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Policy Changes to Avoid Boom and Bust of the Construction Cycle - thereby improving working

Policy Changes to Avoid Boom and Bust of the Construction Cycle

- thereby improving working opportunities and the quality of the construction workforce

KP Yim, YM Fan, Linda Fan, Paul Fox, Vincent Ng

2011

Policy changes to avoid boom and bust of the construction cycle

thereby improving working opportunities and the quality of the construction workforce

Ir KP Yim, Ir YM Fan, Ir Dr Linda Fan, Dr Paul Fox, Dr Vincent Ng

Funded by

Hong Kong Construction Association Funding Scheme

for the Public Policy Research/Project 2009

Policy Changes to Avoid Boom and Bust of the Construction Cycle

March 2011

Reported by

Association of Engineering Professionals in Society Ltd and Department of Building and Real Estate, The Hong Kong Polytechnic University

Funded by

Hong Kong Construction Association

March, 2011, Hong Kong

Copyright ©

All rights reserved. No part of the publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopy, recording or otherwise, without the prior written permission of the authors.

Disclaimer

While the authors and the publisher believe that the information and guidance given in this work are correct, all stakeholders must rely upon their own skill judgment when making use of it. Neither the authors nor the publisher assume any liability to anyone for any loss or damage caused by any error or omission in the work, whether such error or omission is the result of negligence or any other cause. Any and all such liability is declaimed. Please note that the comments of the study are only the views of the research team in their academic and professional pursuit and do not necessarily represent the opinion of the institutions or individuals interviewed.

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Acknowledgements

We would like to express our deepest gratitude to all the interviewees who have kindly spent their precious time for our interviews and provided us with most valuable insights during the interviews with them during this study. They have offered their help without hesitation and their expert knowledge in the subject matter is most valuable to this research project. Without them, this project study simply could not be accomplished.

Our sincere thanks are also to those who have made their effort to complete and return to us the 145 questionnaire surveys. Their views, comments and suggestions contributed significantly in guiding us to carry out the analysis, particularly in the chapters of the Conclusions and Recommendations.

We would like to thank the Association of Engineering Professionals in Society (AES) who selected us to take up this project study, and have supported us throughout.

Last, but not least, we express our thanks to the Hong Kong Construction Association (HKCA) who have generously given their financial support to enable the successful commissioning and completion of this report.

KP Yim, YM Fan, Linda Fan, Paul Fox, Vincent Ng

The Research Team

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Table of Contents

Page

Foreword – Ir Dr. the Hon Raymond C.T. Ho

iii

Foreword – Prof. Geoffrey Q.P. Shen

iv

Acknowledgements

v

Table of Contents

vi

Executive Summary

xi

Chapter 1 – Introduction

1

1.1 The Project

2

1.2 Background to the Study

3

1.3 Project Objectives

4

1.4 Project Approach and Scope

5

1.5 Project Progress and Activities

6

1.6 Project Report

Chapter 2 – Review of Past Research Studies

2.1 Introduction

7

2.2 Definitions and Selection of Key Concepts

8

2.3 Factors that Cause Boom and Bust to the HK Construction Industry

13

2.4 Effect of the Bidding System on the Workforce Quality

16

2.5 Factors to improve workforce quality

18

2.6 Issues concerning the attractiveness of the industry

21

2.7 Summary of Literature Review

23

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Chapter 3 – Methodology

3.1 Introduction

24

3.2 Project Objectives & Data Sources

25

3.3 Data Collection & Processing Methods

29

3.4 Independent, Dependent and Control Variables

31

3.5 Statistical Analytical Methods

33

3.6 Concluding Remarks

34

Chapter 4 – Macro-economic Data Analysis

4.1 Introduction

35

4.2 Time Lag Analysis – Visual Inspection

36

4.3 Time Lag Analysis – Pearson’s Correlation Coefficients

68

4.4 MRA & HRA Results

77

4.5 Summary of Findings

83

Chapter 5 – Questionnaire Survey Analysis

88

5.1

Introduction

89

5.2

Problems during Boom & Bust Times

94

5.3

Personal Experience during Boom Times

97

5.4

Personal Experience during Bust Times

100

5.5.

Summary of Findings

Chapter 6 - Interview Data Analysis

 

6.1 Introduction

103

6.2 Capturing the Data from the Interviews

104

6.3 Analysis of the Responses

116

6.4 Summary of Interview Responses in Relation to the Study Objectives

121

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Chapter 7 – Discussion, including Forum Responses

7.1 Meeting with the Objectives

122

7.2 Scope of Improvements in Hong Kong Construction Industry

122

7.3 Labour Shortages

122

7.4 Ageing Workforce

122

7.5 Attract Young People to Join the Industry

123

7.6 Training

123

7.7 Avoid the Future Down Turn Period as Far as Possible

123

Chapter 8 – Conclusions and Recommendations

8.1 Opportunities in Greater Pearl River Delta (GPRD)

124

8.2 To Strengthen and Provide the Training Facilities

125

8.3 Attracting Young People to Join the Industry

125

8.4 A Long Term Construction Planning Policy

126

8.5 Bust Doesn’t Necessarily Come After the Boom

126

8.6 Recommendations

129

Reference

131

Figures

Figure 2.1 Characteristics of Boom & Bust in the HKCI

9

Figure 2.2 Independent & Dependent Variables for Statistical Analysis

14

Figure 2.3 Independent by Broad and Detailed End-Users

15

Figure 4.1 Real Gross Value of Construction Works by Trade Construction

39

Sites (1983Q1 to 2010Q2) Figure 4.2 Real Gross Value of Construction Works by Trade Construction

39

Sites (1984Q1 to 2010Q2) Figure 4.3 Real Gross Value of Construction Works by Trade Locations

41

other than Sites (1983Q1 to 2010Q2) Figure 4.4 Real Gross Value of Construction Works by Trade Locations

41

other than Sites (1984Q1 to 2010Q2) Figure 4.5 Real Gross Value of Construction Works by Trade (1983Q1 to

43

2010Q2)

Figure 4.6 Real Gross Value of Construction Works by Trade (1984Q1 to

43

2010Q2)

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Figure 4.7 Real Gross Value of Construction Works by Broad End-Use

45

group Buildings (1983Q1 to 2010Q2) Figure 4.8 Real Gross Value of Construction Works by Broad End-Use

45

group Buildings (1984Q1 to 2010Q2) Figure 4.9 Real Gross Value of Construction Works by Broad End-Use

47

group Structures (1983Q1 to 2010Q2) Figure 4.10 Real Gross Value of Construction Works by Broad End-Use

47

group Structures (1984Q1 to 2010Q2) Figure 4.11 Real Gross Value of Construction Works by Broad End-Use

49

Group (1983Q1 to 2010Q2) Figure 4.12 Real Gross Value of Construction Works by Broad End-Use

49

Group (1984Q1 to 2010Q2) Figure 4.13 General vs Construction Unemployment (1982Q1 to 2010Q2)

52

Figure 4.14 General vs Construction Unemployment (1983Q1 to 2010Q2)

52

Figure 4.15 General vs Construction Unemployment Rate (1982Q1 to

53

2010Q2)

Figure 4.16 Construction Employment in Construction Sites (Building vs

Figure 4.22 Real Salary Index B of Construction Managerial & professional

55

Civil Engineering (1982Q2 to 2010Q2) Figure 4.17 Construction Employment in Construction Sites (Building vs

55

Civil Engineering (1983Q2 to 2010Q2) Figure 4.18 Construction Employment in Construction Sites (Public vs

56

Private Sector (1982Q2 to 2010Q2) Figure 4.19 Construction Employment in Construction Sites (Public vs

57

Private Sector (1983Q2 to 2010Q2) Figure 4.20 Real Wage Index of Construction Workers in Public Sector

59

(1985Q4 to 2010Q2) Figure 4.21 Real Salary Index A of Construction Managerial & professional

61

Employees (1983Q2 to 2010Q2)

62

Employees (1983Q2 to 2010Q2) Figure 4.23 Money Supply M1, M2, & M3, Hang Seng Index, Tael Gold,

65

GDP & GDP Construction (1982Q1 to 2010Q2) (Seasonally Unadjusted) Figure 4.24 Money Supply M1, M2, & M3, Hang Seng Index, Tael Gold,

65

GDP & GDP Construction (1982Q1 to 2010Q2) (Seasonally Adjusted) Figure 4.25 Consumer Price Index (1982Q1 to 2010Q2)

66

Figure 4.26 Tender Price Index (1982Q1 to 2010Q2)

67

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Tables

Table 4.1 – Summary of Time Lag Relationships amongst GVCWs

37

Table 4.2 – Summary of Time Lag Relationships amongst Employment

50

Table 4.3 – Summary of Time Lag Relationships amongst Wage/Salary Indices

58

Table 4.4 – Summary of Time Lag Relationships amongst Control Variables

63

Table 4.5 – Summary of Stochastic Time Lag Relationships between Dependent Variables and Control Variables

69

Table 4.6 – Summary of Stochastic Time Lag Relationships between Dependent Variables and Independent Variables

72

Table 4.7 – Summary of Stochastic Time Lag Relationships between Independent Variables and Control Variables

75

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Executive Summary

The excessive fluctuations imposed on the construction industry over many decades have led to a culture of risk avoidance and in turn to a lack of stability in employment relations for manual workers, and consequential lack of training, lack of adequate skills, lack of pride in one’s occupation, poor image and lack of interest from youngsters in joining the industry.

In Hong Kong the industry faces a huge increase in the construction workload coming on stream over the next five years. A better understanding of these aspects and their interrelationship can lead to measures which help the industry to be more stable, more responsive, more efficient, more competitive, more attractive and more sustainable. This leads us naturally to adopt the following objectives of the study.

The FOUR objectives of this Project identified for study are to:

Investigate and analyze the factors that cause boom and bust to the Hong Kong construction industry;

Assess the opportunities in improving the quality of the construction workforce in the next decade in Hong Kong;

Investigate and analyze the effect of the volatile contract price fluctuation on the quality of the construction workforce and construction industry; and

Assess the present situation of the shortage of young people to join the construction industry, and to recommend ways of improvements in attracting them to join the industry, in readiness for the major construction projects in Hong Kong over the next decade

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1. Scope of Study

The first part of the research is a literature survey to understand the key concepts relevant to the problem perceived. This is followed by (a) capture of relevant macro- economic statistical data for analysis; and (b) capture of opinions from selected experienced construction stakeholders on issues relating to Hong Kong construction enterprises. The methods for opinions collection are elicited through a questionnaire survey as well as through interviews. Both of these sets of responses were captured. Our approach and scope focus on the policies suggestions that are recommended to government and the industry leaders for their decision making for the future long term sustainability of the industry.

2. Review of Past Research Studies

The key theoretical concepts and background to the research study have been presented in Chapter 2. Many of the studies from overseas indicate that Hong Kong needs to embrace a much wider set of concepts than has been the norm. This chapter collected information to gain the knowledge; capture of relevant statistical data for analysis; capture of opinions from construction stakeholders on issues relating to Hong Kong construction enterprises to anticipate the construction projects boom in the next decade, and how to avoid the bust following by the downturn due to the change in economic circumstances or collapse of some favourable expectations.

