Literature Review Report

Methodology

According to Hart (1998), a literature review is an independent, comprehensive summary and critical analysis of pertinent existing research and non-research literature on the topic being studied. For the current study, the literature review method used is a systematic literature review. Cronin, Ryan, and Coughlan (2008) state that a systematic literature review is a rigorous and well-defined approach to reviewing literature in a specific subject area. The purpose of the review is to use explicit and rigorous requirements to identify, critically evaluate, and synthesise all the literature that is relevant to the topic of study. Parahoo (2006) suggests that the literature review should detail the time frame from which the literature was selected, methods used to evaluate the literature and synthesise the findings of the studies in question. For the current study, precise criteria have been set to;

• Formulate the research question
• Set inclusion and exclusion requirements
• Selection and accessing the literature
• Assessing the quality of the literature that has been included in the study
• Analysing, synthesising, and disseminating the findings

A review of the literature is based on collective research that has been conducted in countries throughout Europe and Asia between the years 2005-2015, which included cross-referencing peer-reviewed journals and searching electronic databases such as Emerald Insight. The basis of the literature review was conducted using an extensive internet search of studies that provided information on the impact of an economic recession on the construction industry, with the main focus kept on the recent economic recession of 2008. A three-point requirement was used to screen and assess the list of studies for economic credibility, economic reliability, assessment of the construction industry, and research focus on quantity surveying. The following are the composed screening requirements that have been used;

• Does the literature contain statistical evidence of a connection between quantity surveyors and the economy?
• Does the literature contain information directly targeting the 2008 global economic recession?
• Had the researchers of the literature conducted experimental research to produce their conclusion?

Studies which were given first priority were the ones that were able to conform to the three-point requirements. However, other studies were also included, even if they fit at least one of the requirements. The current study covers themes that had overlapped between the various literature analysed and is discussed in the following sections.

Findings

One key finding of financial and economic crises is that they often lead to severe economic downturns and financial instability.

Financial Crisis and Economic Crisis

It is imperative to comprehend the difference between a financial crisis and an economic crisis and how a financial crisis results in an economic crisis. According to Dikmen et al. (2010); Latham and Braun (2011), and Jensen and Johannesson (2013), a financial crisis can be defined as a disruption in the financial market in which antagonistic selection and moral hazard issues worsen, resulting in financial markets being unable to efficiently channel funds to those who have the most productive investment opportunities. However, Lim et al. (2010) propose a more severe definition in which a financial crisis is considered a threat to the country’s money supply.

Hence, a financial crisis results in the failure of financial markets to function effectively and efficiently, leading to a sharp decrease in economic activities. Based on a review of literature, there are five primary factors that are the source of the financial crisis; increase in interest rates, bank panics, stock market declines, the unanticipated decline in the aggregate price level, and increase in uncertainty.

Analysis of Economic Crisis 2008

The subprime bubble burst, and the subsequent financial crisis started in the USA during the 3^rd quarter of 2007 when investors had lost their confidence in the value of mortgages. A liquidity crisis had started in leading banks when there were losses of sub-prime loans resulting in a bank panic, eventually developing the economic crisis of 2008. During that time, the UK, many European countries, and the USA borrowed from Asian and Middle Eastern countries through loans (Ofori and Toor 2012). These loans were then used to purchase houses and support property development, causing a sharp increase in the value of assets. An increase in the value of assets gradually began to encourage increased lending, which furthered the rise of asset prices. According to Atkins Group (2009) and Adebamowo (2011), lenders were more willing to lend, even up to 100 percent of the purchasing power.

However, Cacciator and Jacobides (2005), Chiang et al. 2013, and Rostami et al. (2015) have asserted that these increases in home prices were just the housing bubble. Zainul Abidin (2014) have argued that there is no other explanation for the unexpected increase in the relative demand for property which would be able to explain the increase in price, and there is no palpable explanation for the increase in property purchase prices that is comparable to rental prices. Thus, it is concluded that the unprecedented increase in home prices is the existence of the housing bubble. Williams et al. (2013) noted that the major factor driving home sales was the expectation that housing prices would be greater in the future. Ofori and Toor (2012) and Lim et al. (2010) argue that this may sustain the prices of home properties for a specific period, but it will eventually end.

The bubble eventually burst, and the asset process began a downward spiral. There was a decrease in asset prices, making it difficult for investors who borrowed funds to buy those assets causing them to struggle in paying their liabilities. Investors then had to sell their other assets, which caused a decline in the price of housing assets. This resulted in defaulting from banks. Banks then dried for their resources, decreasing asset prices further, causing less credit to be readily available. There was an additional narrowing of lending, and the rancorous cycle of decline began to proceed. All the events led to the financial intermediation of banks decreasing and causing a decline in the aggregate economic activity and, subsequently, the economic crisis of 2008.

Impact of the Financial Crisis on the Construction Industry

No industry was immune from the financial crisis of 2008. This also included the construction industry. According to one survey by Sonson (2014), new orders in the construction industry were reduced by 39 per cent in the 3^rd quarter of 2008 compared to 2007. There was a decrease in private housing orders by 62% on average for 2008, and public housing orders decreased by 36%. ONS (2008) notes that private housing orders began to fall by 43% during 2008 and decreased by 32% in 2009. There was a workload reduction by 0.7% in 2008 within the UK construction industry, with a further decline by 3.1% in 2009 (ONS 2008). The impact of the recession on the construction industry can be monitored through the public and private sectors. The output of new housing was selected for analysis and illustrated in figure 1. There is evident a fall in output since the 2008 recession, mainly by falling private housing which had declined respectively by 20.8% from 2007 to 2008 (ONS 2015). There has been a steady attempt to raise the output of new housing from 2009 to 2010 by 52.8 per cent for the private sector and 54.8 per cent for the public sector (ONS 2015).

