Thinking like capital markets: Financialisation of the Australian construction industry

The concept of financialisation has not yet become a major subject in mainstream construction economics research. This is surprising since construction risk, risk management and project financing have long been important issues for researchers and practitioners. This paper introduces the concept of financialisation, outlines its causes in the construction industry and identifies some effects. An important dimension of financialisation in the construction industry can be seen in the growing conversion of illiquid built assets into liquid financial instruments that have become a distinct global asset class. These liquid construction assets have become important to current risk management and profit strategies of developers, major construction firms and capital market investors. Five key drivers of financialisation in the construction industry are identified. The article finds that a principal effect of financialisation in construction is to intensify competition for access to global capital, which in turn reinforces long-established tendencies for risk shifting in the contractual chain. The Australian construction industry has been an early adopter of the key drivers of financialisation and is used in this article as a case study. In developing the case study analysis the article also draws on observations by major Australian construction industry associations and financial institutions.