3. Methodology

The research approaches are outlined in Chapter 3. The first part details the data sources collected both primary and secondary data for the research approaches adopted for each project objective. Primary data is collected by use of questionnaire survey and in-depth personal interviews whilst secondary data is the macro-economic data used as Macro-economic Indicators. After processing the macro-economic indicators, the second part defines the independent and dependent variables and delineates the data processing methods. The third part relates the statistical analytical methods to each project objective. The final part provides a summary of this section.

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4. Macro-economic Data Analysis

The time lag analyses by visual inspection by referring to the graphs and by using the Pearson’s Correlation Coefficients. Then the multivariate Multiple Regression Analysis and Hierarchical Regression Analysis results together with the statistical interpretations in relation to the phenomenon of the Hong Kong construction industry for the past 30 years of boom and bust are analyzed and reported the details in Chapter 4.

In analysis, the control variables are powerful in predicting the Employment and Unemployment Indicators. The higher the GDP is, the lower the construction unemployment and unemployment rate. At the same time, the greater the Money Supply M2, the Hang Seng Index and Tael Gold Bar are, the lower the general and construction unemployment. However, the greater the Money Supply M1 and M3 are, the higher the construction unemployment and general unemployment respectively. Money Supply M1, M2 and M3 therefore do not exhibit salient time lag among them, which is contradictory to common initiation.

The control variables are also powerful in predicting the Real Wage Index. The greater the Construction GDP is, the higher the Real Wage Index of all major trade workers. The greater the Money Supply M1 is, the higher the Real Wage Index of most major trade workers. At the same time, the greater the Money Supply M2 is, the higher the Real Wage Index of several major trade workers. However, the greater the Money Supply M3, Hang Seng Index and Tael Gold Bar are, the lower the Real Wage Index of all major trade workers. On the other hand, various construction spending components are not as powerful as the control variables.

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5. Questionnaire Survey Analysis

Chapter 5 reports the results of various statistical data analyses of the questionnaire survey with 145 respondents of construction professionals. The primary data collected personal attributes including the employment, management level and overseas experience. The respondents have been asked views on 8 problems during boom and bust times and 18 questions on personal experience during boom and bust times.

The employed construction professionals are more optimistic than the self-employed ones when they faced the problems during boom and bust times. Both self-employed and employed construction professionals have significantly different views to nearly all problems they faced during boom and bust times except for the problems of economic efficiency and work safety. The construction professionals working in developer are the most optimistic when they faced problems whilst those working in localized foreign contractor are the most pessimistic during boom and bust times.

The construction professionals at different management levels tend to be optimistic towards certain problems during boom and bust times rather than being optimistic to everything during boom and bust times. The junior management is the most optimistic towards quality of work output, work performance reliability, reluctance to invest in training and reluctance to innovate but the most pessimistic towards economic efficiency, work safety, difficulties in recruiting young people and reluctance to invest in business/organization. However, both middle and senior management are neither the most optimistic nor the most pessimistic towards the problems they faced during boom and bust times. The construction professionals with moderate overseas work experience are the most optimistic when they faced problems whilst those with well overseas work experience are the most pessimistic during boom and bust times.

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6.

Interview Data Analysis

 

The interviewees’ opinions form a very significant part to this research study. The respondents identified:

6.1

Nine factors that cause boom & bust in the Hong Kong construction industry

Government’s total investment in public works per year (and this should not fluctuate too much year on year);

The HKCI should regulate itself based on a good understanding of industry

 

capacity and a long-term plan for workload. necessary;

Law should be introduced if

 

Maintenance work;

Social needs of projects (new railways, hospitals, etc) given priority, then other needs

Local manpower resources available (2 respondents mentioned this);

Availability of training capacity in training institutions;

Economic benefits of projects;

Private sector demand should be included in picture;

Better understanding of what we have already.

6.2

Six areas of opportunities in improving the quality of the workforce

The need for training

Employment conditions needed to be improved

Development of a professional culture at all levels was generally overlooked.

Innovation was mentioned by about half of the stakeholders and revolved around prefabrication / precast.

Globalisation was mentioned by about half of the stakeholders, and usually in the context of importation of labour/professional skills.

Quality of Working Life (QWL) was mentioned by 3 stakeholders but only in passing. They stressed that this was particularly acute because of the age profile of the existing workforce, with many workers in their 50s likely to retire in the next 10 years.

6.3

No possible linkages between volatile contract price fluctuation on the quality of the construction workforce; and

6.4

Almost universal agreement that there is a shortage of young people to join the construction industry, and this is a significant problem.

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7. Discussion, including Forum Responses

The synthesis is brought together in Chapter 7. This also incorporates further data captured in our “Industry Forum” organized on 31 August 2010 by inviting the construction stakeholders, academics, government officials and labour union representatives to air their views and discussed the issues, where they responded to our interim findings as presented by all members of our research team.

The chapter aims to explore the scope for improvements in Hong Kong construction industry, in particular, the phenomenon of the changes in the workload from boom to bust and back again, are well-known, yet difficult for the industry to deal with on its own. Key issues are highlighted in discussion, including labour shortages; ageing workforce; attracting young people to join the construction industry; training; and avoiding the future down turn period.

8. Conclusions and Recommendations

The final chapter draws the threads of the whole study together. Chapter 8 addresses the critical issues with a view to making recommendations on how to avoid the future bust, to refrain from following the boom and bust cycle of the construction industry in Hong Kong.

The Government should look into the issues and to even out and lengthen the construction time of those infrastructure projects which do not fall into the critical path of the long term strategic public works programme by:

Postponing those non-critical mega projects to smoothing the possible boom and bust cycle of the construction industry

Providing sufficient medium and small projects to ensure a smooth flow of provision of works for the local construction industry in a sustainable manner

The Hong Kong construction enterprises should use their competitive edge to take advantage of the opportunities in the wake of the rapid recovery since the financial crisis in 2008, by working out a strategically long term construction plan by:

Improving the training to meet the construction needs;

Improving the employment conditions

Improving

unattractive image of the industry and raise the social status of the

construction workers

Improving the quality of working life.

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Chapter 1 – Introduction

1.1 The Project - HKCA Funding Scheme for the Public Policy Research/Project

In December 2009 Hong Kong Construction Association (HKCA) awarded Association of Engineering Professionals in Society Ltd (AES) to carry out the project study on “Policy Changes to avoid boom and bust of construction cycle thereby improving working opportunities and working quality of construction work force” which is funded by the HKCA Funding Scheme for the Public Policy Research/Project 2009.

In March 2010 AES invited and requested the Department of the Building and Real Estate (BRE) of the Hong Kong Polytechnic University (HKPolyU) to form a collaborative research team between the AES’s experienced senior members and the BRE’s academic staff and research fellows.

The Research Team comprise five members, they are:

AES Members

Ir K. P. Yim

Ir Y. M. Fan

Academic Staff and Research Fellows of the Department of BRE, HKPolyU

Ir Dr. Linda C. N. Fan

Dr. Paul W. Fox

Dr. Vincent C.W. Ng

Linda C. N. Fan Dr. Paul W. Fox Dr. Vincent C.W. Ng The Collaborative Research Team

The Collaborative Research Team

During the forum discussion on 31-8-2010 at the Excelsior Hotel

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1.2 Background to the Study

The nature of construction industries worldwide is one based largely on projects that are initiated by public sector and private sector clients. In market economies, such as Hong Kong, the contracting side of the industry responds to the client stakeholder needs, but has little control over how big and how fast the orders come in. It is widely accepted that if any place, Hong Kong being no exception, gets the supply of construction projects wrong, too many or too few, either many projects will suffer delays and/or extra expense, or the whole construction workforce experiences loss of income/skills. This, in turn, impacts the wider community. For example, after a boom period the industry may have raised its costs to unacceptable levels for many clients. Likewise, quality and efficiency may deteriorate, leading to problems of costly

maintenance in later years. Whereas, after a bust period, the industry may have lost large numbers of skilled people and collectively the remaining ‘survivors’ may not have the capacity to respond to new demands. The community at large then will experience excessive delays in the supply of new facilities and infrastructure, which may be essential to efficiency and competitiveness in other economic sectors. Thus a more stable provision of construction projects is a desirable condition that needs to be attained, and the government has more influence than most, in this respect. This research study seeks to address and tackle the problems arising from “boom and bust” in the industry workload: labour shortage on one hand, unemployment on the other; those needing training or re-training to cope with the construction supply boom; unstable construction prices, and measures to maintain and improve the quality of construction deliverables under all constraints. All these factors underline the need to focus on Hong Kong construction industry’s working patterns, which should not be prone to the sudden boom-and-bust of construction cycles. By means of adjustments to the supply of workload, the basic healthy conditions of the construction industry as

a whole can be ensured sustainable over the medium term.

This research is important right now, as the industry faces a huge increase in the construction workload coming on stream over the next five years. Top-level policy makers within Government may not be aware of the consequences of the decisions they have made in this respect. At the same time, the excessive fluctuations imposed

on the industry over many decades has led to a culture of risk avoidance and in turn to

a lack of stability in employment relations for manual workers, and consequential lack

of training, lack of adequate skills, lack of pride in ones occupation, poor image and lack of interest from youngsters in joining the industry. A better understanding of these aspects and their interrelationship can lead to measures which help the industry to be more stable, more responsive, more efficient, more competitive, more attractive, and more sustainable. This leads us naturally to the objectives of the study.

This Project takes the opportunity to address the problems envisaged, and to focus on the underlining factors so that the industry would not be prone to the sudden boom- and-bust of construction cycles. By these means, the basic conditions of the construction industry as a whole can be ensured sustainable at least over the medium term.

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1.3 Project Objectives

The following objectives have been identified for study:

(1) Investigate and analyze the factors that cause boom and bust to the Hong Kong construction industry;

(2) Assess the opportunities in improving the quality of the construction workforce in the next decade in Hong Kong;

(3) Investigate and analyze the effect of the volatile contract price fluctuation on the quality of the construction workforce and construction industry; and

It is noticeable that if population growth rates are declining, which is the case in Hong Kong, the percentage of the total population who are economically active tends to increase because of a smaller proportion of persons below employment age. That upward influence is getting worse by the tendency for younger persons to delay entry into the industry’s work force and older persons to withdraw earlier. This Project also studied the objective of:

(4) Assessing the present situation of the shortage of young people to join the construction industry, and to recommend ways of improvements in attracting them to join the industry, in readiness for the major construction projects in Hong Kong over the next decade

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1.4 Project Approach and Scope

The research team first carried out a literature survey to understand the key concepts relevant to the problems perceived. This was followed by (a) capture of relevant macro-economic statistical data for analysis; and (b) capture of opinions from selected experienced construction stakeholders on issues relating to Hong Kong construction enterprises. We elicited stakeholder views both through a questionnaire survey as well as through interviews. Both of these sets of responses were captured, bearing in mind that most industry stakeholders anticipate the construction projects boom in Hong Kong in the next decade, and are rightly concerned about how to avoid the bust following the downturn, due to the change in economic circumstances or collapse of some favourable expectations. The study provides findings that address the critical issues, identifying factors that trigger the upturns and downturns of the construction industry, and makes recommendations on how to avoid the future boom and bust cycle of the construction industry in Hong Kong. Our approach and scope is not so much with the technical minutiae of statistics of numbers of people needed, but more with the policies need to guide decisions by government and industry leaders for the future health and long-term sustainability of the industry.

