an index of melbourne building activity 1896–1939

AN INDEX OF MELBOURNE BUILDING ACTIVITY 1896- 1939 *

DAVID POPE The Ohio State University

I The purpose of this paper is to provide an index of building activity for metropolitan

Melbourne. Economic historians and trade cycle analysts have focused increasing attention on the building industry both as being quantitatively important and as an initiator and/or indicator of economic fluctuations. But paucity of official data of building activities, the result of the generally scant statistics kept by building firms and the difficulties of analysis imposed by the heterogeneous nature of the industry, has presented the investigator with a problem. In the absence of output data in physical units, which is the most satisfactory measure of activity in an industry, investigators have constructed value indices, i.e. indices of the values of building permits issued by local authorities adjusted by some cost index of factor inputs. The reliability of such indices, however, is open to dispute.

For metropolitan Melbourne 1896-1939 an alternative source of quantitative measurement of building activity is available in the weekly delivery records of the brick cartel, the Co-operative Brick Company Limited. The Co-operative was formed by agreement between Hoffman Patent Steam Co., Northcote Bricks Co. Ltd., Chas. Butler and Son, and Fritsch Holzer and Co., and registered on September 10, 1896.l Authorized capital was €50,000 in €1 shares, and this was increased to €150,000 in July 1927. During its 70 years of operation, the New Northcote Brick Co. (1905), City Works Co. (1919), Oakleigh Brick Co. (1919), Auburn Brick Co. (1919), Black- burn Brick Co. (1923) and (after 1939) the Standard Brick Co. (Box Hill) became associated. From its inception to the outbreak of World War 11, the Co-operative produced consistently between one-half and two-thirds of Victoria’s total brick output, and thus even a higher proportion of metropolitan production. The directors of each associated company sat as directors of the Co-operative, whose Board acted as an integrated cartel: it fixed the price of bricks for distributioq2 issued directives as to when and which associated companies and yards vary output3 and also decided the prices tendered by member companies for larger contract^.^

* I am grateful for the comments of David Merrett (who also first interested me in the data), Dr. W. A. Sinclair and Professor A. A. L. Powell. I am also grateful to Mr. Frank Strahan of the University of Melbourne Archives, where the minutes of the Co-operative are held.

1The New Northcote Brick Co. was involved in initial discussions that took place on the formation of the carteI, but did not join the group until April 1905.

2At the first meeting, after deciding on their salaries, the directors “moved that the price of bricks per 1000 at the kiln be 18/- (clinkers), 20/- (seconds), 221- (firsts).” Minutes, July 18, 1896.

3The entrance requirements of City Brick Co. was negotiated on the basis of 16 per cent share of the profits of the Co-operative for which it agreed to ‘‘close one yard, accept a common price and accept commands re output”. Minutes, April 15, 1904.

4 When the Railway Department called for tenders in 1897. for instance, the issue “was discussed and it was agreed that Hoffman Co. should be the lowest tended at 30/- 1000”. Minutes July 22, 1897. Such actions are wholly consistent with the efficiency notion that

104 AUSTRALIAN ECONOMIC PAPERS JUNE

In this paper I assemble from the crude weekly data contained in the minute books of the cartel quarterly indices-both raw and seasonally adjusted-for 1896- 1939 based on physical units of brick deliveries. I argue that these time series provide the broader facility of indices of changes in total building activity in metropolitan Melbourne for this period. The relationship between cartel and Victorian (as distinct from Melbourne) brick production is dealt with in the Appendix.

I1 The efficiency of indices based on the value of building permits, corrected for cost

changes, as indicators of building activity can be doubted on a number of grounds. First, authorization and commencement of building operations are not synonymous owing to the existence of a lag and to the possible abandonment of operations. In the case where abandonment follows the issue of permits, an index of building activity based only on permits will tend to lengthen the upswing of the business cycle and thus obscure the dating of the downturn. Nor have attempts to identify the duration of the lag been very fruitful. C. B. Schedvid has attempted to estimate the interval between authorization and commencement of building (for Sydney) by regressing, with lags of zero to 15 months, permits on “Water Board” completions. The correlation co- efficients for the six different lags used were not significantly different and the true lag is thus left unidentified. This very fact makes the use of the permit-data for identifying short-term lead-lag relationships in trade-cycle analysis extremely questionable.

Secondly, as municiple regulations did not extend to all building activity, permit data may contain important inaccuracies.

