65
BUILDING COSTS ANALYSED
Land investment and building interests in Hong Kong have undoubtedly enjoyed a period of unrivalled prosperity during 1947 and 1948, but there has been a continuous feeling of surprise that this happy state of affairs should have lasted so long. Will conditions continue to remain favourable and, if so, for how long?
Disregarding the effect of the political situation on Hong Kong's economy, since that is a factor over which we have no control, and concerning which no amount of planning can have any effect, the answer to this problem will be to a great extent influenced by the cost of building. An intelligent understanding of the factors which control these costs is necessary for anyone before he can attempt to analyse the situation and prognosticate the future of the building industry in the Colony,
These factors have been very completely and intelligently set out by the Building Costs Committee as part of the report which they published as a result of months of painstaking endeavour.
Following is the portion of their report dealing with the reasons of increased costs in Hong Kong, and applying these facts to present day conditions will enable, as far as it is humanly possible to do so, the interested investigator to reply to the question propounded above.
To find methods of reducing costs it is first necessary to determine why costs have risen. We have considered the five main factors in building costs separately.
A. Labour.
The main reasons for high Labour Costs are the increased wages per day, the lower output per man-day, and the lower standard of workmanship and skill on the part of the available labour.
(i)
Labour's demands for increased wages are due to the increase in cost of living, that is the cost of food, fuel and other similar necessities, to the high rentals that are charged for living accommodation, and to the shortage of skilled labour, which puts a premium on tradesmen, as well as a significant raising of the standard of living amongst the labouring classes.
(a) The basic cause of high cost of food is the world shortage of rice and staple foods, and the low quantity and quality of subsidised rations necessitat- ing their augmentation at high prices controlled only by supply and demand. This high cost is reflected in all trades and commodities, and has justified at least part of the increased labour rates. (b) High rentals for accommodation are due to the very serious damage done to tenement and similar buildings during the war. and to the abnormal demand for such accommodation as has survived or has been repaired, consequent on the influx of population to the Colony after the reoccupation. (e) The shortage of skilled building tradesmen has resulted directly from the Japanese occupation when there was little work, and many tradesmen died, left the Colony or were deported.
(d) There is a tendency on the part of skilled labour to take advantage of the shortage in obtaining inflated wages.
(e) There is also evidence that non-productive members of workers families have come to the Colony to be supported by the workers, as the result of high wages and the relative local stability. Their upkeep demands high wages.
(ii) The lower output per man-day is chiefly caused by the reduction in working hours per day, the predominance of semi-skilled tradesmen, and the lack of incentive consequent on the large demand. We feel that the phy- siological effects of the war can no longer be considered a reason for reduced output.
(a) Although labour is paid at daily rates which are considerably higher than the pre-war rates, the number of working hours per day have been reduced from 9 to 8.
(b) On the reoccupation there was a critical shortage of tools. Unskilled labour in possession of tools was able to pose and obtain work as tradesmen, but without the skill necessary for full output. Owing to the shortage of trained tradesmen, such labour, though by now "semi-skilled", has remained at work to the detriment of output. The present labour force comprises a small nucleus of older skilled tradesmen, grossly diluted with unskilled and semi-skilled labour.
(c) The genera! shortage of real craftsmen, combined with the abundance of work available, tends to deprive them of a sense of responsibility, and the interest and incentive to increase their output.
(ii) The lower standard of workmanship, necessitating bad work being redone and spoilt materials replaced, is due to the custom under the occupation of doing bad work, and to the use of untrained labour.
(a) During the occupation, such building work as was done was paid only in rice, and a very low standard was accepted. This tendency still persists, though there are signs that good work can be obtained, if sufficiently insisted on, but only at higher cost,
B.
(b) As stated in (b) above, the great majority of tradesmen are to-day untrained, and incapable of producing high quality, and often unwilling to pro- duce full output.
Materials.
The main reasons for the high cost of building materials are shortage of supplies, absence of price control, higher prices at source and exchange control.
(i)
Shortage of supply is due to the enormous war destruc- tion especially in the Industrial Countries of Europe, and the crippling of production consequent thereon.
(a) The combined effect of the war devastation, reduc- tion of production capacity, and demand in Europe for building materials has been to leave relatively little surplus available for export to the Colony. (b) Hong Kong is unfavourably placed in the matter of supplies that would enable local builders to take full advantage of the possible use of alternative materials of construction and production.
(c) Shortage of shipping space in the first years after the war has contributed to difficulty in getting materials. There has been a noticeable preference on the part of importers to ship the more profitable luxury goods.
(d) Local demand, although at first confined to mere essentials for "rehabilitation", has increased as it becomes more obvious that an appreciable drop in prices cannot be expected in the near future. (e) Local shortages of sand and stone are considered
in paragraph (v) below.
(f) Local shortages are also partly due to the embargo on inports into China. Merchants in pre-war days imported large quantities into the Colony for re- export into China, and the local market benefited not only from large stocks, but from lower prices. The local market alone is too small to induce mer- chants to place large orders, even if they could be obtained.
(ii) Absence of price control has resulted in considerable increases in prices which however are now tending to find a stable level as more supplies gradually become available.
(a) Price Control of building materials has been con- sidered, but the problem is complex and difficult, as there are so many ranges of various items, both as to pattern and quality, and so many various sources of supply at differing rates of exchange, that it was decided not to be feasible.
(b) The administrative staff necessary fully to control
prices was large and not available.
(c) Such controls as do exist have tended to deter importers from ordering, with aggravation of the supply position.
(d) Lack of control has however led to considerable opportunism on the part of some local merchants, as evidenced by the fluctuation in prices for 1946, 1947 and to-day.
(e) Fluctuation in prices has also caused reluctance to
import except against firm orders.
(iii) Higher prices at source have in some cases caused large increases in local prices, although in general, prices at source have risen more slowly.
(a) Increases in wages in producer countries, resulting in higher cost of manufacture are continuing, and tend to rise further.
(b) Considerable increases in freight rates have further increased local costs. It is to be noted that a large part of the cost of building lies in imported materials. (c) The very great increase in price of coal and fuels has resulted not only in the higher freight rates already mentioned, but directly affects the price of most locally manufactured commodities, notably cement, bricks, tiles, and the cost of electrical power,
(iv) Exchange Control, necessary as it is, has resulted in difficulty in getting export licences from sterling areas, and the local facility for obtaining exchange at higher "unofficial" rates has resulted in higher prices for materials obtained from "hard currency" areas, the in- crease having been as much as 50 per cent.
(v) Locally produced products such as sand and stone have risen in prices, due, it is stated, to short supply and lack of plant and equipment.
(a) The quarrying of stone could not in the early days, keep pace with the demand, resulting in higher prices. It is believed that this tendency is being overcome. There is still difficulty in getting quarry permils and explosives, and this delay is reflected in higher building costs.
(b) The marketing of sand is a Government monopoly, introduced to conserve beaches. The supply has not kept pace with the demand due in part at least to Lue shortage of junks required to collect it. Jubs have been held up through lack of sand, and lorries have stood many hours at the sand depots waiting for supplies. This has caused increases in building costs.
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