Decription:

This study introduces complexity economics and systems thinking as a methodology and approach to understanding why boom and bust cycles exist in the construction industry. System models have been developed to better understand, not predict, the dynamics of the multiple complex interactions, which range from hard economic data to people’s irrational behaviour.

During the study there has been extensive consultation with a broad cross-section of industry professionals and practitioners.
There is a broad appreciation of how the overall economic climate impacts the construction industry in New Zealand, but there is little uptake of the economic theories about boom and bust cycles by construction practitioners. There is broad agreement that cycles do exist and that they influence decision makers, but the cause of the cycles is uncertain and varies depending on the industry sector and perspective of the observer. Government spending and policy decisions are seen as a major influence for most participants in this study. Also,it is the rate of change, whether in boom or bust conditions, that cause the problem, not the fact that the industry has good years and bad years.

Generally it is accepted that a rapid upward phase of the cycle causes inflated prices and reduced competition due to full-order books;whilst the downwardphase leads to competitive cost cutting, reduced margins and pressure on quality. It is this sort of negative self-fulfilling prophecy that should be challenged if the industry is to break free of the most negative aspects of boom and bust cycles.

The study concludes that whilst external shocks will always impact the industry, much of the volatility is caused by internal system factors. Better communication within the supply chain, visibility of future orders, long range planning around resources, particularly skilled workers, and reducing delays in the approval and the procurement system can produce considerable improvements in performance and productivity.

The construction industry is an important bellwether and stimulus for the NZ economy. As a result, the construction industry is prone to manipulation by policy makers attempting to influence the domestic economy, often to the detriment of the industry itself. This duality of purpose causes increased uncertainty and volatility in the industry.

The key finding of the study is that the complexity and uncertainty that characterises the NZ construction industry demands changes to industry structures and strategic thinking that encourage collaborative learning processes.