How will the global construction industry perform in the post pandemic era?
Updated: Jun 29
Construction is one of the most significant sectors in the world. It accounts for 13% of the global GDP and employs roughly 7% of the world's working population. That equates to over 236 million people worldwide. In India alone, around 50 million people are engaged in construction-related activities.
Let’s say you wanted to buy a car. Would you ever consider employing one entity to design it, another to purchase the parts, and a third, entirely different person for assembly? And what if you are further told that there is no assurance if your vehicle will be timely delivered. No fixed price either. And that the costs may vary from what was initially promised?
This is exactly how the global construction industry operates. It is one of the most fragmented and least transparent industries. This is a sector where time and cost overruns are the standard. There is significant information asymmetry between stakeholders. And coordination failures regularly jeopardise timely project completion.
Even before the world found itself in the middle of a global catastrophe, the AEC (architecture, engineering, and construction) industry had been underperforming. Over the last two decades, global labor productivity in the construction sector has barely exceeded 1% per year as compared to the global economy's 2.8 percent and the manufacturing sector's 3.6 percent per annum.
The construction industry is also one of the least digitised sectors in the world. It is heavily regulated, with a high dependency on public-sector demand. At various levels, informality and corruption distort the market. These factors contribute to making an already opaque industry harder to navigate.
Needless to say, the COVID-19 pandemic has significantly impacted the sector. The crisis is expected to have a long-term influence on demand and supply. With global supply chains disrupted, the procurement of building materials remains a challenge. This directly translates to inflated material costs in the near future.
And as we rewind to the events of the previous year in India, it is clear that due to the imposed lockdowns, without any advance notice, workers were the ones who suffered the most. It forced them to embark on a tragic journey back home, further reducing their chances of finding new jobs.
On the ground level, lockdowns around the world forced the closure of building sites. Due to restrictions on cross-border movement and reverse migration, workers have been unable to access project sites. Beyond causing massive project delays and cancellations, this phenomenon has worsened the shortage of skilled labour. The current situation has accelerated the adoption of an entirely new set of on-site protocols that prioritise employee health and safety.
In the present scenario, developers and builders are struggling to obtain permits to kick-start new and ongoing projects. The sheer uncertainty surrounding the crisis has shaken consumer confidence. With homebuyers deferring their purchases, the demand for residential real estate remains sluggish. Furthermore, as remote working becomes the new normal, the idea of ‘home’ is being viewed in a very different light than before. The fate of the ‘office’ too, hangs in the balance. The closure of malls, gyms, cinemas, and restaurants has further dampened demand for commercial real estate.
In conclusion, the current rise in infections has caused significant disruption to the sector. However, overcoming stalled on-site productivity still remains a long-term challenge. To be able to address it, there is a need for policymakers to push for reforms that should revolve around:
Ensuring the safety of informal labor
Increasing the payments for skilled workers for early completion
Removal of liquidity constraints by financial institutions
Provide one-time financing for structures that are nearing completion
Implementing these measures will boost frontline labor productivity, leading to:
Higher-quality construction at reduced costs for homeowners and buyers
Greater profitability for contractors
Higher salaries for workers
It is becoming evident that the world will look radically different as we move beyond the COVID-19 crisis. We must reassess stakeholder behavior; rethink strategy and operation so that the construction industry can emerge stronger in a post-pandemic world.
About the Writer
Ayushi Khemka is an architect, writer, and product designer (experience, interface, UI and UX). She has worked with Delhi NCR based architecture firms, P.G. Patki Architects, Creative Group and Monochrome Design Studio. She is a graduate of the Sushant School of Art and Architecture, Gurgaon, Delhi NCR.
About the Editor
Naveen Kumar is a public policy and regulatory governance professional. He is a graduate of the Tata Institute of Social Sciences (TISS), Hyderabad. He has experience working at the Gitika Trust, Tata Institute of Social Science (TISS) Hyderabad, Krishi Vigyan Kendra - MYRADA, AID India Eureka, Larsen & Toubro Infotech Ltd. (LTI) and Eco Foundation for Research and Training (EFFORT).
About the Illustrator
Meghna Singh is an architect, urban sketcher and design enthusiast. She is a graduate of the School of Planning and Architecture, Bhopal. She has won numerous national and international architecture design competitions, namely, NASA Mohammad Shaheer Landscape Trophy 2018, Heal+ Regenerative Housing for Kerala 2019, and the World Architecture Festival Student Charrette, Amsterdam 2019. She has experience working at Archohm Consultants Pvt. Ltd.