ASP Software Developer Business Plan

Demand for family housing construction is subject to both short-term and long-term influences. Short-term influences include factors such as movements in interest rates, housing affordability and stimulatory government policy. The long-term influences include trends in population growth and settlement, the aging of existing stock and buyer preferences between single-family and multi-family style housing.

In the commercial sectors, the demand factors are vary according to the type of buildings, for instance schools, hospitals, museums, etc. Current economic conditions and the level of investor confidence play an important role in determining the overall level of activity in this industry.

4.1 Market Segmentation

Housing Construction

Demand for family housing construction is subject to both short-term and long-term influences. Short-term influences include factors such as movements in interest rates, housing affordability and stimulatory government policy. The long-term influences include trends in population growth and settlement, the aging of existing stock and buyer preferences between single-family and multi-family style housing.

Short-term Determinants

The impact of current economic conditions on consumer confidence. Consumers must be confident of job security and future household income to commit to buying a home. Housing affordability is the cost of purchasing a house relative to current household income and is a key factor driving the housing investment cycle. The affordability ratio (as a measure of the average size of the loan over the current level of pre-tax household income) is directly influenced by the level of mortgage interest rates (availability and price of finance), and the price of land, labor and materials.

The prevailing cost of renting residential accommodation relative to the cost of purchasing (i.e., mortgage repayments) impacts on the short-term demand for housing. The impact of medium-term government policy on housing investment include: local government zoning and conveyancing regulations and costs; government grants and subsidies to home buyers, tax relief or mortgage insurance subsidization; and changes in the tax treatment of tax effective investments.

Approximately 6% of the total value of residential building construction in the US is funded by the public sector, and this principally involves the construction of multi-family and single-family housing for defense personnel, public servants and special welfare recipients (e.g., disability accommodation and veterans housing). Fluctuations in public budget allocations towards housing construction mainly result from variations in the fiscal stance (deficit/surplus) and the stage of the economic cycle.

Natural disasters, such as the damage caused by Hurricane Katrina in the gulf states in August 2005, and damage to property from brush fires and earthquakes, can stimulate short-term demand for new housing construction irrespective of the underlying trends in housing demand.

Long-term Underlying Demand

Long-term demographic trends indicate the required minimum stock of housing, but not necessarily the value. Demographic factors influencing single-family housing demand include: population growth rates, trends in net migration, population dispersion, the age composition of the population and the rate of household formation have a profound influence on the long-term demand for housing stock. Trends in household size and long-term preferences in the size of homes influences the demand for single-family housing construction relative to smaller multi-family housing units.

Long-term trends in income growth and distribution and general economic development. The aging and demolition of existing housing stock underpins the long-term demand for replacement stock.

Commercial and Institutional Construction

In the commercial sectors, the demand factors vary according to the type of buildings, for instance schools, hospitals, museums, etc. However, current economic conditions and the level of investor confidence play an important role in determining the overall level of activity in this industry.

Key economic factors influencing investment decisions include:

• The prevailing level of interest rates and availability of finance.
• Current and expected rates of general economic growth.
• Expected yield on investment (both long-term rental yield and speculative capital gains).
• Taxation treatment of building investment compared with other types of assets.
• Vacancy rates of existing building stock.
• The rate of replacement of aging building stock.
• Federal and State government fiscal positions and capacity to raise debt.
• Trends in the public/private sector mix in the provision of health and educational services.
• Changes in the structure, distribution and size of the population.

Demand Determinants in Commercial Building Segment

Office construction is principally determined by: growth in the service sector workforce; growth in foreign investment inflow; and developer speculative activity. The average age of commercial office stock is an important determinant of demand for the addition of new stock or the upgrade of existing stock. The impact of new technologies in the areas of IT and communications has the impact of more rapidly aging building stock and thereby increasing demand for premium stock.

Retail building construction (e.g., retail stores, shopping malls, gas stations, etc.) is principally determined by: shopping preferences/patterns (i.e., choice between boutiques and complexes); population growth rates and catchment areas; and patterns in consumption expenditure.