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1.5 Project Progress and Activities

A series of regular research meetings were held in bi-weekly basis between January and May 2010 to discuss items on how to start the research work for the project, how to identify, what are the objectives that can be mapped with the project scope, how to describe and what are the project deliverables, how to set the project timeline and the key milestones, what are the high level requirements and expectations, how to make the practicable assumptions, what are the constraints and would there be any new change requests that may modify the project scope. The following describes the project scope.

On Thursday 31 August 2010 the research team briefed and presented the Interim Report on the “Policy changes to avoid the boom and bust of construction cycle thereby improving working opportunities and working quality of construction work force” to about 100 AES Members and their guests at the Excelsior Hotel, Causeway Bay, Hong Kong. After the briefing and presentation, it was followed by the discussion amongst the attendees. The forum was attended by the contractors, consultants, government officials, academia and labour union representatives. The forum facilitated the exchange of views amongst the attendees and the guests. The comments and opinions collected in the forum discussion have been consolidated, addressed and incorporated in the Final Report of the project study.

On Monday 4 October 2010 AES held their Council Meeting at World Trade Centre Club, Causeway Bay, Hong Kong. Before their meeting, the research team briefed and presented the Interim Report to about 40 AES Council Members who did not attend the forum discussion before on 31 August 2010. The comments made and questions raised have been addressed and incorporated in this Final Report.

The research team completed an Interim Report of the project study by end of October 2010. A copy of the Interim Report was delivered to AES for their comments and for their subsequent submission for the attention of HKCA.

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1.6 The Project Report

The final Project Report consists of eight chapters.

Chapter 1 is the ‘Introduction’ reported the collaborative Project funded by Hong Kong Construction Association.

Chapter 2 is the ‘Review of Past Research Studies’ presented the key theoretical concepts and background to the research study.

Chapter 3 is the ‘Methodology’ outlined the research approaches adopted for achieving the respective project objective including sampling, data collection, data processing, independent and dependent variable construction, and data analysis methods.

Chapter 4 is the ‘Macro-economic Data Analysis’ together with the statistical interpretations in relation to the phenomenon of the Hong Kong construction industry for the past 30 years of boom and bust are reported.

Chapter 5 is the ‘Questionnaire Survey Analysis’ reported the results of various statistical data analyses of the questionnaire survey with 145 respondents of construction professionals.

Chapter 6 is the ‘Interview Data Analysis’ consolidated the information obtained, analyzed the results and reported the findings of 9 interviews.

Chapter 7 is the ‘Discussion, including Forum Responses’. The synthesis of the results of the various separate analyses is brought together in this chapter.

Chapter 8 is the ‘Conclusions and Recommendations’, which finally draws the threads of the whole study together and examines its implications in the conclusions and recommendations.

The supplementary information required for the carrying out the research study of this project, such as the survey questionnaires, samples, interview questions, interview result details, relevant statistical data and the references of the literature, are appended at the end to form the overall Project Report.

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Chapter 2 – Review of Past Research Studies

2.1

Introduction

This review covers the theoretical frameworks relevant to the objectives both from studies of overseas construction industries as well as studies in Hong Kong. Following on from this introduction, we set out the definitions we are using for the key concepts. Wherever possible we make use of established definitions, but in the case of the concepts of “Boom and Bust” we have found the existing definitions neither sufficiently clear nor comprehensive. Thus we have developed our own, based on our understanding of the way these terms are used in common usage, and we explain the reasons why.

The subsequent sections of the review cover the four main objectives to establish:

Key factors that influence the industry workload;

Key factors that influence the quality of the workforce;

Possible linkages of the contract bidding system and the volatility of contract prices upon the quality of the workforce; and

Issues concerning the attractiveness of the industry to new recruits.

The final section summarises the review.

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2.2 Definitions and Selection of Key Concepts

In this study, we define the construction industry as comprising those organisations involved in design, production, alteration, renovation, maintenance, facility management, demolition and re-cycling of building and civil engineering works, including the supply of resources. It includes all internal and external stakeholders who in some way or another promote the industry’s policies, procedures, practices and culture (Fox et al 2008).

There are many definitions of Boom and Bust, but few of them convey the problems which arise at the peaks and troughs of the cycle. One definition that does indicate these problems is: “A type of cycle experienced by an economy characterized by alternating periods of economic growth and contraction. During booms an economy will see an increase in its production and GDP. During busts an economy will see a fall in production and an increase in unemployment.(Investorwords 2010)

Many of these definitions arise from studies of business cycles and when applied to the construction industry these, in turn, influence property cycles and construction cycles. Our focus is on the latter concept and we thus interpret boom and bust in this context. Since construction is a project based industry, this characteristic influences the way the process of boom and bust is experienced, and also how to respond to the phenomenon.

Any investigation of the nature of boom and bust will lead to a complementary concept of industry capacity. As one of the pioneers in applying economic theory to the construction industry, Hillebrandt (2000) refers to the capacity of the industry, which she defines as “the maximum output which is attainable by the industry, within the limits of conditions considered acceptable at the time”. We take a slightly different definition and consider that the capacity of the industry is something which has both maximum and minimum values. Thus Hillebrandt’s definition of maximum output we regard as the industry working at maximum capacity. We also recognise it can be working at a lower level, or minimum capacity. How do we define these two levels? In the case of maximum capacity, we agree with Hillebrandt’s assertion that “…the supply of resources is the ultimate determinant of capacity”(Hillebrandt 2000:191). She lists four factors which influence capacity:

“the amount of a given resource in use to produce the current output of the industry;

the amount of the resource lying idle awaiting the demand for its use from the construction industry;

the

extent

to

which

the

resources

will

increase

in

the

time

span

under

consideration

 

on the assumption of no change in intentions or policy,

 

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on the assumption of effort being directed to increasing of the resource and taking into account the cost of increasing its availability;

the extent to which the resource can be saved by substitution of some other resources and the cost of such substitution”.

(Hillebrandt, 1975: 34)

At maximum capacity, the industry is already using all the key resources available to it, and there are no spare resources lying idle if demand further increases. At this point, any further increase in demand turns a sustainable healthy boom level to an unsustainable unhealthy boom, where the shortages of resources lead to a rapid increase in costs as competing clients/projects bid up the prices to unhealthy levels (unsustainable levels). This is point ‘c’ on the chart (Figure 2.1).

Title: Characteristics of Boom & Bust in the HKCI

Importation of people Training Shortages (materials, manpower, training capacity) time Increased costs Increased
Importation of people
Training
Shortages (materials, manpower, training capacity)
time
Increased costs
Increased accident rate
Lower productivity
c
Boom
b
a
Re-training
time
The new norm
Bust
2013
Time
Loss of people
Reduced training
Reduced skills
Lower recruitment
Lower morale
Permanent lower
workload leads to lower
capacity max. and min.

Max. capacity

The old norm

Capacity of HKCI

(after Hillebrandt 2000: 191)

Min. capacity

Capacity “early warning” level

Figure 2.1 Characteristics of Boom & Bust in the HKCI

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However, prior to this unhealthy level, we first identify normal conditions where the workload is within the normal boundaries (shown as point ‘a’). Variations in the workload arise through different mixes of work type, so that $1 million spent on new work would produce a different demand for labour resources compared to the same money spent on maintenance work – the latter requiring a higher labour input. We also identify a level (shown as point ‘b’), where the demand has reached a point where some resources are already stretched, or are not available, and the project stakeholders can take remedial action by training extra workers, or purchasing new machines from non-established sources or the design /methods of work can be changed to avoid using the resource that is problematic. In this case, the whole industry can still function and provide service to its clients, but at greater cost, or with some inconvenience. This level of demand we identify as the capacity “early warning” level. This is also the start of the boom phase, but it is still healthy because the industry overall can still meet its project goals, although there will be “hot spots” of resource shortages appearing.

Thus we define the start of a boom as the point when the demand exceeds the early warning level of capacity and available resources. Beyond this point, there are many problems arising within this boom phase, including:

Shortages of various resources of labour, materials, and plant;

Associated increased costs;

Project delays;

Increase in unqualified /untrained / inexperienced / imported labour;

Loss of efficiency;

Increase in accident rate;

Reduction in training (people cannot afford the time to attend training);

Lowering of quality of output (as people rush to complete work);

Lower quality of working life (QWL) as people work long hours;

Increased stress and other heavy workload problems;

Insufficient training capacity.

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Likewise, at times of industry workload being lower than its minimum capacity it enters a bust phase, with the following associated problems:

Unemployment and /or under-employment;

Loss of trained and experienced people (both temporary and permanent loss);

Loss of income for labour;

Insufficient profit for businesses to be viable (sustainable);

Loss of training (too little income to pay trainees, or for self-employed to take time off seeking for work);

Loss of skills through insufficient use;

Lowering of morale in industry, lowering of motivation;

Lowering of image of industry to newcomers, especially youngsters who see no job security for a career choice in the industry;

Lowering of recruitment to industry.

The construction workforce includes the whole variety of people engaged in the industry, whether they use manual, technical or professional skills directly on site, or prior to site work in design, research & development, or after site operations in maintenance and management of constructed facilities. The term construction workforce is used interchangeably with the term construction labour, or simply labour. Within this definition, when referring to manual workers, we class them as skilled labourers/workers, semi-skilled labourers/workers or unskilled/general workers.

When we refer to working opportunities, we mean the opportunity to engage in work full-time or part-time and paid directly as employees or paid as self-employed contract staff/workers for a package of work duties. The definition is intended to include all types of employment conditions.

The quality of the construction workforce is already defined by the government in terms of the qualifications held by industry participants. Each member of the industry possesses certificates of training completed and educational attainment both in general education level achieved as well as specialist education in construction or construction-related subjects. A more comprehensive view of quality may not rely only on levels of achievement by individuals. It might be more broadly defined by considering the breadth of experience of individuals as well as how they relate within teams (Clarke 1992, GB DETR 1998, HK CIRC 2001), such as

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Work experience outside of Hong Kong;

Work experience outside of the construction industry ; having a sense of ethics in what and how they do their work ;

Belonging to a network of similar people through membership of an association /institute which fosters their sense of belonging, of contributing to the common good, of leading change within their field of experience, and of being accountable to their peers ;

Flexibility to adapt to change, creativity leading to innovation, and motivation to improve their knowledge and skills ; and

Willingness to work with others as members of a team towards common goals.

In construction, the individual works on many different projects throughout a working career. Thus, the ability to work together with strangers in teams in unfamiliar surroundings is part of the normal pattern. The set of skills needed for efficiency, safety, quality, team work, flexibility, adaptability and integrity, even for an unskilled labourer, require aptitudes of a far higher level than those needed in manufacturing industry, where the tasks are simpler, safer, and in a fixed location every day with controlled climate and familiar layout. Whilst these additional measures of quality of the workforce are important, for the purposes of this study, we will rely more on the easily obtainable measures of education / training attained through recognized certificates.

