How to Measure Construction Industry Performance

How to Measure Construction Industry Performance

The construction industry is a vital component of the global economy, representing a substantial portion of gross domestic product in many countries.

Understanding the dynamics of this sector requires a deep dive into various metrics and statistics to gauge its health and direction.

Here we’ll outline the essential metrics used to measure construction activity, offering insights for contractors, investors, government bodies, economists and other stakeholders.

1. Construction Spending & Cost Estimation

The construction spending metric reflects the total expenditure on construction projects over a specific period. Breaking down this spending into sectors like residential, commercial, and public construction offers a nuanced view of the industry.

Importantly, historical or past construction spending will serve as a reference point and have some influence on future cost estimations – one of the most important steps in construction project management.

A cost estimate is a prediction provided by an estimator based on all available data serves as the baseline of the project cost at various stages in project development.

2. Building Permits Issued

A building permit is official permission provided by the government department of building or the building regulators to proceed with a new construction project. Obtaining a building permit is crucial before moving ahead with any planned property alterations or construction.

The number of new building permits granted by governments is a forward-looking indicator, measuring current real estate market demand, performance of the industry, predicting future construction activity and overall economic vitality.

A building permits report provides nationwide and location specific detail which can pinpoint which local regions fuel the economy, and governments can use this info to make decisions around funding and where to direct investments.

3. Demolition Approvals

Generally, the type of permits required will depend on a couple of factors:

  • Local council specifications and rules, and
  • What is being demolished, how much is being demolished and where.

In most cases, demolition approval (or similar) is required to demolish a building or structure.

Though not always, construction frequently follows demolition, making demolition approvals a rough indicator of future construction activity.

4. Construction Starts

Construction starts measure the initiation of new construction projects, and where available, the value of these projects. These metrics are a key economic indicator and when tracked over time, will help measure market trends.

Building construction

5. Housing Starts and Completions

In the residential sector, tracking housing projects commenced, completed, under construction, and in the pipeline, along with the value of these projects, is essential for gauging market health and predicting supply to meet housing needs for the future.

In Australia, the Urban Development Institute of Australia’s latest report shows that the federal government will fall short of its goal to build 1.2 million home by mid-2029. This is due to a “large backlog of properties that have been approved that are yet to be completed” said Westpac chief economist Luci Ellis, who admits there are a lot of factors contributing to this production issue.

6. Architectural Billings Index – United States of America (USA)

Produced by the AIA Economics & Market Research Group, the Architectural Billings Index (ABI) is a leading economic indicator in the USA that reflects the demand for non-residential construction, including commercial and industrial structures. The ABI gauges whether billing activity for the previous month grew, declined, or remained flat. This measure forecasts construction spending by reflecting the lead time between architectural billings and construction expenditure. A positive ABI can be a sign of strength or resurgence in the broader economy, while a negative ABI can signal weakness or an impending downturn.

7. Construction Backlog Indicator – USA

In 2008, the Associated Builders and Contractors introduced the Construction Backlog Indicator (CBI) to forecast the volume of upcoming work for commercial and industrial contractors. This indicator centres on the commercial, institutional, industrial, and infrastructure construction sectors in the USA.

Backlog, as defined by ABC, represents “the dollar value of contracted work to be completed in the future” by construction firms.

To calculate backlog, the formula is:

(Current month’s backlog value in dollars) / Fiscal year revenues (base year) x 12 = Total months of contracted work ahead

CBI provides a view of the volume of construction work in the USA contracted but not yet executed which can serve as a predictor of future activity and industry momentum.

A higher backlog generally implies a more optimistic outlook for the construction industry, while a lower backlog suggests the opposite.

8. Employment in Construction

Job numbers in the construction sector can reveal much about the industry’s health and future growth prospects, including an indicator of any labour shortages, and construction activity and economic impacts.

9. Cordell Construction Cost Index (CCCI)

The Cordell Construction Cost Index (CCCI) is a quarterly industry benchmark that tracks and monitors the movement of building work costs for stand-alone houses. It is a valuable metric which tracks changes in construction costs, including labour costs, services, building material prices, regulatory expenses, equipment and includes expert commentary on key market factors. It is vital for understanding market dynamics, pricing trends and industry comparisons.

10. Equipment Usage

The usage rates of various types of equipment and their deployment in residential, commercial, and industrial segments can offer insights into ongoing industry activity. This data can unveil changes and trends in equipment types, across global regions, segments, and provide an indicator of market share, growth and overall size of the market.