Hotel construction is determined by: growth in international and domestic tourism; major cultural, sporting entertainment, business events; growth in casino licenses; and existing supply of accommodation.

Other commercial building construction is determined by: population growth and urban spread; tourism growth and growth in leisure time; and major cultural and sporting events (e.g., Salt Lake City 2002 Winter Olympics); popularity of new sports and recreations (e.g., soccer, beach volleyball).

Demand Determinants in the Institutional Building Segment

Governments occasionally adopt anti-cyclical spending measures (e.g., expansionary fiscal policy) in order to stimulate stronger economic growth, however the growing pressure on governments to maintain a balanced budget position limits their capacity to use anti-cyclical spending.

Demand for education facilities construction (e.g., schools and university campuses) is principally influenced by: public sector capital expenditure growth; growth in demand for public and private education and child care services; demographic factors such as the growth in ‘school age’ population, geographic distribution, household formation rates; level of child care subsidies; parent labor force participation rates (determines child care demand); the size of average class/teacher ratio; and the inner urban renewal of existing building stock.

Demand for health facilities construction (e.g., hospitals, community health centers, day clinics, and nursing homes, etc.) is determined by: public fixed capital expenditure growth; health insurance arrangements; population growth, dispersion and age distribution; existing supply of hospital beds per capita; and the situation with hospital waiting lists.

Demand for religious building construction is determined by: population growth and dispersion; social and cultural trends; and trends in the inflow of migrants from less represented religious backgrounds (e.g., Muslim, Hindu, etc.).

Demand for barracks, aircraft hangars and other military buildings is determined by: defense budgets; armed service intake trends; and defense planning.

Demand for specialist public services buildings such as postal distribution centers, currency mints and utility distribution installations is determined by: government budget policies and planning issues; and the growth and distribution of population.

Demand for construction of public access buildings such as law courts, libraries, museums and art galleries is determined by: the aging and capacities of existing stock; budgetary position; private philanthropy such as endowments/bequests to the arts; and the timing of special events (e.g., Salt Lake Winter Olympics).

Demand for correctional buildings and detention centers is determined by: budget policies and planning issues; growth in the privatization of the delivery of services; and growth in the prison population.

4.2 Industry Analysis

The value of construction in place in the total US residential market climbed to a record $550.14 billion in 2004; comprised of new single-family house construction ($370.23 billion), new multi-family house construction ($45.80 billion), plus the value of improvements to existing houses ($134.11 billion). Meanwhile the commercial and institutional construction market reached the value of $237 billion in 2004.

The home construction industry was comprised of 163,703 establishments and employed 796,880 persons according to the 2002 Economic Census. The industry has grown in last couple of years to a record 175,000 establishments, employing approximately 920,000 people in 2004.

The commercial and institutional building industry was comprised of 34,588 establishments in the US according to the 2002 Economic Census, and employed a total of 673,318 people. However, in contrast to its housing counterpart, in a recent estimate conducted by IBISWorld and Euromonitor, the employment for commercial and institutional building industry had decreased marginally over the past years due to weak demand in downstream building markets to 655,000 people in 34,750 establishments in 2004. The major categories for commercial and institutional building industry are divided as follow:

• Educational facilities (28.6%)
• Retail stores and commercial warehouses (24.6%)
• Offices (16.5%)
• Healthcare facilities (12.3%)
• Amusement and recreation facilities (7.4%)
• Hotels (4.4%)
• Public safety facilities (3.2%)
• Religious buildings (3%)

4.2.1 Business Participants

The market has expressed the need to have more access to suppliers and buyers in completing each of their projects. To gain this, the industry needs a more interactive and real-time medium serving as a hub connecting both subcontractors and builders.

This has manifested itself in the form of greater visibility and timely event notice so the appropriate corrective or scheduled actions can be implemented, to ensure an efficient project management and supply chain.

4.2.2 Distributing a Service

Small to medium builders are accustomed to cooperating with subcontractors who they have already employed in past projects. The each expect fair price in their project, as it is mainly a trust-based business relationship.