Predicting construction market growth for urban metropolis: An econometric analysis

Construction market forecasting has been an important research topic for policy formulation and implementation as the importance and impact of the industry to an economy is undeniable. Yet, not much research effort has been attributed to establishing construction demand forecasting models to predict construction market growth except those using the univariate time-series techniques. Given a close linkage between the general economy and the construction industry, it is imperative to understand the structure of the construction market and hence develop an insight into the future development of the industry. In this research, the vector error correction (VEC) modelling technique is employed to estimate the medium-term overall construction demand in Hong Kong. The results show that the VEC models can provide reliable and robust forecast of around 3% in terms of the mean absolute percentage error for a ten-quarter time span. A regression model is also developed to verify the reliability and robustness of the VEC model. Using the VEC model, industry stakeholders and policy makers can predict the medium-term trend of Hong Kong construction demand and hence formulate suitable strategies to meet the challenges ahead. The findings and econometric modelling technique of this study are valuable to both developed and developing countries when examining the future construction market at the metropolitan level.