Thirdly, equally questionable is the use of simple cost indices of building materials and labour inputs for correcting the primary values of permit data. Cost indices based only on labour and materials used necessarily ignore other important inputs, namely, management and capital costs and cartage expenses. Further, the heterogeneous nature of construction work means that the weights assigned to the components, labour and materials, in the index must be little more than guesses. Postulating the ratio of total labour to total materials employed in building activity has the attendant difficulty that weights must be explicitly or implicitly assigned to sub-cohorts within these two categories. Also, as the weights of the components are treated as constants, cost indices make no allowances for changes over time of the ratio of costs. Nor do the indices make any allowance for changes in productivity. Finally, the official price quotations upon which the costs of building materials are typically taken take no account of the availability of trade discounts.

For the above reasons the best measurement of fluctuations in building activity is a time series which is based on physical and not value units and which relates to the

production orders are assigned to various plants in accord with marginal costs, i.e., expansion of output is via the plant with the lowest marginal cost of production. Dividend payments to the associated companies were initially made on the basis of a fixed per cent ownership of the cartel but later varied with deliveries of each member.

SC. B. Schedvin, “Building and the Trade Cycle in Australia.” Paper delivered at A.N .Z.A.A.S., Brisbane, 196 1 .

6 J . M. Hamilton and J. M. Wark, “Building Industry Statistics,” Economic Record, Vol. 27, 1948, p. 105.

:See Ronald Mendelsohn and John M. Hamilton, “The Australian Housing Cost Index,” Economic Record, Vol. 27, 1948.

1972 INDEX OF MELBOURNE BUILDING ACTIVITY 105

commencement and not the authorization of building operations. To allow scrutiny of the lead-lag relationship of the building cycle with general economic fluctuations, a quarterly series is to be preferred to annual data. The series shown in Table I1 and assembled from the weekly statistics of brick deliveries from the Co-operative meets these three criteria.

There remain certain gaps in our knowledge of the building industry which may affect the use of the Co-operative building series. The three principal objections are:

(1) it is not known whether or not bricks were a constant proportion of total building materials;

(2) it is questionable whether the Co-operative produced (and delivered) a constant proportion of total brick production in metropolitan Melbourne ; and

(3) deliveries were affected by strikes. With regard to (I), while there exist no published estimates of the ratios of residential

to total construction for Melbourne or Victoria, N. G. Butlin’s statistics for Australia of gross capital outlays on structures for the period 1900-1-1938-398 suggest that residential construction was dominant, accounting for typically slightly more than one-half of all capital outlays on construction. If this was true of Melbourne, then a measure of the importance and constancy of bricks as a building material is gleaned from the proportion of brick to nonbrick dwellings in metropolitan Melbourne. Table I suggests that brick usage in the dominant component of construction was remarkably constant over time.

TABLE I Proportion of Brick to Nonbrick Dwellings, Metropolitan Melbourne

(per cent)

1891 1901 1911 1921 1933

48 53 47 46 44

Sources: 1891 and 1901 are from census data contained in the Victorian Parliamentary Papers; 1891 related to County Bourke; 1911,1921, and 1933 are from the Census of the Commonwealth of Australia.

While brick houses remained a constant fraction of residential construction, the relative use of bricks in nonresidential construction over the period 1896-1939 is not directly known. However, Butlin’s estimates of capital outlays on construction suggest that residential and commercial construction tended to move in the same direction over the period, an exception to this being for a few years after the early 1920s. The constancy of brick usage in residential construction suggests that there is little reason to suspect a volatile demand for bricks as a building material in commercial and other construction unless the set of substitute building materials differed among types of construction. There were indeed major innovations in nonresidential structures in the 1920s, including the introduction of reinforced concrete and structural steel as building materials. Colin Forster has suggested that their introduction had “revolu-

8 N. G. Butlin, Australian Domestic Product, Investment and Foreign Borrowing, 18614938- 39 (Cambridge University Press, 1962), p. 49.

ON0 account is taken of modifications or additions to houses. The effect of such operations might marginally affect the volume of activity in the long run, but it is most improbable that the use of the series as a quarter-to-quarter index of activity is impaired.

