The cyclical nature of the construction industry is no secret. It’s a well-known fact that the industry goes through cycles of booms and busts, with periods of high demand and growth followed by periods of low demand and decline. But what are the causes of this cyclicality? Let’s take a closer look.
Interest Rates
Interest rates have a significant impact on the cost of borrowing for construction projects, which can influence demand and investment in the industry. During high-interest rate periods, there is a decreased demand for construction projects and a decline in investment, whereas, during low-interest rate periods, there is an increase in demand and investment. According to a study by Edelstein and Lumley (2013), changes in interest rates can impact the cyclicality of the construction industry.
Economic Cycles
Another factor that influences the cyclicality of the construction industry is economic cycles. During periods of economic expansion, the industry experiences boom phases, whereas, during economic contraction, the industry experiences bust phases. Barlow and Fourie (2018) suggest that the construction industry is heavily influenced by economic cycles.
Government Policies
Government policies can also impact the cyclicality of the construction industry. Tax incentives, subsidies, and regulatory changes can all influence the demand and supply of construction projects, leading to cyclicality in the industry. Zavgorodniaya (2019) states that government policies have a significant impact on the cyclicality of the construction industry.
Technological advancements
Technological advancements can also impact the cyclicality of the construction industry. Advances in construction technology can increase productivity and efficiency, leading to an increase in demand for construction projects. During the boom phases, there is a greater focus on investing in new technology, while during the bust phases, investment in technology may be limited. D’Amato and O’Brien (2019) suggest that technological advancements are a factor that influences the cyclicality of the construction industry.
Demographics
Demographic shifts can also impact the cyclicality of the construction industry. Changes in population growth, migration patterns, and age distributions can all affect the demand for construction projects. According to Demographia (2021), demographic shifts are a factor that influences the cyclicality of the construction industry.
Environmental Factors
Environmental factors, such as natural disasters, extreme weather events, and climate change, can impact the demand and supply of construction projects, leading to cyclicality in the industry. Alawode and Adisa (2020) suggest that environmental factors are a factor that influences the cyclicality of the construction industry.
Supply Chain Disruptions,
Supply chain disruptions, such as labor or material shortages, can also impact the cost and availability of construction projects, leading to fluctuations in demand and investment. According to Appelbaum et al. (2017), supply chain disruptions are a factor that influences the cyclicality of the construction industry.
Real estate market
Real estate market conditions, such as housing prices and availability, can impact the demand for construction projects, leading to cyclicality in the industry. Bostic et al. (2018) suggest that real estate market conditions are a factor that influences the cyclicality of the construction industry.
Global Economics
Global economic conditions, such as trade policies, exchange rates, and geopolitical events, can impact the demand and supply of construction projects, leading to cyclicality in the industry. According to Mehmet and Moustafa (2019), global economic conditions are a factor that influences the cyclicality of the construction industry.
Financial Market
Lastly, changes in financial market conditions, such as the availability of credit, can impact the cost and availability of construction projects, leading to fluctuations in demand and investment. Akin and Polat (2020) suggest that financial market conditions are a factor that influences the cyclicality of the construction industry.
In conclusion, the cyclicality of the construction industry is influenced by various factors, including interest rates, economic cycles, government policies, technological advancements, demographic shifts, environmental factors, supply chain disruptions, real estate market conditions, global economic conditions, and financial market conditions. Understanding these factors is crucial for stakeholders in the construction industry, including investors, contractors, and policymakers, to anticipate and manage cyclicality. By taking proactive measures to mitigate the effects of these factors and investing in long-term solutions, stakeholders can help the construction industry become more stable and less volatile.