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2.3 Factors that Cause Boom and Bust to the HK Construction Industry

The literature relating to bust and boom of construction cycles is well established and extends over at least 4 decades. Some of the earliest studies were those of the University of London University College when a group of economists led by Professor Turin attempted to view the behaviour of whole construction industry using economic theory (Turin 1975). Hillebrandt was one of the economists recruited by Turin when the Unit for Building Economics was set up, and she later published several seminal texts which helped readers to understand the issues that the UK construction industry faced (Hillebrandt, 1984, 1985; Hillebrandt et al 1995). These principles were found to be applicable to the construction industry in many other countries as well, and we can thus recognise that these are applicable to Hong Kong. She asserts that “…all demand is affected, though in different degree, by the ups and down of the economic cycle and by actions of government, either directly as a client of the industry, or by the way in which it runs the economy.” (Hillebrandt 2000:5)

A recent study by Wong (2006) looked at manpower planning in depth. He drew upon the work of Agapiou (1996) who had completed a doctoral study ten years earlier, based on the UK construction industry. Wong investigated manpower demand forecasting both from an industry level as well as at project level, using Hong Kong data. At the industry level, he recognised that existing forecasts were unsatisfactory and that too little research had been done in this area. He compared four different approaches: Time-Series projection; Bottom-up; Top-down; and Labour Market Analysis. Of these he found that a Top-down approach was both good in static situations where a snapshot at a single point in time was needed, and also excellent in dynamic situations where changes over time took place. Thus, overall, a Top-down approach was best. Based upon economic theory, it has advantages of reliability, and the ability to deal with “what if” scenarios. The key variables used for this type of analysis include macroeconomic ones such as GDP, sectoral output, unemployment rate, productivity, interest rate, and wages.

Given the prominent role of the government, we have decided to use variables from government statistics to analyse the demand and response to demand. Figure 2.2 shows the key variables that we have included.

The main Independent variable is the Gross Volume of Construction Works (GVCW) which includes demand arising from both public and private sector clients. Figure 2.3 shows the various ways in which this overall amount of investment in buildings and facilities is further sub-divided into various sectors, either according to work on Construction Sites/ Other locations; or by Building/Civil engineering. Referring again to Figure 2.2, it also shows how the government may influence demand through direct investment (GVCW) as well as through indirect means. The indirect variables are indicated as Moderating or Control variables on the chart, and include such items as:

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Money supply M2;

Money supply M3;

Best Lending Rate;

Hang Seng Index;

The Consumer Price Index (CPI); and

The Tender Price Index (TPI).

Finally, concerning the Dependent variables these include:

Employment / Unemployment (as well as Importation of Workers); and

Salaries & Daily Wages, (further subdivided according to Skilled/Unskilled Workers, and Short/Long Organisation Tenure).

Independent & Dependent Variables for Statistical Analysis

Importation of Workers Dependent Variable Independent Variable Employment / Unemployment GVCW Time Lag of x
Importation of Workers
Dependent Variable
Independent Variable
Employment / Unemployment
GVCW
Time Lag of
x months. Influenced
by Control Variables
Salaries & Daily Wages
Moderating
Skilled Worker
Variables
Unskilled Worker
Money Supply M2
Money Supply M3
Short Organisation Tenure (Temporary)
Best Lending Rate
Long Organisation Tenure (Permanent)
Hang Seng Index
Control variables

CPITenure (Permanent) Hang Seng Index Control variables TPI Figure 2.2 Independent & Dependent Variables for

TPITenure (Permanent) Hang Seng Index Control variables CPI Figure 2.2 Independent & Dependent Variables for

Figure 2.2 Independent & Dependent Variables for Statistical Analysis

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Independent Variables by Broad & Detailed End-users

GVCW for Construction Site by Broad Trade Group

End-users GVCW for Construction Site by Broad Trade Group By Broad End-user Group By Detailed End-user
By Broad End-user Group By Detailed End-user Group
By Broad End-user
Group
By Detailed End-user
Group
GVCW on GVCW for Construction Construction Sites Sites by Broad Trade Group GVCW on Locations
GVCW on
GVCW for
Construction
Construction
Sites
Sites by
Broad Trade
Group
GVCW on
Locations other
than Sites
GVCW Buildings Site Formation & Clearance GVCW Structures & Facilities Piling & Related Foundation Works
GVCW Buildings
Site Formation &
Clearance
GVCW Structures
& Facilities
Piling & Related
Foundation Works
Architectural
Superstructures
Civil Engineering

Figure 2.3 Independent by Broad and Detailed End-Users

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2.4 Effect of the Bidding System on the Workforce Quality

In Hong Kong, the dominant procurement system for building work in both public and private sectors is through competitive tender (Drew 1994:35; Oo 2007:41). The HK CIRC Report (2001: 1) identified the shortcomings in the industry’s operations and quality of its products as follows:

Construction activities are labour-intensive, dangerous and polluting;

Built products are seldom defect-free;

Construction costs are comparatively high;

The industry is very fragmented and is hindered by an adversarial culture;

Many industry participants adopt a short-term view on business development, with little interest in enhancing their long-term competitiveness;

There is a tendency to award contracts to the lowest bidders and delivery programmes are often unrealistically compressed;

Accountability is undermined by non-value-adding multi-layered subcontracting and lax supervision;

An inadequately trained workforce also impairs the industry’s ability to adopt new technologies and to cope with new challenges.

The Grove Report (Grove 2000) also observed that some clauses regarding ground conditions in the Government General Conditions of Contract for public sector work placed unreasonable risks onto Main Contractors such that it deterred genuine and responsible contractors whilst allowing weaker but more gambler-oriented contractors to obtain contracts. “…The effect is that the winning tenderer will either be the gambler or the low guesser. Frequently this will be the thinly financed, low asset contractor who has little to lose. It is not in Government's interest to attract this calibre of contractor, nor to discourage highly competent, conservative contractors.” (Grove Report Para. 12.10).

Chiang et al (2001) found a contrast between the civil engineering sector and building sector of the HKCI in terms of the competitiveness. Whilst the former sector required technological and capital resources which imposed a strong barrier to entry to the market, the private building sector was very easy to enter, as it needed only low technology using traditional methods. Consequently the latter sector

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“…competed intensely on cost reduction rather than technology improvement, leading to poor construction safety and product quality…. …Generally profit margins are razor thin, and are only squeezed through the exploitation of lower layer subcontractors. Competitiveness based on cost reduction is not sustainable, as it creates no enduring competitive edge.” The authors concluded that the government,

being both a major client and a regulator, could be more active in promoting the overall competitiveness of indigenous local contractors in Hong Kong. Although the stabilization of construction demand can motivate local contractors to improve quality, the implication is that international contractors in complex projects could only grow more competitive. The authors warn that the industry must not become too dependent

on government initiatives, so from a policy perspective, this is a fine point of balance.

A very recent paper (Chiang and Cheng 2010) adds further to this discussion by

arguing that the interim payment mechanism has induced a low barrier to entry and

“…helped perpetuate the vicious circle of labour intensiveness of building construction, exploitation of labour-only subcontracting, proliferation of small subcontractors and intense rivalry between firms.”

Our interpretation of this part of the review is that such conditions, in attracting and encouraging the gambler attitude, only increase the competitive nature of the business environment, and make it difficult to sustain a strong profitable business. This in turn affects the funds available for long term planning, investment in improvement of the business, and the recruitment, retention of staff, and adequacy of salaries/wages/ employment packages, staff development and training. In other words, the realities of the overly-competitive bidding system lead to the poor quality of the workforce.

Finally, we highlight that too much emphasis on measures to stabilise the overall industry workload may lead to neglect of more important policies. Wong et al (2010) argued that the industry needs to have a comprehensive strategic plan to develop the industry in a sustainable manner. Four key strategic directions were identified:

(1)

Formulation of an industry-specific long-term vision and policy;

(2)

Development of favourable factor conditions and resources;

(3)

Fostering of a best (better) practice culture; and

(4)

Enhancement of technical competencies.

Each of these strategies links to the development of the quality of the workforce. In turn, this highlights the need for improved levels of training, and thus the need for long-term stable employment conditions.

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2.5 Factors to improve workforce quality

Dainty et al (2005) studied the skills crisis in the UK construction industry, and first reviewed the existing theoretical foundations of the topic, noting that the sector’s labour market is based on the concepts of informality and flexibility. During their own qualitative data collection, they found 3 key themes of significance in the industry-wide labour market characteristics. These are: Skills requirements and impacts - every employer interviewed believed there to be a skills crisis with too few skilled workers, and a low level of skills.

Overall, 10 distinct issues were found through interviews with contracting firms, including

Client demands and expectations;

Impact of new technology and work practices;

The ageing workforce;

Geographical mobility;

Remuneration and reward;

Self-employment and the impact of labour market regulation;

Workforce quality;

Specific skill requirements;

Multi-skilled workers; and

Supervisory, professional and management skills.

Recruitment and retention issues were seen as a huge problem by most employers. Strategies to deal with it included six areas:

Advertising;

Agency recruitment;

Self-employment and informal recruitment practices;

Image of the industry;

Workforce diversification; and

Employee turnover and retention.

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Training and qualifications were seen as doubtful in value by two thirds of respondents. Others were committed to training and its benefits. Six areas were highlighted:

New entrant trainees;

The qualification and training structure;

Training provision and availability;

Training and developing the existing workforce;

Government-sponsored training schemes; and

Funding for training.

Overall, Dainty et al’s conclusions are that the calculations of numbers of skills needed are a starting point for identifying skills shortages. However, the crucial concern was that the quality of skills available is a more urgent focus. A tendency to blame clients and avoid responsibility was observed, but a different mindset by management was needed to solve the problems. This, together with better coordination between training providers, employers, and regulatory bodies would address the skill needs and provide a basis to lobby for policy changes. Many of the issues faced in Dainty et al’s study are common to the Hong Kong situation. This, we assert, is arising from the similarities in the structural, institutional and cultural characteristics between the two construction industries.

The lack of quality of skills available in sufficient numbers which Dainty et al have highlighted points to the need to provide a structured framework for various levels of skills. Such a National Qualifications Framework (NFQ) are found in a number of countries / administrative region, including the UK and Hong Kong. Young (2003) discusses these at length and recognises their importance, whilst giving examples of how difficult it has been to implement them successfully. The impasse motivated him to explore some of the deeper social, political and economic issues in his paper.

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The Government of HKSAR, through the Vocational Training Council (VTC) have implemented such a framework in Hong Kong, as from 2004. The new Qualifications Framework (QF) covers qualifications of academic, vocational and continuing education and training, and is intended to meet the following needs:

Better equip and improve the Hong Kong society to face change;

Ensure Quality Assurance of training programmes;

Ensure relevance of training programmes;

Provide a platform for arranging and ordering various programmes and qualifications to ensure their standard and quality; and thus

Enable individuals to pursue further studies for their own career development.

Given the lack of quality of skills which Dainty et al have highlighted, it would seem obvious that the QF should provide a ready solution. However, despite the rollout of the QF framework since 6 years, the only construction- related area of application is in property management. Otherwise, the construction industry has not adopted QF, and has no plans to do so.

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2.6 Issues concerning the attractiveness of the industry

The final area of focus of this study concerns, perhaps, the most important issue facing construction industry employers. Although it is presented here as a separate issue, its very nature links it with all the previous research objectives. It is not only a major concern of the Hong Kong construction industry, but it is of significance to national construction industries worldwide. It is not just one issue, but a multi- dimensional, multi-related set of issues.