106 AUSTRALIAN ECONOMIC PAPERS JUNE

tionary repercussions . . . on the demand for traditional building materials, particularly bricks”.1° We may therefore conclude that in nonresidential construction bricks as a proportion of total materials began to decrease from the early 1920% which suggests that greater caution is needed in interpreting the index in the first half of 1920s than at other times. It may be assumed that once these materials were introduced the ratio of brick to nonbrick materials in nonresidential structures fell gradually, i.e. was not subject to violent quarter-to-quarter changes.

As indicated in (2), any major change in the Co-operative’s relative share of the Melbourne brick market might decrease the usefulness of a series based on its activities. There is evidence of a slight secular decline in the cartel’s share of total Victorian production (see the Appendix). It is not known whether this slight decline was also reflected in its Melbourne share, or whether the gradual decline in the state share was due only to an increasing number of rural brickworks.ll If any change in the cartel’s hold on the Melbourne market actually occurred it may be reasonably presumed to have occurred gradually over time, influencing the secular trend rather than quarter- to-quarter fluctuation or the cycle.

Points (1) and (2) suggest the need for some caution in comparing the absolute level of building activity at widely separated dates. In addition, it was suggested in relation to (1) that the index is less useful in the early 1920s as an indicator of short-term changes in building activity. Point (3) suggests a further qualification to the series’ use as an indicator of short run changes in building activity. Changes in supply caused by industrial unrest will obscure quarter-to-quarter fluctuations and may affect the dating of turning points in building. The major disruptions, however, were few-directly affecting less than a dozen of the 100 observations of our series. The disruptions asterisked in Table I1 are those recorded in the Minutes of the Co-operative. Details of most strikes are to be found in the Labour Bulletins and Labour Reports.

TABLE I1

Melbourne Building Activity Co-operative Brick Series (Quarterly Data 1896-1939)

Index of Seasonally Index of Seasonally

Year Quarter Deliveries Adjusted Deliveries Adjusted (000’s) Deliveries 1900t = 1,000 Deliveries

1900t = 1,OOO

1896 4 10,426 9,845 800 677

1897

1898

1 8,423 9,575 647 659

3 9,000 8,294 69 1 571 4 9,410 8,920 723 614

2 7,966 8,146 61 1 560

1 9,072 10,267 697 2 11,991 12,266 921 3 13.288 12.259 1,021

706 844 843

4 14;735 14;002 1;131 963

10 Colin Forster, Industrial Development in Australia, 1920-1930 (Canberra: ANU Press, 1964), p. 58.

11 Data relating to the number of brickyards and potteries, output and municipal location were published in the Statistical Register of Victoria for the years 1890 to 1902. The information is not available for years after 1902.


TABLE II-Continued


Year Quarter Deliveries Adjusted Deliveries Adjusted Deliveries 1900t = 1,OOO Deliveries

1900t = 1,OOO (OOO'S)

1899

1900

1901

1902

1903

1904

1905

1906

1907

1908

1909

1910

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

9,364 13,928 16,901 14,884

13,017 15,370 17,024 17,439

16,324 13,035 17,018 17,335

14,181 14,831 16,800 12,379

12,838 13,656 15,761 13,790

10,682 9,860

11,744 17,125

15,200 16,996 19,142 16,796

18,792 20,651 22,505 13,853*

19,232 23,506 23,342 16,338

14,709 18,612 20,204 19,139

16,518 18,518 21,388 21,921

12,291* 22,565 24,787 23.293

10,561 14,244 15,566 14,250

14,538 15,809 15,580 16,872

18,048 13,442 15,536 16,964

15,440 15,365 15,307 12,250

13,838 14,090 14,360 13,834

11,454 10,072 10,671 17,439

16,372 17,050 17,393 17,270

20,454 20,408 20,395 14,267*

21,308 23,026 21,046 16,682

16,673 18,262 18,001 19,349

19,073 18,328 18,881 21,864

14,361* 22,690 21,515 23.314

719 1,070 1,298 1,145

1 ,OOO 1,176 1,308 1,340

1,254 1,001 1,307 1,332

1,089 1,139 1,290

950

986 1,049 1,210 1,059

820 757 902

1,316

1,168 1,306 1,470 1,290

1,443 1,586 1,729 1,064*

1,478 1,806 1,793 1,255

1,130 1,429 1,552 1,470

1,268 1,423 1,643 1,684

1,734 1,904 1,789

944*

726 980

1,071 980

1 ,OOO 1,087 1,072 1,161

1,241 925

1,069 1,167

1,062 1,057 1,053

843

952 969 988 952

788 693 734

1,200

1,126 1,173 1,196 1,188

1,407 1,404 1,403

1,466 1,584 1,448 1,147

1,147 1,256 1,238 1,331

1,312 1,261 1,299 1,504

1,561 1,480 1,604

98 1*

988'

