Monday, July 22, 2019

A look at how efficiency eludes the construction industry

NINE years ago the first concrete was poured for Berlin Brandenburg airport. It was expected to open in 2012, to cost €1.2bn ($1.8bn) and to welcome 34m passengers each year. Today the only people in its terminals are those with hard hats. Six times over budget, the project has had 66,500 building errors in need of fixing. Last year its spokesman was sacked after calling the project a “shit-show” and saying no manager who was not “addicted to pills” could guarantee an opening date.

Berlin’s airport is an extreme example of a broader problem. Superficially, the construction industry would seem healthy enough. The global market is worth $10trn. Euler Hermes, an insurer, expects 3.5% growth this year. Yet more than 90% of the world’s infrastructure projects are either late or over-budget, says Bent Flyvbjerg of Saïd Business School at Oxford University. Even the sharpest of tech firms suffer. Apple’s new headquarters in Silicon Valley opened two years behind schedule and cost $2bn more than budgeted. Smaller projects have similar woes. One survey of British architects found that 60% of their buildings were late.

Construction holds the dubious honour of having the lowest productivity gains of any industry, according to McKinsey, a consultancy. In the past 20 years the global average for the value-added per hour has inched up by 1% a year, about one-quarter the rate of growth in manufacturing. Trends in rich countries are especially bad. Over the same period Germany and Japan, paragons of industrial efficiency, have seen nearly no growth in construction productivity. In France and Italy productivity has fallen by one-sixth. In America, astonishingly, it has plunged by half since the late 1960s.

Prices for building materials are not to blame. They are subtracted from measures of value-added (and have not risen in any case). The burden over time of complying with regulation—applying for permits, for instance—is only partly responsible. In America such rules account for one-eighth of the productivity lost since 1987, according to the Bureau of Labour Statistics.

Keep reading this article in The Economist

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