Figure 1- Annual volume of UK construction in new housing output and change over previous years in Great Britain, 1998-2014

Latham and Braun (2011) argue that the financial crisis's most devastating impact on the construction industry was the falling salaries and job cuts. Felstead et al. (2012) state that almost 400,000 jobs in the construction industry were lost in 2009-10. Both private and public companies have downsized and re-structured to survive the recession, causing a loss of technical and expert resources (Frei 2010; Hoxley 2010; Dikmen et al. 2010). May quantity surveyors have faced and experienced the threat of the recession, making them redundant. However, quantity surveyors have played an essential role in aiding the construction industry to pass through the 2008 recession and allowed it to grow once economies were recovering.

Quantity Surveyors in Public and Private Sectors

According to Henry (2013); Chiang et al. (2013), and CIC 2013 quantity surveyors play a crucial role in ensuring that the resources of the construction industry are used to the best possible advantage of society by providing inter alia, the financial management for projects and cost consultation service to the client and design throughout the entire construction process. Quantity surveyors must have a set of core competencies that have been set out by the Royal Institution of Chartered Surveyors.

In both the private and public sectors, quantity surveyors are imperative consultants for employers. The difference found in both sectors was that the private sector focuses on profits while the public sector ensures the accountability of public finance. Alfred (2007) asserts that over the years, both sectors have combined their aims in order to compete against one another for work, business, and profits.

The main concern of a quantity surveyor in the private sector is to find capital and offices, guarantee a flow of work and avoid losses. Thus, quantity surveyors have to exhibit expertise in funding, economics, and the financial consequences of specific kinds of construction projects. Public sectors mostly deal with government organisations (Cacciatori and Jacobides 2005; Atkins Group 2009; CIC 2013). Quantity surveyors within the public sector deal with the control of projects, maintenance, and repair programmes. The key responsibility is to control the public money and monitor the methods by which it is spent (CIC 2013).

Role of Quantity Surveyors for the Public Organisation During the Financial Crisis

It was analysed that the most important aspect during a financial crisis is cash flow and credit, requisites in the construction industry. This makes it essential to control and manage these major factors in order to recover from the 2008 crisis expressly in the public sector as the public sector deals with public funds and government budget, and public sector projects are critical needs for the public, such as public schools, roads, and hospitals. Also, public sector projects are generally large-scaled and lined to intensive capital and budget. This makes the quantity surveyor very important during an economic crisis. The quantity surveyor influences every stage of a public construction project.

According to Burger et al. (2009), Chiang et al. (2013), and Henry (2013), during the project evaluation phase, a feasibility study is required, which takes into account development and investment appraisals, a cost-benefit analysis, and other financial components. With a quantity surveyor, the factors that affect the feasibility study can be assessed, which will enable them to advise the client on the economics of a particular design while implementing value management to take into consideration all the risks that are connected with the project (Felstead et al. 2012; Henry 2013; Jensen and Johannesson 2013). Using the information, the surveyor can advise the client about the feasibility of the project in times of recession when cost-cutting becomes an important aspect of survival in a market. Since financial control is vital during the recession, quantity surveyors become helpful in evaluating the efficiency of the design using diverse market factors and trends in the industry’s cost to prepare a preliminary estimate and analyse the predicted cost throughout the life cycle of the project (Hoxley 2010; Lim et al. 2010; Rostami and Sommerville 2015). Williams et al. (2013) have asserted that during the design stage, comprehension of various stages of design by a quantity surveyor allows them to advise on different design solutions that are according to the cost of the project. Most importantly, quantity surveyors are needed for their value management competencies at times of recession. Zainul Abidin et al. (2014) argue that factors such as aesthetic components, sustainability issues, expandability, and easy remodelling ability are taken into account as the value of these factors are directly related to cost, making quantity surveyors an essential role if the company is looking to function during an economic crisis.

At the construction phase, execution and control of all the site’s work and activities are conducted to ensure that the project is abiding and moving forward based on the premises set forth by the contract document. Thus, the presence of a quantity surveyor significantly impacts the project. The quantity surveyor is able to obtain value and control costs of the project using skills of measurement, valuation and defining the construction works. Sonson (2014) stated that surveyors at this stage carry out various quantifying and pricing construction works in order to premeditate the cost throughout other stages of the project. At the post-construction stage, all other project parties have completed their job, but quantity surveyors can still be used to advise the client on life-cycle costs. The life cycle cost of a project is extremely dependent on the functionality of the project as it results in maintenance and service costs. With a quantity surveyor, the client can estimate and evaluate the project's lifecycle cost, which is taken into account during risk management and sustainability issues, value engineering and value management (Peston, 2008; UK Construction Group, 2009; Williams et al., 2013).

The various extensive skills held by the quantity surveyors, including project management and value management, also aid clients in achieving their needs and expectations that may be present in a financial crisis, including cash flow and credit, which are considered to be dominant factors for clients(Williams et al. 2013). Therefore, project management is essential and completing the project at the correct time and within an allotted budget is vital in both private and public sectors as they deal with large-scale projects and intensive capital (Felstead et al., 2012; Dikmen et al., 2010; Sonson 2014; Williams et al. 2013). As quantity surveyors have the capability to secure successful projects using effectipracticalcal and financial advices are able to make an imperative contribution to economic recovery (Felstead et al. 2012; Dikmen et al. 2010; Sonson 2014; Williams et al. 2013).