In terms of its common nature worldwide, the poor attractiveness of the construction industry starts with a simple understanding that “beauty is in the eye of the beholder”. It is a view from the outside, looking in, and by this, we mean the image that the industry presents to the outside world. In order to understand the nature of the image of the industry, the International Labour Office (ILO) of the United Nations conducted a survey and published their results in 2001 (ILO 2001). The characteristics of informality and flexibility are mentioned in the conclusion, and, like Dainty et al, remind us again of the often casual employment relationship between employer and worker. The paper asserts that the construction industry in most countries is fragmented and employment terms have become based more on outsourcing. This raises concerns about job security, health, safety as well as skill formation. “The image of the industry has suffered to the point where it is often difficult to attract new recruits, while the shortage of skills is threatening the quality of the products and possibly also, in the long term, the quantity of employment.”

“The big issue facing the sector is how to raise the image of the industry and make construction more attractive to young people. This is not just a question of finding a good public relations consultant. There are real issues here that have to be addressed.” (ILO 2001:43)

In the eyes of the ILO, the way forward is seen through three main courses of action:

(1) Continuation and Enhancement of the Subcontracting System

Subcontracting is seen as essential to enabling the flexibility needed to cope with the way workload demands are received. However, the employment relationship needs to be more stable and permanent to ensure proper protection of labour rights and access to training enjoyed by permanent employees in other sectors.

(2) Highlight priority areas for action including:

New role for trade unions and other pressure groups;

Extension of social security to all, including insurance cover for sickness or unemployment, and retirement benefits;

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Promotion of health and safety;

Training & skill formation through training the trainers – the creation of a class of master craftsmen, and opportunities for lifelong learning and a career path;

Skills testing and certification.

(3) Use levers for change, by dealing with pressures from consumers, environmentalists, and other groups. The construction industry must solve its own problems and not be too dependent on government or other stakeholders. The public sector clients can do much to promote desirable change.

Apart from job security, safety and health issues, other areas concerning the attractiveness of the industry to potential new recruits relate to the conditions of the workplace in terms of stress, burnout, and work-life balance. Research has looked at these concepts for over twenty years in general terms (Altroni & Paxon 1988; White & Keith 1990) looking at working hours, shift work and effects on the quality and stability of marital relations. Some studies in construction industries overseas have been completed over the past ten years (Lingard & Francis 2002, 2004; Lingard et al 2007; Lingard et al 2008; Walker et al 2001). Australian experience shows that construction industry workers work long and irregular hours, and as a result experience a higher level or work-to-family conflict and burnout than office-based workers (Lingard et al 2008). Studies in Hong Kong confirm that similar negative factors make the industry an unattractive place to work. For example, Ip (2009:110) related three reasons why both workers and prospective entrants disliked the industry:

“… (The) industry downturn had led to low wages and unemployment. Stress induced by job instability and lowered income had led a few experienced interviewees to consider leaving the industry for good;

Low occupational status and harsh work conditions including omnipresent danger, a rough,, confrontational culture, and long work hours deter youngsters from entering the trade. Youth with a low educational attainment prefer to enter other service industries which may offer career advancement options despite lower pay, and

Lack of foreseeable, future growth in local industry and clear career advancement paths also contribute to low worker morale.”

The final ‘kiss of death’ view on the industry’s attractiveness is captured in Ip’s statement: “During interviews, workers of all cohorts overwhelmingly concurred that they would not encourage their children to enter the industry.”

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2.7 Summary of Literature Review

The review has covered all the key concepts that we consider important to the study objectives. We have needed to derive our own definitions of some concepts, such as “Boom and Bust”, and whilst we would prefer to use existing definitions, we found that some of them did not fully describe what we observe in the real world. The review is not an in-depth and exhaustive exercise, but we have tried to keep it brief, relevant and up-to-date.

The problems being experienced by the Hong Kong construction industry are not unique. There are similar examples from many industries around the world, both from developing and developed countries. However, it is clear that there are not many examples of successful solutions to the problems commonly experienced. Despite this knowledge, there are several pointers as to where possible solutions may lie.

The data collection and analysis that we describe in the following chapters should be interpreted in the light of the framework we have discovered through this review.

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Chapter 3 – Methodology

3.1

Introduction

The section outlines the research approaches adopted for achieving the respective project objective including the sampling, data collection, data processing, independent and dependent variable construction, and data analysis methods. In order to achieve a rigorous verification of the project objectives, both primary and secondary data sources are delineated with robust statistical analyses to be performed upon each data set. With a view to the different algorithms of the data sets, specific data processing methods are also detailed so as to show how the elements of practicability, reliability and validity of the research methodology are triangulated and balanced. Furthermore, common and well-known robust statistical analytical methods are also detailed and tailor-made to the processed data sets so that the statistical interpretations and inferences are able to be generalized and easily understood by the public at large.

The first part of this section details the data sources for the research approaches adopted for each project objective. The second part defines the independent and dependent variables and delineates the data processing methods. The third part relates the statistical analytical methods to each project objective. The fourth part provides a summary of this section.

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3.2 Project Objectives & Data Sources

Both primary and secondary data sources are collected for the following project objectives:

(1) Factors causing boom and bust to the Hong Kong construction industry

(2) Quality improvement of the construction workforce in the next decade in Hong Kong

3.2.1 Primary Data Sources – Questionnaire Survey

Primary data sources from the questionnaire survey with respondents targeted at construction professionals are used. The questionnaire is attached in Appendix B, which comprises the following questions:

(1) Personal information – Question No. 1 to 3 about the employment status, management level and overseas work experience

(2) Problems during boom and bust times – Question No. 4 and 5 define the problems encountered by the organizational unit where the respondents are situated as follows:

a) Unit economic efficiency

b) Unit work safety

c) Unit quality of work output

d) Unit work performance reliability

e) Reluctance to invest in training

f) Difficulties in recruiting young people

g) Reluctance to invest in business or organization

h) Reluctance to innovate

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(3) Personal experience during boom and bust times – Question 6 and 7 define the personal experience of the respondents as follows:

a) I changed employer

b) I changed project

c) My role on projects changed

d) My colleagues changed frequently

e) Change in my work reliability

f) Change in my workload and work hours

g) Change in quality of my work output

h) Change in my remuneration package

i) My personal development opportunities

j) Change in my training opportunities

k) Change in my safety and health risk

l) Change in my work experience

m) My enjoyment, fulfilment and meaningfulness of work

n) Change in a sense of pride in my work

o) My work-life balance

p) My stress experienced

q) Change in my ethical behaviour at work

r) Change in my commitment to lifelong learning

3.2.2 Secondary Data Sources – Marco-economic Indicators

In addition to the primary sources from the questionnaire survey, which serves the purpose of a cross-sectional snapshot of the attitudes and experiences of the respondents for the time being, secondary data sources from various government publications are gathered and processed in order to reflect the long-term picture and repetitive and abrupt phenomenon for the past 30 years of the Hong Kong construction industry.

The secondary data sources are summarized in Appendix C, which comprises the following data sets:

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(1) Gross Value of Construction Works (GVCW) reported in the Quarterly Survey of Construction Output from 1983Q1 to 2010Q2, which includes the following categories (See Appendix C1 for details):

a) Construction Sites vs. Locations other than Sites

b) Private Sector vs. Public Sector

c) General Trades vs. Special Trades

d) Buildings vs. Structures & Facilities

(2) Employment Indicators and Salary Indices reported in the Hong Kong Monthly

Digest of Statistics, which includes the following categories (See Appendix C2 for

details):

a) General Unemployment & General Unemployment Rate (1983Q1 to 2010Q2)1

b) Unemployment & Unemployment Rate in Construction Sites (1998Q3 to 2010Q2)

c) Number of Establishments, Persons Engaged & Vacancies in Construction Sites (1983Q1 to 2010Q2)2

d) Average Daily Wages of Workers Engaged in Public Sector Construction Projects as Reported by Main Contractors (1985Q1 to 2010Q2)

e) Salary Index for Managerial and Professional Employees in Building & Construction (1983Q2 to 2010Q2)3

f) Nominal Salary Index A and B by Occupational Group by Occupation (1983Q2 to

2010Q2)4

(3) Financial Indicators & Inflationary Factors reported in the Hong Kong Monthly Digest of Statistics, which includes the following categories:

1 Data prior to 1983Q1 neglected in order to align with the availability of the GVCW data sets from 1983Q1 to 2010Q2.

2 Ibid.

3 Data became available since 1983Q2 on a yearly basis.

4 Ibid.

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a) Money Supply M1, M2 and M3 (1983Q1 to 2010Q2) 5

b) Best Lending Rate (BLR) (1983Q1 to 2010Q2) 6

c) HIBOR (1984Q4 to 2010Q2)

d) Hang Seng Index (1983Q1 to 2010Q2) 7

e) Tael Gold Bar (1983Q1 to 2010Q2) 8

f) Gross Domestic Products (1994Q2 to 2010Q2)

g) Construction Industry GDP (2001Q2 to 2010Q2)

h) Composite CPI (1990Q3 to 2010Q2)

i) CPI(A) to (C) (1983Q1 to 2010Q2) 9

(4) Tender

Price

Index

published

by

various

construction

cost

consultants

and

government departments, which includes the following indices:

a) RLB Tender Price Index (1983Q1 to 2010Q2) 10

b) DLS Tender Price Index (1983Q1 to 2010Q2) 11

c) ASD Tender Price Index (1983Q1 to 2010Q2) 12

d) Housing Department Tender Price Index (1983Q1 to 2010Q2) 13

e) Highways Department Tender Price Index (1996Q1 to 2010Q2)

f) CEDD Tender Price Index (1996Q1 to 2010Q2)

5 Data prior to 1983Q1 neglected in order to align with the availability of the GVCW data sets from 1983Q1 to 2010Q2.

6 Ibid.

7 Ibid.

8 Ibid.

9 Ibid.

10 Ibid.

11 Ibid.

12 Ibid.

13 Ibid.

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3.3 Data Collection & Processing Methods

3.3.1 Questionnaire Survey

The survey using the questionnaire in Appendix B is conducted by distributing the questionnaire through various arenas including invitation by emails, HKCA webpage, etc., through HKCA corporate members to their employees, etc. With the thankful help of the respondents, 145 returned questionnaires are usable. Most of the questionnaires are fully completed whilst the partially completed questionnaires are used to the extent where the particular questions are fully completed in order to maximize the datasets.

The datasets from the completed questions are denoted as categorical variables for Question No. 1a and 1b, continuous variables on a 3-point Likert Scale for Question No. 4 and a 5-point Likert Scale for Question No. 6 and 7. Neither decomposition nor combination is performed upon the datasets.

3.3.2 Macro-economic Indicators

Since the GVCWs are only available from 1983Q1 onwards, all indicators and indices with different base years are converted to 1983Q1 prices in general. Inflationary factors including various Consumer Price Indices and Tender Price Indices are converted to 1983Q1 prices as follows:

(1) Consumer Price Indices

a) The base year of the CPI(A), CPI(B) and CPI(C) is fixed at 1983Q1.

b) Since the Composite CPI is only available from 1990Q3 and CPI(A), CPI(B) and CPI(C) comprise 90% of the Composite CPI, the Composite CPI from 1983Q1 to 1990Q2 are constructed by using 50% CPI(A), 30% CPI(B) and 10% CPI(C), with base year fixed at 1983Q1.