Demolition

11. Construction Productivity

Construction productivity is often measured as output per labour hour. Or in other words, how much work is done during time spent doing it.

Productivity metrics indicate efficiency levels and the there are a number of factors which can impact productivity such as labour characteristics, work condition and non-productive activities, as documented in a Carnegie Mellon University study.

Improving productivity is often in the best interests of stakeholders such as project managers, construction firms, engineers, architects, investors and financiers, regulatory bodies and government agencies, environmental groups and the general public.

Productivity in the construction sector is an important measurement to track as it can impact the ability to deliver outcomes such as housing and infrastructure a country needs to accommodate population changes, the new energy assets required to meet requirements or even a country’s decarbonisation goals.

Construction workplace safety

12. Safety Metrics

All workers have the right to a healthy and safe working environment.

Statistics on work-related injuries, incidents, accidents, fatalities, and safety violations are crucial for assessing the industry’s commitment to safe construction practices and the proposal and implementation of new measures to protect both workers and bystanders.

13. Sustainability and Green Building Metrics

These metrics evaluate a project’s environmental impact and adherence to sustainability principles, both increasingly important in modern construction.

With more and more organisations investing in corporate sustainability and building sustainability strategies and goals, these metrics are important to measure and increase transparency around planning, design and development practices.

The Proptech Cloud’s Environment and Energy Efficiency data contains energy supply data and NABERS energy rating data which may help guide decisions on energy sourcing as part of a sustainability strategy.

14. Supply Chain Metrics

Measuring and analysing the efficiency of the supply chain, including the availability and cost of materials, procurement, processing and distribution of goods helps to anticipate potential construction project impacts such as delays or cost overruns.

Improvements in mathematical models, data infrastructure and the expansion and availability of applications provide deeper insights, while improving forecasting, efficiency and responsiveness in supply chain management.

What Do These Metrics Tell Us

Understanding these diverse metrics is essential for anyone involved in analysing the construction industry as they provide a comprehensive view of the sector’s performance, trends, and economic impact.

Analysts will often use a combination of these metrics and measurements to make conclusions, predictions or decisions regarding the property market.

And by keeping a close eye on these indicators over time, industry professionals can make better decisions, improve market condition forecasts, and more accurately assess the overall health and vitality of the construction sector.

 

Australian Construction Activity Data

The Proptech Cloud’s Construction Activity dataset contains Australian construction activity statistics which may be helpful for planning, demand forecasting and construction cycle timing.

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Understanding Housing Affordability: Key Metrics and Statistics

Understanding Housing Affordability: Key Metrics and Statistics

Housing affordability is a significant concern in many parts of the world, affecting the quality of life and economic wellbeing of individuals and families.

Professor Nicole Gurran from the School of Architecture, Design and Planning says governments around the world are searching for solutions to fix housing affordability, with two opposing schools of thought seeing the solutions as:

  1. Increasing supply. Those in support of this point of view see housing as more expensive because there’s not enough new supply. They see land use regulation and planning processes as restrictive to new construction, adding costly delays and uncertainty to the development process.
  2. On the flipside, others argue that ‘demand side’ factors underlying global house price inflation, such as low cost credit under financial deregulation, or government incentives to encourage property investment are being ignored. They highlight the political influence of property industry groups sustaining housing demand while advocating for reduced regulations. Some even suggest that extensive rezoning reforms may trigger surges in redevelopment and gentrification, potentially displacing individuals with lower incomes.

To truly understand the dynamics of housing affordability we need to take a detailed look at a range of different metrics and statistics to gain a full picture.

Shedding light on these crucial measures can offer insights for homebuyers, policymakers, real estate professionals, and urban planners.

1. Median and Average Home Prices

These figures provide a baseline for understanding the cost of purchasing a home in a particular area, with the median providing a middle point and the average presenting an overall trend.

2. Price-to-Income Ratio

This critical ratio compares home prices to average household incomes. A higher ratio suggests that homes are less affordable relative to income.

3. Housing Affordability Measures

A Housing Affordability Index (HAI) assesses whether a typical family can afford the mortgage on a median-priced home, based on their income. An index above 100 indicates greater affordability.

The issue with the HAI is that it primarily focuses on purchase affordability.

The Australian Institute of Health and Welfare (AIHW) broadens what they classify as housing costs in measuring housing affordability.

