Construction industry Summary

  • Last updated on November 10, 2022

All aspects of American business require locations at which businesspeople can work and the means to travel among these locations. The construction industry creates both these locations (buildings) and the roads and other infrastructure that make travel between them possible.

In the earliest days of European colonization, all building resembled that of Native Americans in that almost everyone carried out building by themselves using the simplest construction of materials readily at hand from nature. Although some Native Americans used animal hides as a part of their building construction, most of their early structures were of wood or stone depending on the availability of each substance. Colonists followed the same pattern. The early pioneer settlements on the great prairies were not infrequently made of sod. Only much later would clay products such as bricks and tiles be used in those areas where suitable clay was available. Two hundred and fifty years went by before steel was used as a critical structural material. Although such do-it-yourself building continues in the shadow of modern industrial construction, a specialization in the construction industry has emerged.Construction industry

Buildings and Infrastructure

In total number of units built, residential housing outstrips all other buildings in the modern world. The specialized character of home building means that such construction is financed and managed differently from the rest of the construction industry. In the twentieth century, government involvement in the nature and location of such building has increased substantially.

In addition to homes, people need a wide variety of shops and buildings, including offices, factories, warehouses, apartment buildings, and hotels. While some home building may still be done on a do-it-yourself basis, all large-scale construction has come to require diverse and sophisticated components assembled by specialized craftspeople. The financing of such large buildings is also necessarily far more complex, and these buildings are subject to government regulation as to both quality and location.

In addition to large commercial and governmental buildings, Infrastructuremodern society also requires roads, airports, dams, canals, ports, locks, and irrigation systems. Although there is some private funding of these infrastructure projects, the great majority are built with public or government financing. As society has grown more complex, so have the demands on architects and civil engineers to produce this infrastructure.

As construction has moved from the simple to the complex, demand has increased for a far wider range of building materials. No longer does the building industry count on timber from naturally occurring forests; instead, vast tree farms have been created to supply society’s demand for lumber. Mining and quarrying operations are more complex and involve clay, stones, gravel, and metallic ores. Glass, plastics, adhesives, metallic foils, and manufactured woods are all critical parts of sophisticated modern buildings and other construction projects.

Components and Transportation

The modern construction industry uses a wide variety of components for plumbing, electricity, heating, air-conditioning, security, and telecommunications for private residences and for large commercial and public buildings. The manufacture of these components creates a multiplier effect that ripples throughout the economy. Each of the components that is manufactured for end-user buildings–whether public or private–must be built to suit the building that requires construction. Because natural materials such as wood and stone are increasingly replaced by glass, plastics, manufactured wood, and other artificial materials, the factories that manufacture these products must also be constructed, further amplifying a multiplier effect.

Modern building also requires a wide range of power tools, ranging from power screwdrivers used for the smallest projects to gigantic cranes used in the largest projects. Electrical, compressed air-, diesel-, and gasoline-powered equipment must be manufactured to support the wide variety of construction projects in the United States. The factories in which these products are manufactured also need to be constructed, so that construction has become a major part of the American economy.

Workers must transport all of the products, components, and equipment necessary for a project from the factories in which they are created to the warehouses in which they are stored to the work sites where they are used. Still other workers must move the raw materials to manufacture these products from the forests, quarries, and mines to the factories where the components and equipment are manufactured. The transportation industry in the United States is massive. Whenever possible, bulky goods are moved by rail, driving the expansion of railroads to accommodate such shipment. Still other goods are moved by long-distance commercial trucks, while delivery to the final destination is by short-distance trucking companies. Again, factories must be built to produce the equipment for railroads or trucking companies.

The complex, sophisticated building process leads to the construction of facilities for wholesale and retail merchants, further stimulating the construction industry. The wholesale and retail merchants themselves add significantly to the economic activity of the nation.

Financing and Regulation

Because construction, whether of a private home or a large commercial building, is a lengthy process and few projects can be paid for by the consumer in advance, financing is necessary. As the construction industry has evolved, home mortgage financing has generally been conducted in a significantly different fashion than financing of commercial and public projects. Banks, savings and loan associations, credit unions, and major investment firms all participate to a greater or lesser degree in the construction industry.

The increasing size and complexity of commercial and public buildings in particular has spawned a major industry of architects and civil engineers to design and plan construction projects. Educational institutions that train architects and civil engineers are another spinoff of the construction industry. Educational institutions for all of the other aspects of the construction industry are also a major part of the economic life of the nation.

The sophistication of modern construction means that consumers are increasingly unqualified to judge the quality of construction. The risk of buildings collapsing or otherwise exposing end users to great danger means that regulation of the building industry is increasingly important. Simple building codes have existed in cities for the last few hundred years, but even the smallest of contemporary buildings is subject to code requirements. The construction industry requires quality control personnel and building inspectors. Governmental entities at all levels provide many of these, but again educational institutions are required to train the necessary personnel.

The earliest buildings could be constructed wherever the owners of property wished them to be built, but as people began to live closer together and construction became more complex, such freedom was no longer possible. The zoning regulations were simple in the beginning but have become much more complicated over time. Population density and other factors have led to the establishment of sizable bureaucracies of the federal state and local levels. Although many chafe at government intrusion, nearly everyone recognizes that this is necessary. All of these public employees require specialized educational training, and educational facilities have expanded to meet these needs

At each step in the processes of construction, contractual relations are required and government bureaucracies are increased. These factors have a required a larger, more sophisticated legal profession, which is another economic activity that flows out of the construction industry. Educational institutions have expanded to apply the training for these additional legal personnel.

Further Reading
  • Bon, Ranko. Building as an Economic Process. 2d ed. Englewood Cliffs, N.J.: Prentice Hall, 2001. Process is the key variable examined in this study of building from an economic perspective.
  • Bon, Ranko, and David Crosthwaite. The Future of International Construction. London: Thomas Telford, 2000. This book examines American construction from an international perspective.
  • Dow, Louis A., and Fred Hendon. Economics and Society. Englewood Cliffs, N.J.: Prentice Hall, 1991. These coauthors, strongly influenced by the free-market economics of Adam Smith, examine economics in a societal context.
  • Hillebrandt, Patricia A. Economic Theory and the Construction Industry. 3d ed. London: Macmillan, 2000. This book takes a theoretical look at building from an economic perspective.
  • Ive, Graham, and Stephen Gruneberg. The Economics of the Modern Construction Sector. London: Macmillan, 2000. All aspects of construction are placed in a theoretical economic framework.
  • Willis, James. Explorations in Microeconomics. 5th ed. Redding, Calif.: North West, 2002. This mainstream text examines construction from a microeconomic perspective explaining the impact of construction on the individual firm.

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