108 AUSTRALIAN ECONOMIC PAPERS J U N E

TABLE TI-Continued


Year Quarter Deliveries Adjusted Deliveries Adjusted Deliveries 19007 = 1,OOO Deliveries

1900t = 1,OOO (OOO'S)

-

1911

1912

1913

1914

1915

1916

1917

1918

1919

1920

1921

1922

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

16,685 20,866 29,530 25,913

25,037 27,3 18 31,786 26,532

21,956 22,597 29,247 24,153

27,038 28,460 29,060 11,170

11,844 17,918 23,337 16,658

15,123 10,352 17,758 13,368

1 1,522 13,709 17,796 11,171

21,709 25,817 25,190 27,053

20,335 23,915

32,152

13,048 32,127 38,311 36,893

26,750 27,560 31,358

30,150 32,203 41,178 41,734

6,190*

8,707*

19,457 21,259 25,214 26,204

29,296 27,888 26,582 27,591

25,638 22,873 24,177 25,712

3 1,672 28,464 23,698 12,332

13,708 17,673 19,115 18,593

17,502 10,065 14,685 14,879

13,408 13,110 15,118 11,985

25,826 24,419 21,901 28,069

24,424 22,582

31,988

15,738 30,639 34,991 35,770

10,332* 26,026 25,552 30,032

34,466 32,335 38,127 40,516

5,543*

1,281 1,603 2,268 1,991

1,923 2,299 2,442 2,038

1,686 1,736 2,247 1,856

2,077 2,186 2,233

858

910 1,376 1,793 1,280

1,161 795

1,364 1,027

885 1,053 1,367

858

1,668 1,983 1,935 2,078

1,562 1,837

476* 2,473

1,002 2,468 2,943 2,834

2,055 2,117 2,409

2,316 2,474 3,163 3,207

669*

1,338 1,462 1,734 1,802

2,015 1,918 1,828 1,898

1,764 1,573 1,663 1,769

2,179 1,958 1,630

848

943 1,216 1,315 1,279

1,204 692

1,010 1,023

922 902

1,040 824

1,776 680

1,506 1,93 1

1,680 1,553

2,200

1,083 2,108 2,407 2,460

1,790 1,758 2,066

2,371 2,224 2,626 2,787

381*

711*


TABLE 11-Continued


Year Quarter Deliveries Adjusted Deliveries Adjusted (OOO'S) Deliveries 19007 = 1,OOO Deliveries

1900t = 1,OOO -

1923

1924

1925

1926

1927

1928

1929

1930

1931

1932

1933

1934

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

1 2 3 4

40,696 40,996 43,339 42,406

41,277 34,540 35,904 30,511

29,121 27,342 35,660 32,054

33,893 37,579 40,964 38,916

37,686 37,681 39,429 28,855

23,355 25,292 33,392 30,332

23,058 12,526* 32,732 23,780

16,216 13,048 8,645 5,570

4,035 5,300 5,945 5,281

6,040 8,871

12,069 12,547

11,943 12,267 14,479 16,446

15,927 20,293 26,792 20,810

44,210 42,489 40,002 41,797

43,274 36,602 32,846 30,421

30,284 29,171 32,223 32,082

35,766 39,928 36,539 38,922

40,745 39,631 34,882 28,698

26,019 26,130 29,434 30,127

26,257 12,712* 28,919 23,623

18,653 13,079 7,674 5,548

4,633 5,275 5,322 5,263

6,880 8,827

10,868 12,496

13,484 12,296 13,040 16,355

17,842 20,584 24,047 20,617

3,126 3,149 3,329 3,258

3,171 2,653 2,758 2,344

2,237 2,100 2,739 2,462

2,604 2,887 3,147 2,990

2,895 2,895 3,029 2,217

1,794 1,943 2,565 2,330

1,771

2,515 1,826

1,245 973 665 428

310 407 456 407

468 68 1 927 964

917 942

1,112 1,264

1,224 1,559 2,058 1,599

962*

2,977 2,518 2,259 2,093

2,083 2,007 2,216 2,207

2,460 2,746 2,513 2,677

2,803 2,726 2,399 1,974

1,790 1,797 2,025 2,072

1,806

1,989 1,625

1,283 900 528 382

319 363 43 5 362

473 607 748 860

928 846 897

1,125

1,227 1,416 1,654 1,418

874*

110 AUSTRALIAN ECONOMIC PAPERS J U N E

TABLE 11-Continued


Year Quarter Deliveries Adjusted Deliveries Adjusted (000's) Deliveries 1900t = 1,000 Deliveries