AIHW defines housing costs as

the sum of rent payments, rate payments (water and general), and housing–related mortgage payments”,

AIHW expresses housing affordability as

“the ratio of housing costs to gross household income”,

While housing stress is typically described as

lower-income households that spend more than 30% of gross income on housing costs“.

The second measure is a more comprehensive approach which considers a range of housing costs, the complexity of housing affordability and its impact on households.

4. Rent-to-Income Ratio

Rent-to-Income Ratio compares a tenant’s monthly rent to their gross monthly income expressed as a ratio. For those in the rental market, this ratio measures how much of a household’s income is spent on rent, with higher values indicating less affordability.

Rental property

5. Mortgage Interest Rates

Interest rates directly affect the cost of borrowing money for home purchases.

An increase in mortgage interest rates typically mean an increase in mortgage repayments, which can negatively impact affordability.

While a reduction in rates typically means reduced mortgage repayments, which may improve affordability.

6. Mortgage Payment as a Percentage of Income

Mortgage payment as a percentage of income is an important measure of affordability by demonstrating the burden of mortgage payments relative to a household’s income.

This percentage is calculated by dividing monthly mortgage repayments by gross monthly wages. 

The recommended figure is 28% of pre-tax income. Or in other words, no more than 28% of gross monthly income should go towards monthly mortgage repayments.

7. Homeownership Rates

Broad changes in homeownership rates can signal shifts in affordability, and the overall health of the housing market. 

To gain an idea of homeownership rates in Australia, AIHW shares a view of Home ownership and housing tenure in Australia.

8. Cost of Living

Several measures are published to calculate and help gauge changes in the cost of living. Changes in cost of living impacts our household purchasing power and has implications for housing demand. 

The main ways we measure cost of living is the Consumer Price Index.

Consumer Price Index (CPI)

According to the Australian Bureau of Statistics, CPI is a measure of the average change over time in the prices paid by households for a fixed basket of goods and services (which is grouped into 11 categories: Food and non-alcoholic beverages, Alcohol and tobacco, Clothing and footwear, Housing, Furnishings, household equipment and services, Health, Transport, Communication, Recreation and culture, Education, and Insurance and financial services).

 It’s important to note that the calculation of CPI does not include the cost of buying established dwellings, nor mortgage repayments. However, it does include rents, the cost of new dwellings (excluding value of land) and major alterations and additions to dwellings. 

Included in CPI

Not included in CPI

  • Rent
  • Cost of new dwellings (excluding value of land)
  • Major alterations and additions to dwellings
  • Rates and charges
  • Utilities
  • The cost of buying established dwellings
  • The cost of purchasing land
  • Mortgage repayments
  • Costs associated with servicing a mortgage
Consumer Price Index

9. Gini Coefficient of Home Prices

The Gini Coefficient statistical measure is typically used as a measure of income inequality, although it can be used to assess inequality in various other contexts, including home values in a real estate market.

A Gini index of 0 represents perfect equality, while an index of 100 implies perfect inequality.

This measure can indicate the inequality in home values within a market, with higher values suggesting greater disparity.

10. Building Permits and Housing Starts

Building permits and housing starts are indicators of building activity and housing supply.  They can signal future market changes which may impact affordability.

11. Vacancy Rates

A vacancy rate is a measure of the percentage of all rental properties that are currently vacant and available for rent.

Fluctuations in vacancy rates can impact rental prices, as elevated rates often correlate with decreased rents, and conversely, lower vacancy rates may lead to higher rental prices.

12. Debt-to-Income Ratio

An individual’s Debt-to-Income Ratio is calculated by taking their total debt and dividing it by their annual income.

This ratio reflects a person’s capacity to afford housing in light of their existing debts.

14. Population Growth and Urbanisation

Rapid population increases or urbanisation can heighten housing demand, affecting affordability.

A Multifaceted View of Housing Affordability

These range of metrics offer a multifaceted and broader view of housing affordability, reflecting the many factors that impact pricing, while implicitly highlighting the complexities of the housing market.

They’re essential for making informed decisions, shaping policies, and understanding market trends.

By keeping a close eye on these indicators, stakeholders can better navigate the challenges and opportunities within the housing sector.

Subscribe to our newsletter

Subscribe to receive the latest blogs and data listings direct to your inbox.

Read more blogs from The Proptech Cloud

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