C D G K
2 Industry Manufacture of builders ware of plastic Manufacture of glass and glass products Manufacture of ceramic sanitary fixtures Manufacture of ceramic tiles etc Manufacture of bricks etc Manufacture of cement, lime and plaster Manufacture of articles of concrete etc Cutting etc of stone Manufacture of metal structures, etc Manufacture of central heating radiators and boilers, and of metal tanks Manufacture of locks and hinges (2000 data) Manufacture of non-domestic cooling and ventilation equipment Manufacture of machinery for quarrying and construction Manufacture of insulated wire and cables Manufacture of lighting equipment Wholesale of wood, construction materials, and sanitary equipment Wholesale of hardware, plumbing, and heating equipment Wholesale of construction machinery Renting of construction machinery and equipment (without operator) Architectural and engineering activities, and related technical consultancy
3 Turnover of all enterprises 4525 3010 402 202 629 904 3931 400 6879 1282 742 3573 2380 1624 1520 14531 7712 2045 3883 26324 231061
4 GVA at basic prices 1762 1250 231 82 339 402 1417 221 2568 501 322 1350 712 551 560 3250 1541 344 2238 14576 86503
5 Purchases
6 7 Employment Employment costs during year 953 744 121 57 200 207 675 99 1738 290 232 801 432 365 393 1854 988 177 927 8320 45783 58 38 6 3 9 4 35 6 82 14 15 43 17 16 21 94 53 8 51 348 2418
2775 1769 176 121 291 487 2520 178 4349 775 432 2228 1700 1059 965 11319 6191 1695 1684 12346 147015
Construction Quarrying Manufacturing Trade Real estate, renting and business activities
131179 4439 40948 24288 30207
47647 1642 15265 5135 16814
85208 2827 25745 19205 14030
23798 675 9044 3019 9247
1370 29 465 155 399
76
Other Recent and Planned nCRISP Publications

All nCRISP publications are available from the MSU or as pdf downloads from the nCRISP website (www.ncrisp.org.uk). Recent and planned publications include: Nanotechnology in Construction, SPRU, University of Sussex * Sustainability in Construction, David Bartholomew Associates The Size Structure of UK Construction, Construction Forecasting and Research Research and Innovation in UK Construction Firms, Technopolis A Review of Recent Work on Construction Futures, University of Reading Business Models for UK Construction (think pieces and workshop proceedings), Roger Courtney, Pat Hillebrandt, Graham Ive, Richard Saxon + Research and Innovation Strategies for UK Construction (think pieces and workshop proceedings), Andrew Cripps, John Fidler, Richard Lorch, Ron McCaffer Mapping Construction Research and Innovation, David Bartholomew Associates Sustainability think pieces by Bill Bordass, Bill Gething, Chris Morley, David Fisk, Peter Sharatt, Val Lowman. Prepared as a contribution to a programme of workshops with The British Council for Sustainable Development
* + jointly funded by nCRISP, the Office of Science and Technology (OST) and Foundation for the Built Environment (FBE) jointly funded by Be
Contact nCRISP Management support to nCRISP is provided by DAVIS LANGDON CONSULTANCY If you would like to submit questions, comments or suggestions on the issues raised in this publication, or help with nCRISPs work, please contact Jim Meikle, Guy Hazlehurst or Jennifer Campbell at the nCRISP Management Support Unit Davis Langdon Consultancy, MidCity Place, 71 High Holborn, London WC1V 6QS Tel: +44 (0)20 7061 7007 Fax: +44 (0)20 7061 7005 E-mail: crisp@davislangdon-uk.com www.ncrisp.org.uk
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THE SOCIAL AND ECONOMIC VALUE OF CONSTRUCTION

The Construction Industrys Contribution to Sustainable Development 2003

Professor David Pearce OBE for nCRISP

This report has been printed on recycled paper.

THE SOCIAL AND ECONOMIC VALUE OF CONSTRUCTION

Professor David Pearce OBE for nCRISP

Nigel Griffiths Minister for Construction

Michael Dickson Chairman, nCRISP

The Construction Industry: Definitions and Measures

Construction and the Natural and Social Environment

Key Points and Next Steps

The UK construction industry

The natural and social environment

1.2 Structure of the report

Key points: Chapter 1

2.2 The conditions for sustainability

2.3 Construction and sustainable development: a model

Figure 2.1 A schema for sustainable development

Key points: Chapter 2

3 The Construction Industry: Definitions and Measures

Contractors generally build for clients.

Figure 3.1 Broad and narrow industry structures

The Construction Industry: Definitions and Measures

The Construction Industry: Definitions and Measures

Figure 3.2 The overall gross output of the UK construction industry

The Construction Industry: Definitions and Measures

Stock at time t = Stock at time t-1 + appreciation in time t depreciation in time t

Real price changes refer to rates of price

increase faster than the rate of general inflation.

3.2 How large is the construction industry?

The Construction Industry: Definitions and Measures

Figure 3.3 Number of construction and construction related firms 2001

Source: ABI (2003)

The Construction Industry: Definitions and Measures

Source: ABI (2003)

Output and value added

The Construction Industry: Definitions and Measures

Figure 3.5 Value-added in the construction sector 2001 (%)

Source: ABI (2003)

Figure 3.6 Value-added as a proportion of UK GDP 2001

Source: ONS (2002), National Accounts

The Construction Industry: Definitions and Measures

The Construction Industry: Definitions and Measures

The Construction Industry: Definitions and Measures

The Construction Industry: Definitions and Measures

Figure 3.11 The composition of UK infrastructure expenditure 2002

Source: CFR (2003)

3.3 International comparisons of size

The same source reports comparisons of

The Construction Industry: Definitions and Measures

UK Germany France USA

Source: Experian Business Strategies (2003), Table 10

Relative size of construction activity in Europe 1999

Total value-added ( bn) Population (000s) VA/capita ( )

3.4 Direct labour output

The Construction Industry: Definitions and Measures

3.5 Do-it-yourself and self-build

DIY+informal output DIY/informal output as % of total output

Source: Davis Langdon and Everest (2000) based on Euroconstruct data.

3.6 The informal economy

The Construction Industry: Definitions and Measures

3.7 The size distribution of the UK construction industry

Source: Davis Langdon & Everest (2000)

The Social & Economic Value of Construction - Crisp

The Social & Economic Value of Construction - Crisp