1900t = 1,000

1935

1936

1937

1938

1939

1 18,263 20,399 1,403 1,403 2 27,244 27,973 2,093 1,924 3 31,000 21,597 2,389 1,898 4 30,742 30,462 1,759 2,095

1 26.095 29.166 2.004 2.006 2 26:852 271769 2;062 1;910 3 30,661 27,069 2,355 1,862 4 24,501 24,324 1,882 1,673

1 22,784 25,531 1,753 1,756 2 24,705 25,666 1,898 1,765 3 29,598 25,895 2,274 1,761 4 26,187 26,134 2,011 1,798

1 22,852 25,627 1,755 1,763 2 22,332 23,232 1,715 1,598 3 27,803 24,248 2,135 1,668 4 23,918 23,901 1,837 1,644

1 20,094 22,548 1,544 1,551 2 23,064 24,016 1,771 1,652 3 24,909 21,684 1,913 1,492 4 20,667 20,683 1,587 1,423

* Strikes. t 1st Quarter, 1900.

Note: The data were seasonally adjusted by means of the United States Bureau of Census X-IIQ Program.

APPENDIX

On the assumption that the net change in the cartel's brick inventories for any year was close to zero, deliveries are taken to represent the Co-operative's production and are expressed as a percentage of Victorian production in Table 111. The Co-operative's share of total Victorian production 1896-1938-39 was lower than 50 per cent in only one 12 months period and in no period exceeded 76 per cent. Furthermore, variations in brick deliveries from the Melbourne cartel were highly correlated with the annual volume of bricks produced in Victoria. Annual Victorian Production 1897-1938-39 was regressed on the former and the following result was obtained (t-value in parenthesis),

Y , = 12,683 f 1.49X, Rz = .79 (1 1.9) d = 1.9

where Y, is the Victorian brick output in year t and X, is brick deliveries from the cartel in year t. Hence for some purposes, the cartel's deliveries might be useful as a quarterly indicator of changes in total Victorian brick production.


TABLE 111

(oow Cartel Brick Deliveries as a Proportion of Total Victorian Brick Production, 1897-1938-39

Victorian Production

Av. %for 3 Year Period Year Deliveries Per cent

1897 1898 1899

1900 1901 1902

34,799 49,086 55,077

5 1,048 64,501 80,899

83,477 84,898 90,545

68 76 68

70

71

69

62

62,850 63,712 58,191

56,045 49,411 68,134

75 75 64

72 62 74

61 67 58

60 57 60

61 56 50

1903 1904 1905

17,827 80,027 90,990

1906 1907 1908

1909 1910 1911

1912

75,801 82,418 72,664

122,966 123,28 1 124,986

78,081 82,936 92,994

129,303 145,810 153,945

59

56

65

69

67

180,724 175,645 188,238

133,176 119,142 203,425

169.71 5

110,673 97,953 95,729

96,493 83,517

110,661

-~ ._

1913 1914

1918-19 19 19-20 1920-21

72 70 54

1921-22 1922-23 1923-24

121,271 164,604 161,562

71 72 65

61 73 67

5 1

227:183 247,598

1924-25 1925-26 1926-27

1927-28 1928-29 1929-30

1930-3 1

122,878 139,186 155,247

201,440 190,505 230,914

116,931 99,309 85,400

23,550 26,137 48,826

204,277 182,981 162,676

- .

54 52

54

57

59

52

45,700 45,682 77,703

120,657 152,593 195,680

52 57 63

_._. ..

1931-32 1932-33

1933-34 1934-35 1935-36

67,145 93,109

114,689

56 61 59

1936-37 1937-38 1938-39

102,651 100,969 94,879

183,727 190,666 197,245

56 53 48

Sources: Statistical Register, Production; Victorian Year Books and Table I.

an index of melbourne building activity 1896–1939

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