The basic underpinnings of economic theory are essential to understand how the construction sector works. However, although concepts such as demand and supply, which are a key part of standard economic theory, are necessary in order to view the construction sector, they are not sufficient on their own given the complexity of the industry.

An introduction to supply and demand and market competition helps to highlight the differences between construction and other sectors of the economy. A description of how markets actually operate in construction demonstrates a more realistic account of what can be observed in the building industry compared to a simple theoretical repetition of supply and demand, which nevertheless still contributes to an understanding of construction and property markets.

The laws of demand and supply can be used to illustrate how a market for any product operates. In this simplification or model of the world, there are only two groups of people: those on the supply side and those on the demand side. The first group are those willing and able to produce and sell a product or service. They organize production and sell the finished output. Organizing the production process means bringing together or combining the various elements that need to be used in the production process. This means bringing the factors of production or different types of resources together to manufacture or construct a building or structure. The factors of production consist of four categories. They are land, labour, capital and enterprise, although many people have argued that there are only three factors of production, namely land, capital and labour, and some have even argued that there are only two factors of production, land and capital. Land, as a factor of production, includes the location where production takes place and the mineral resources under the surface. The construction industry is unusual when compared with most industries in that contractors do not usually own or rent the location of the site where their work takes place, except for their head offices. It is the developer who purchases the site and hires the contractor to build for them. The return to land as a factor of production is rent.