(2) Tender Price Indices

a) The base year of the RLB, DLS, ASD and Housing Department TPI is fixed at

1983Q1.

b) Since the Highways Department and CEDD TPI from 1996Q1 onwards, the TPI from 1983Q1 to 1995Q4 are constructed by following the geometric trend of the ASD TPI, which is the most relevant comparable for the time being.

29

Policy Changes to Avoid Boom and Bust of the Construction Cycle

March 2011

c) A new TPI, Private Sector TPI, is constructed by averaging the RLB and DLS TPI, which account for almost 90% market share of the construction cost consultancy in the private sector.

d) A new TPI, Public Sector TPI, is constructed by averaging the ASD, Housing Department, Highways Department and CEDD TPI, which account for over 90% GVCW in the public sector.

e) A new TPI, Public/Private Sector TPI, is constructed by applying the GVCW proportions of the public and private sector in construction sites in combining the Private Sector TPI and Public Sector TPI.

(3) Various GVCWs are converted to 1983Q1 prices by using the corresponding new TPI as follows:

a) Construction Sites – Private Sector GVCW is deflated by the Private Sector TPI.

b) Construction Sites – Public Sector GVCW is deflated by the Public Sector TPI

c) Locations other than Sites – General Trades and Special Trades GVCWs deflated by the Public/Private Sector TPI.

d) Construction Sites – Buildings GVCW is deflated by the Public/Private Sector TPI

e) Construction Sites – Structures & Facilities GVCW is deflated by the Public Sector TPI

Public Sector Average Daily Wages of Works are converted to the Nominal Wage Indices with base year at 1983Q1. Real Wage Indices are constructed by deflating the Nominal Wage Indices by the CPI(B). The base year of the Nominal Salary Index A and B is fixed at 1983Q1. Real Salary Index A and B are constructed by deflating the Nominal Salary Index A and B by the CPI(C). Financial Indicators are not deflated because they are conventionally assumed to be the prime drivers of inflationary factors.

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Policy Changes to Avoid Boom and Bust of the Construction Cycle

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3.4 Independent, Dependent and Control Variables

After processing the macro-economic indicators in Section 3.3.2, each indicator is classified either as Independent Variable, Dependent Variable and Control Variable for subsequent robust statistical analyses. Since the project objective is to investigate the factors that are affecting boom and bust in the Hong Kong construction industry and the boom and bust are best reflected by the wage and salary levels and employment and unemployment status, the Dependent Variables therefore include:

(1)

General Unemployment and General Unemployment Rate

(2)

Construction Unemployment and Construction Unemployment Rate

(3)

Employment in Construction Sites

(4)

Public vs. Private Sector

(5)

Building vs. Civil Engineering

(6)

Real Wage Indices

(7)

Real Salary Indices

Various GVCWs are initiatively assumed to be the prime drivers of these Dependent Variables and are therefore taken to be the Independent Variables:

(8)

Construction Sites – Private Sector GVCW

(9)

Construction Sites – Public Sector GVCW

(10)

Locations other than Sites – General Trades GVCW

(11)

Locations other than Sites – Special Trades GVCW

(12)

Construction Sites – Buildings – Residential Projects GVCW

(13)

Construction Sites – Buildings – Commercial Projects GVCW

(14)

Construction Sites – Buildings – Industrial & Storage Projects GVCW

(15)

Construction Sites – Buildings – Service Projects GVCW

(16)

Construction Sites – Structures & Facilities – Transport Projects GVCW

(17)

Construction Sites – Structures & Facilities – Utilities & Plant Projects GVCW

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Policy Changes to Avoid Boom and Bust of the Construction Cycle

March 2011

(18)

Construction Sites – Structures & Facilities – Environment Projects GVCW

(19)

Construction Sites – Structures & Facilities – Sports & Recreation Projects GVCW

Other than the Independent Variables driving the boom and bust times of the Hong Kong construction industry, certain Control Variables are inserted in order to reflect the effect of the macro-economic environment:

(20)

BLR and HIBOR

(21)

Money Supply M3 (naturally logged)

(22)

Hang Seng Index (naturally logged)

(23)

Tael Gold Bar (naturally logged)

(24)

GDP and Construction GDP (naturally logged)

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Policy Changes to Avoid Boom and Bust of the Construction Cycle

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3.5 Statistical Analytical Methods

3.5.1 Time Series Analysis & Time Lag Analysis

In order to align with the format of the GVCW datasets, all variables are converted from either monthly or yearly basis to quarterly basis by using geometric means. However, there may be seasonal effects impacting the time series of the 27-year datasets. With a view to eliminating the possible seasonal effects, the Pearson’s Method is applied to the time series of the Independent, Dependent and Control Variables so that the seasonally adjusted variables are used for subsequent statistical analyses.

Graphs are produced for the visual inspection of the time lag relationships between various GVCWs, Real Wage Indices and Real Salary Indices. Other than the visual inspection, the Pearson’s Correlation Coefficients are also used for indicating these time lag relationships in a robust manner. A time lag from 16 quarters lead to 16 quarters lag is used to investigate the time lag relationships. The exact time lag between any two variables is indicated by the maximum Pearson’s Correlation Coefficients among the 37 time lag scenarios. However, since there may be certain situations where the coefficient value continuously goes up or goes down across the 37 time lag scenarios, no time lag relationship is concluded between any two variables if this situation is encountered.

3.5.2 Multivariate MRA & HRA

Both multivariate Multiple Regression Analysis (MRA) and Hierarchical Regression Analysis (HRA) are used for testing the impact of each Independent Variable and Control Variable on the Dependent Variables. Both modeling approaches provide regression analysis for multiple Dependent Variables by one or more Independent Variables. In particular, HRA is a multi-stage strategy that investigates variables occurring at multi-levels of analysis. Null hypotheses about the effects of the Independent Variables on the means of various groupings of a joint distribution of the Dependent Variables are tested with tests of significance using Fisher’s F-distribution. Each set of the Independent Variables is included in the regression equation at different level of analysis. At Model 1 analysis, the Control Variables are included into the regression equation:

Y

k

=

α

+

i

β X

Ci

Ci

with

R

2

C

33

(1)

Policy Changes to Avoid Boom and Bust of the Construction Cycle

March 2011

is the coefficient for

the Control Variables. Independent Variables are included in the regression equation at Model 2 analysis:

where

Y

k

is the kth Dependent Variable, α is the intercept,

β

Ci

Y

k

=

α

+

i

β X

ci

Ci

+

i

β X

Di

Di

with

R

2

D1C

(2)

where

contribution to the prediction power of Model 2 regression equation by the addition of

Independent Variables is the difference between

Change in F-Statistics and R 2 values in Model 2 against Model 1 helps show the effects of the set of the Independent Variables. Partial regression coefficient β is used to show the effect of each Independent Variable. An Independent Variable is considered as significant if the value of β goes to the predicted direction and significant at 0.05 level.

β

Di

is the partial regression coefficient for the Independent Variables. The

R

2

D1C

and

R

2

C

, i.e.

R

2

D

= R

2

D

1

C

R

2

C

.

3.6 Concluding Remarks

After processing the datasets of the secondary data sources by using the time series analysis, graphs are produced in Chapter 4 for the time lag analyses by visual inspection and Pearson’s Correlation Coefficients and statistical relationships between the Independent, Dependent and Control Variables are investigated by either MRA or HRA. Questionnaire survey results are studied by using either MRA or HRA in Chapter 5. Data analysis of nine interviews of nine leading persons in the construction industry is presented in Chapter 6.

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Policy Changes to Avoid Boom and Bust of the Construction Cycle

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Chapter 4 – Macro-economic Data Analysis

4.1

Introduction

The section reports the time lag analyses by visual inspection and Pearson’s Correlation Coefficients amongst pairs of the macro-economic indicators and the multivariate Multiple Regression Analysis (MRA) and Hierarchical Regression Analysis (HRA) for the groups of the Dependent Variables, i.e. employment and unemployment situations, and Real Wage Indices and Real Salary Indices, and the Independent Variables, i.e. various GVCWs, and the Control Variables. The first part of this section briefs the time lag analysis by visual inspection by referring to the graphs produced for the seasonally unadjusted datasets of the macro-economic indicators. Graphs are also produced for the seasonally adjusted datasets in order to show the smoothing effects of the Pearson’s Method. The second part details the time lag analysis from another angle by using the Pearson’s Correlation Coefficients. The third part reports the MRA and HRA results together with the statistical interpretations in relation to the phenomenon of the Hong Kong construction industry for the past 30 years of boom and bust. The fourth part provides a summary of this section.

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Policy Changes to Avoid Boom and Bust of the Construction Cycle

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4.2 Time Lag Analysis – Visual Inspection

Subsequent to the classification of the macro-economic indicators into the Independent Variables, Dependent Variables and Control Variables in Section 3.4, a time lag among pairs of each group of variables exists and this section is delegated to the visual inspection of such time lag relationships. As a usual tool for visual inspection for this purpose, graphs for each of the following subgroups of variables are produced with certain annotations in order to indicate the time lag from the perspective of visual inspection:

(1) Independent Variables (Seasonally Unadjusted & Adjusted Time Series)

GVCW – Construction Sites – Public Sector vs. Private Sector

GVCW – Locations other than Sites – General Trades vs. Special Trades

GVCW – Construction Sites – Buildings – Residential, Commercial, Industrial & Storage vs. Service

GVCW – Construction Sites – Structures & Facilities – Transport, Utilities & Plant, Environment vs. Sports & Recreation

(2) Dependent Variables (Seasonally Adjusted Time Series)

Unemployment - General and Construction

Unemployment Rate - General and Construction

Construction Employment in Construction Sites

Real Wage Index

Real Salary Index A

Real Salary Index B

(3) Control Variables (Seasonally Unadjusted & Adjusted Time Series)

Money Supply M1, M2 and M3

Hang Seng Index

Tael Gold Bar

Overall GDP

Construction GDP

(4) Inflationary Factors (Seasonally Adjusted Time Series)

Composite CPI

CPI(A), CPI(B) and CPI(C)

Tender Price Index

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Policy Changes to Avoid Boom and Bust of the Construction Cycle

March 2011

GVCW Type

Seasonally Unadjusted

Seasonally Adjusted

Public Sector

Half-Cycle Time Public Sector – 11.75 years Private Sector – 12.25 years

Half-Cycle Time Public Sector – 11.25 years Private Sector – 8.5 years

vs.

Private Sector

Time Lag

Time Lag Peak/Boom – Public Sector led by 1.75 years Bottom/Bust – Private Sector led by 1

Peak/Boom – Public Sector led by 1 year Bottom/Bust – Public Sector led by

1.5

years

year

General Trades

Half-Cycle Time General Trades – 2.75 years Special Trades – 2.25 years

Half-Cycle Time General Trades – 2 years Special Trades – 3 years

vs.

Special Trades

Time Lag Peak/Boom – Special Trades led by 1

Time Lag Peak/Boom – Special Trades led by 1 year Bottom/Bust – No time lag

year Bottom/Bust – Special Trades led by

1.5

years

 

Construction Sites vs.

Half-Cycle Time Construction Sites – 6 years Locations other than Sites – 2 years

Half-Cycle Time Construction Sites – 12.25 years Locations other than Sites – 1.75 years

Locations other than Sites

Time Lag Peak/Boom – Construction Sites led by 4.5 years Bottom/Bust – Construction Sites led by 0.5 year

Time Lag Peak/Boom – Construction Sites led by 0.5 years Bottom/Bust – No time lag

Residential

Half-Cycle Time Residential – 8 years Commercial – 12.25 years

Half-Cycle Time Residential – 8 years Commercial – 11.75 years

vs.

Commercial

Time Lag Peak/Boom – Commercial led Residential by 1.75 years Bottom/Bust – Residential led Residential by 2.5 year

Time Lag Peak/Boom – Commercial led Residential by 1.75 years Bottom/Bust – Residential led Residential by 2.5 year

Transport vs. Utilities & Plant vs. Environment vs. Sports & Recreation

Half-Cycle Time 16 years in general

Half-Cycle Time 16 years in general

Buildings

Half-Cycle Time Buildings – 10.25 years Structures & Facilities – 12.75 years

Half-Cycle Time Buildings – 8 years Structures & Facilities – 12.25 years

vs.

Structures &

Facilities

   

Time Lag Peak/Boom – Structures & Facilities led by 1.5 years Bottom/Bust – No time lag

Time Lag Peak/Boom – Structures & Facilities led by 3 years Bottom/Bust – Buildings led by 1.25 years

Table 4.1 – Summary of Time Lag Relationships amongst GVCWs

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Policy Changes to Avoid Boom and Bust of the Construction Cycle

March 2011

4.2.1 Independent Variables

Figure 4.1 to 4.12 show the graphs for the seasonally unadjusted and adjusted time series for various GVCWs in order to indicate the smoothing effects of the Pearson’s Method. Table 4.1 summarizes the time lag relationships for both seasonally unadjusted and adjusted time series shown in Figure 4.1 to 4.12.

(1) Public and Private Sector GVCWs

Figure 4.1 compares the seasonally unadjusted time series of the Public and Private Sector GVCWs. Public Sector GVCW, which is an indicator of the government spending in the construction industry, attained its peak in the 1996Q4 and then went downwards, albeit fluctuating, from HK$4.5B in the 1996Q4 to its bottom, i.e. HK$1B, in the 2008Q3. On the other hand, Private Sector GVCW, which is on the other hand an indicator of the developer spending in the construction industry, reached its peak, i.e. HK$4.9B, in the 1997Q4 and had fluctuated between HK$3.2B and HK$4.9B for 5 years until the 2002Q4 before it went straight to its bottom, i.e. HK$1.8B, in the 2010Q1.

By looking at the recent peak-bottom time frame, the half-cycle times for the government spending and developer spending in the construction industry are 11.75 years and 12.25 years respectively. Moreover, the government spending led the developer spending by 1 year as indicated by the time difference in reaching the peak and the former also led the latter by 1.5 years in reaching the bottom. Although the extents of time lag are different as indicated by the peak and bottom, both time lags suggest that the government spending is leading the developer spending.

Figure 4.2 depicts the seasonally adjusted time series of the Public and Private

The smoothed time series show that the government spending

peaked in the 1996Q3 and bottomed in the 2007Q4, i.e. half-cycle time is 11.25

On the other hand, the half-cycle time for the developer spending is 8.5

years, i.e. from the 1998Q2 to the 2006Q4. Unlike the seasonally unadjusted time series in Figure 4.1, the government spending led the developer spending by 1.75 years in reaching the peak whilst the latter led the former by 1 year in touching the

bottom in Figure 4.7 after taking into account the smoothing effect of the Pearson’s Method. The government spending is leading the developer spending in the peak by using both seasonally unadjusted and adjusted time series but the former may or may not lead the latter in the bottom. This implies that the government spending is a leading indicator of the developer spending in the peak but not in the bottom, i.e. there may be another driver behind the time lag relationship between the two types of spending. Further investigation of this observation is highly recommended.

years.

Sector GVCWs.

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Policy Changes to Avoid Boom and Bust of the Construction Cycle

March 2011

 

Figure 4.1 - Real Gross Value of Construction Works by Trade Construction Sites (1983Q1 to 2010Q2) (Deflated by TPI (1983Q1 = 100); Seasonally Unadjusted)

 

6,000

5,000

5,000  
 

4,000

3,000

Private Sector

Public Sector

2,000

1,000

0

1983Q1

1983Q4

1984Q3

1985Q2

1986Q4

1986Q1

1987Q3

1990Q3

1993Q3

1996Q3

1989Q4

1992Q4

1995Q4

1988Q2

1991Q2

1994Q2

1989Q1

1992Q1

1995Q1

1997Q2

1998Q1

1998Q4

1999Q3

2000Q2

2001Q1

2001Q4

2002Q3

2003Q2

2004Q1

2004Q4

2005Q3

2006Q2

2007Q1

2007Q4

2008Q3

2009Q2

2010Q1

 

Figure 4.2 - Real Gross Value of Construction Works by Trade Construction Sites (1984Q1 to 2010Q2) (Deflated by TPI (1983Q1 = 100); Seasonally Adjusted)

 

5,000

4,500

4,500  
 

4,000

3,500

3,000

2,500

Private Sector

2,000

Public Sector

1,500

1,000

500

0

1984Q1

1984Q4

1985Q3

1986Q2

1987Q1

1987Q4

1988Q3

1991Q3

1994Q3

1990Q4

1993Q4

1996Q4

1989Q2

1992Q2

1995Q2

1990Q1

1993Q1

1996Q1

1997Q3

1998Q2

1999Q1

1999Q4

2000Q3

2001Q2

2002Q1

2002Q4

2003Q3

2004Q2

2005Q1

2005Q4

2006Q3

2007Q2

2008Q1

2009Q3

2008Q4

2010Q2

39

Policy Changes to Avoid Boom and Bust of the Construction Cycle

March 2011

(2) General Trades and Special Trades GVCWs

Figure 4.3 shows the seasonally unadjusted time series of the General Trades and Special Trades GVCWs. General Trades GVCW, e.g. fitting out works, reached its peak, i.e. HK$3.2B, in the 2006Q4 and its bottom, i.e. HK$2.3B, in the 2009Q3, with a half-cycle time of 2.75 years. Special Trades GVCW, e.g. spending in building services refurbishment, peaked in the 2005Q4 with HK$1.2B and bottomed in the 2008Q1 with HK$0.8B, i.e. the half-cycle time is 2.25 years. The latter therefore led the former by 1 year at the peak and 1.5 years at the bottom. Both time lags conclude that the Special Trades GVCW is leading the General Trades GVCW. This implies that the spending in building services, which is more localized and usually triggered as a matter of technical urgency, e.g. functional obsolescence, regular check and maintenance, etc., usually leads and comes with the spending in general refurbishment involving fitting out works.

Figure 4.4 depicts the seasonally adjusted time series of the General Trades and Special Trades GVCWs. The smoothed time series of the General Trades GVCW peaked in the 2006Q4 and bottomed in the 2008Q4 with a half-cycle time of 2

On the other hand, the smoothed Special Trades GVCW attained its peak

in the 2005Q4 and its bottom in the 2008Q4 with a half-cycle time of 3 years. Special Trades GVCW therefore led the General Trades GVCW by 1 year in reaching the peak and bottomed at the same time. Both seasonally unadjusted and adjusted time series suggest that the spending in building services maintenance and/or refurbishment is leading the spending in general renovation works. However, this time lag relationship is not obvious at the bottom of both GVCWs. Same as the time lag relationship between the Public and Private Sector GVCWs, there may be a third driver behind the time lag relationship between the General and Special Trades GVCWs, which deserves further investigation.

years.

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Policy Changes to Avoid Boom and Bust of the Construction Cycle

March 2011

 

Figure 4.3 - Real Gross Value of Construction Works by Trade Locations other than Sites (1983Q1 to 2010Q2) (Deflated by TPI (1983Q1 = 100); Seasonally Unadjusted)

 

3,500

3,000

3,000  
 

2,500

2,000

General Trades

1,500

Special Trades

1,000

500

0

1983Q1

1983Q4

1984Q3

1985Q2

1986Q1

1986Q4

1987Q3

1990Q3

1993Q3

1996Q3

1989Q4

1992Q4

1995Q4

1988Q2

1991Q2

1994Q2

1997Q2

1989Q1

1992Q1

1995Q1

1998Q1

1998Q4

1999Q3

2000Q2

2001Q1

2001Q4

2002Q3

2003Q2

2004Q1

2004Q4

2005Q3

2006Q2

2007Q1

2007Q4

2008Q3

2009Q2

2010Q1

 

Figure 4.4 - Real Gross Value of Construction Works by Trade Locations other than Sites (1984Q1 to 2010Q2) (Deflated by TPI (1983Q1 = 100); Seasonally Adjusted)

 

3,500

3,000

3,000  
 

2,500

2,000

General Trades

1,500

Special Trades

1,000

500

0

1984Q1

1984Q4

1985Q3

1986Q2

1987Q1

1987Q4

1988Q3

1991Q3

1994Q3

1997Q3

1990Q4

1993Q4

1996Q4

1989Q2

1992Q2

1995Q2

1998Q2

1990Q1

1993Q1

1996Q1

1999Q1

1999Q4

2000Q3

2001Q2

2002Q1

2002Q4

2003Q3

2004Q2

2005Q1

2005Q4

2006Q3

2007Q2

2008Q1

2009Q3

2008Q4

2010Q2

41

Policy Changes to Avoid Boom and Bust of the Construction Cycle

March 2011

(3) Construction Sites and Locations other than Sites GVCWs

Figure 4.5 compares the seasonally unadjusted time series of the Construction Sites and Locations other than Sites GVCWs. Construction Sites GCCW combines both Public and Private Sector GVCWs whilst the Locations other than Sites GVCW is the sum of the General and Special Trades GVCWs. Construction Sites GVCW, i.e. spending in new construction works, reached its peak, i.e. HK$8B, in the 2001Q4 and its bottom, i.e. HK$3.5B in the 2007Q4, with a half- cycle time of 6 years. Locations other than Sites GVCW, i.e. spending in refurbishment and renovation, touched its peak, i.e. HK$4B, in the 2006Q2 and its bottom, i.e. HK$3B, in the 2008Q2, with a half-cycle time of 2 years. The former therefore led the latter by 4.5 years at the peak and 0.5 year at the bottom. Although the extents of time lag at the peak and bottom are greatly different, both of them suggest that the spending in new construction works is leading the spending in refurbishment and renovation.

Figure 4.6 compares the seasonally adjusted time series of the Construction Sites and Locations other than Sites GVCWs. The smoothed Construction Sites GVCW shows a much longer half-cycle of 12.25 years, i.e. with the peak in the 1996Q3 and the bottom in the 2008Q4. On the contrary, the Locations other than Sites GVCW peaked in the 2007Q1 and bottomed in the 2008Q4 with a half-cycle time of 1.75 year, which is similar to the seasonally unadjusted time series in Figure 4.3. Although the half-cycle time is somehow different from the unsmoothed times series, the spending in new construction works is again leading the spending in refurbishment and renovation at the peak. Since the former only led the latter by 0.5 year at the bottom by using the seasonally unadjusted time series and no time lag is detected for the seasonally adjusted time series at the bottom, both seasonally unadjusted and adjusted time series give the same conclusion. However, same as the time lag relationships between the respective components of the Construction Sites and Locations other than Sites GVCWs when the bottoms are investigated, the ambiguous time lag relationship between the Construction Sites and Locations other than Sites GVCWs at the bottom may indicate a third driver behind the two and requires further investigation.

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Policy Changes to Avoid Boom and Bust of the Construction Cycle

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Figure 4.5 - Real Gross Value of Construction Works by Trade (1983Q1 to 2010Q2) (Deflated by TPI (1983Q1 = 100); Seasonally Unadjusted)

25,000

20,000 15,000 10,000 Construction Sites Locations other than Sites Total Value 5,000 0

20,000

15,000

10,000

Construction Sites

Locations other than Sites

Total Value

5,000

0

1983Q1 1983Q4 1984Q3 1985Q2 1986Q1 1986Q4 1987Q3 1988Q2 1989Q1 1989Q4 1990Q3 1991Q2 1992Q1 1992Q4 1993Q3
1983Q1
1983Q4
1984Q3
1985Q2
1986Q1
1986Q4
1987Q3
1988Q2
1989Q1
1989Q4
1990Q3
1991Q2
1992Q1
1992Q4
1993Q3
1994Q2
1995Q1
1995Q4
1996Q3
1997Q2
1998Q1
1998Q4
1999Q3
2000Q2
2001Q1
2001Q4
2002Q3
2003Q2
2004Q1
2004Q4
2005Q3
2006Q2
2007Q1
2007Q4
2008Q3
2009Q2
2010Q1
2005Q3 2006Q2 2007Q1 2007Q4 2008Q3 2009Q2 2010Q1 Figure 4.6 - Real Gross Value of Construction Works

Figure 4.6 - Real Gross Value of Construction Works by Trade (1984Q1 to 2010Q2) (Deflated by TPI (1983Q1 = 100); Seasonally Adjusted)

25,000

20,000 15,000 10,000 Construction Sites Locations other than Sites Total Value 5,000 0

20,000

15,000

10,000

Construction Sites

Locations other than Sites

Total Value

5,000

0

1984Q1 1984Q4 1985Q3 1986Q2 1987Q1 1987Q4 1988Q3 1989Q2 1990Q1 1990Q4 1991Q3 1992Q2 1993Q1 1993Q4 1994Q3
1984Q1
1984Q4
1985Q3
1986Q2
1987Q1
1987Q4
1988Q3
1989Q2
1990Q1
1990Q4
1991Q3
1992Q2
1993Q1
1993Q4
1994Q3
1995Q2
1996Q1
1996Q4
1997Q3
1998Q2
1999Q1
1999Q4
2000Q3
2001Q2
2002Q1
2002Q4
2003Q3
2004Q2
2005Q1
2005Q4
2006Q3
2007Q2
2008Q1
2008Q4
2009Q3
2010Q2

43

Policy Changes to Avoid Boom and Bust of the Construction Cycle

March 2011

(4) Construction Sites GVCW in terms of the Residential, Commercial, Industrial & Storage and Service GVCWs

Figure 4.7 shows the seasonally unadjusted time series of the various components of the Construction Sites GVCW in terms of the Residential, Commercial, Industrial & Storage and Service GVCWs. Both Industrial & Storage and Service GVCWs fluctuated for most of the time for the past 27 years between HK$0.1B and HK$0.9B. On the other hand, the Residential and Commercial GVCWs had much bigger swing since 1997. Residential GVCW reached its peak, i.e. HK$4.4B, in the 1999Q3 and its bottom, i.e. HK$1.2B, in the 2007Q3 with a half- cycle time of 8 years. At the same time, Commercial GVCW peaked at HK$1.4B in the 1997Q4 and bottomed at HK$0.4B in the 2010Q1 with a half-cycle time of 12.25 years. This shows that the latter led the former by 1.75 years at the peak but the former led the latter by 2.5 years at the bottom, i.e. the former has a much shorter half-cycle time than the latter. With a view to the town planning practices in Hong Kong, each district is very often designated as either residential or commercial district in terms of its economic and social functions. Generally speaking, the spending in residential and commercial developments cannot be easily theorized by looking at their time lag relationships. It is particularly shown in this case that both the half-cycle times and time lags at the peak and bottom indicate that both Residential and Commercial GVCWs belong to two different markets and their time lag relationships may or may not have a causal relationship or third driver linking up them behind.

Figure 4.8 depicts the seasonally adjusted time series of the various components of the Construction GVCW in terms of the Residential, Commercial, Industrial & Storage and Service GVCWs. The smoothed Residential GVCW similarly peaked in the 1999Q4 and bottomed in the 2007Q4 with a half-cycle time of 8 years. At the same time, the Commercial GVCW also reached its peak in the 1998Q1 and

its bottom in the 2009Q4 with a half-cycle time of 11.75 years.

Both seasonally

unadjusted and adjusted time series therefore give similar conclusions for the time lag relationships between the Residential and Commercial GVCWs.

44

Policy Changes to Avoid Boom and Bust of the Construction Cycle

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Figure 4.7 - Real Gross Value of Construction Works by Broad End-Use Group Buildings (1983Q1 to 2010Q2) (Deflated by TPI (1983Q1 = 100); Seasonally Unadjusted)

5,000

4,500

4,500  
 

4,000

3,500

Residential

3,000

Commercial

2,500

2,000

Industrial & Storage

1,500

Service

1,000

500

0

1983Q1

1983Q4

1984Q3

1985Q2

1986Q1

1986Q4

1987Q3

1990Q3

1993Q3

1996Q3

1989Q4

1992Q4

1995Q4

1998Q4

1988Q2

1991Q2

1994Q2

1997Q2

1989Q1

1992Q1

1995Q1

1998Q1

1999Q3

2000Q2

2001Q1

2001Q4

2002Q3

2003Q2

2004Q1

2004Q4

2005Q3

2006Q2

2008Q3

2007Q4

2009Q2

2007Q1

2010Q1

 

Figure 4.8 - Real Gross Value of Construction Works by Broad End-Use Group Buildings (1984Q1 to 2010Q2) (Deflated by TPI (1983Q1 = 100); Seasonally Adjusted)

5,000

4,500

4,500  
 

4,000

3,500

Residential

3,000

Commercial

2,500

2,000

Industrial & Storage

Service

1,500

1,000

500

0

1984Q1

1984Q4

1985Q3

1986Q2

1987Q1

1987Q4

1988Q3

1991Q3

1994Q3

1997Q3

1990Q4

1993Q4

1996Q4

1989Q2

1992Q2

1995Q2

1998Q2

1990Q1

1993Q1

1996Q1

1999Q1

1999Q4

2000Q3

2001Q2

2002Q1

2002Q4

2003Q3

2004Q2

2005Q1

2005Q4

2006Q3

2009Q3

2008Q4

2007Q2

2008Q1

2010Q2

45

Policy Changes to Avoid Boom and Bust of the Construction Cycle

March 2011

(5) Structures & Facilities GVCW in terms of the Transport, Utilities & Plant, Environment and Sports & Recreation GVCWs

Figure 4.9 compares the seasonally unadjusted time series of the various components of the Structures & Facilities GVCW in terms of the Transport, Utilities & Plant, Environment and Sports & Recreation GVCWs. Structures & Facilities GVCW by definition in Hong Kong is solely contributed by the Public Sector and is therefore one of the components of the Public Sector GVCW. All the four Structures & Facilities GVCW components do not exhibit any salient time lag relationships among them but they generally attained their peaks in 1993Q4 and reached their bottoms in 2009Q4 with a half-cycle time of 16 years. This is similar to the trend of the Public Sector GVCW in Figure 4.1, which peaked in the 1997Q4 and bottomed in the 2010Q1 with a half-cycle time of 12.25 years.

Figure 4.10 shows the seasonally adjusted time series of the various components of the Structures & Facilities GVCW in terms of the Transport, Utilities & Plant, Environment and Sports & Recreation GVCWs. The smoothed times series of various components of the Structures & Facilities GVCW also show the same half-cycle time of 16 years, i.e. with the peak in the 1993Q4 and bottom in the 2009Q4. Both the seasonally unadjusted and adjusted time series suggest that the Structures & Facilities GVCW components, which share over 90% Public Sector GVCW, are leading the other minor Public Sector GVCW components. Moreover, this also exhibits that the Structures & Facilities GVCW as the major component of the Public Sector GVCW is the one that is actually leading the Private Sector GVCW, which can best reflect the general town planning direction of the government and the investment strategy of the developers.

46

Policy Changes to Avoid Boom and Bust of the Construction Cycle

March 2011

3,000

2,500

2,000

1,500

1,000

500

0

Figure 4.9 - Real Gross Value of Construction Works by Broad End-Use Group Structures (1983Q1
Figure 4.9 - Real Gross Value of Construction Works by Broad End-Use Group
Structures (1983Q1 to 2010Q2)
(Deflated by TPI (1983Q1 = 100); Seasonally Unadjusted)
Transport
Other Utilities & Plant
Environment
Sports & Recreation
1983Q1
1983Q4
1984Q3
1985Q2
1986Q1
1986Q4
1987Q3
1988Q2
1989Q1
1989Q4
1990Q3
1991Q2
1992Q1
1992Q4
1993Q3
1994Q2
1995Q1
1995Q4
1996Q3
1997Q2
1998Q1
1998Q4
1999Q3
2000Q2
2001Q1
2001Q4
2002Q3
2003Q2
2004Q1
2004Q4
2005Q3
2006Q2
2007Q1
2007Q4
2008Q3
2009Q2
2010Q1

3,000

2,500

2,000

1,500

1,000

500

0

Figure 4.10 - Real Gross Value of Construction Works by Broad End-Use Group Structures (1984Q1
Figure 4.10 - Real Gross Value of Construction Works by Broad End-Use Group
Structures (1984Q1 to 2010Q2)
(Deflated by TPI (1983Q1 = 100); Seasonally Adjusted)
Transport
Other Utilities & Plant
Environment
Sports & Recreation
1984Q1
1984Q4
1985Q3
1986Q2
1987Q1
1987Q4
1988Q3
1989Q2
1990Q1
1990Q4
1991Q3
1992Q2
1993Q1
1993Q4
1994Q3
1995Q2
1996Q1
1996Q4
1997Q3
1998Q2
1999Q1
1999Q4
2000Q3
2001Q2
2002Q1
2002Q4
2003Q3
2004Q2
2005Q1
2005Q4
2006Q3
2007Q2
2008Q1
2008Q4
2009Q3
2010Q2

47

Policy Changes to Avoid Boom and Bust of the Construction Cycle

March 2011

(6) Buildings GVCW

Figure 4.11 compares the seasonally unadjusted time series of the Buildings GVCW, i.e. the gross GVCW of the Residential, Commercial, Industrial & Storage and Service GVCWs shown in Figure 4.4 and those of Structures & Facilities GVCWs, i.e. the gross GVCW of the Transport, Utilities & Plant, Environment and Sports & Recreation shown in Figure 4.5. Buildings GVCW reached its peak, i.e. HK$6.3B, in the 1998Q2 and then went downwards in a more or less straight manner to its bottom, i.e. HK$2.2B, in the 2008Q3, with a half-cycle time of 10.25 years. On the other hand, Structures & Facilities GVCW attained its peak, i.e. HK$4B, in the 1995Q4 and then fluctuated up and down until it reached its bottom, i.e. HK$1.8B, in the 2008Q3, with a half-cycle time of 12.75 years.