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Owner-occupied Housing in the New Zealand Consumers Price Index
EMG Conference 13 – 15 December 2006
Daniel GriffithsStatistics New Zealand
What we will cover• Background to house prices• Recent initiatives• Current house price measures• Conceptual approaches to owner-occupied housing in
a CPI• New Zealand treatment of owner-occupied housing• National Accounts framework for owner-occupied
housing• A unifying framework – Real Disposable Income
measures(?)
Introduction
EMG Conference 13 – 15 December 2006
Why house prices?
Owner-occupied housing:
• Housing as a consumption good
• Housing as an investment
• Composite of consumption and investment
House Prices
EMG Conference 13 – 15 December 2006
Reserve Bank of New Zealand workshop:
“Housing, Savings, and the Household Balance Sheet”
• Investigation into Saving v Savings
• Household wealth and asset prices
Recent work in New Zealand
EMG Conference 13 – 15 December 2006
SD = IT + INT – CFK – ΔB – CT
The Saving Identity
EMG Conference 13 – 15 December 2006
What is currently available
• Quotable Value New Zealand
• Real Estate Institute of New Zealand
• Statistics New Zealand – Consumers Price Index
What do users want in a house price measure?
Current House Price Measures
EMG Conference 13 – 15 December 2006
What is currently produced:
• Average sale price
• Quarterly House Price Index
• Although, some issues with the measures...
Quotable Value New Zealand
EMG Conference 13 – 15 December 2006
What is currently produced:
• Median sale price for houses and sections
• Median days to sell
• Sales volumes
• Regional breakdowns
Real Estate Institute of New Zealand
EMG Conference 13 – 15 December 2006
Three main conceptual approaches to the measurement of owner-occupied housing in a Consumers Price Index
• Uses
• Payments
• Acquisitions
Conceptual approaches to CPIs
EMG Conference 13 – 15 December 2006
Best suited as a measure of:
Cost of Living
• Measured via the 'user cost' or 'rental equivalence' methods
Uses
EMG Conference 13 – 15 December 2006
Measure the flow of services from housing
• Cost of shelter consumed by households
• Reduces to nominal interest rates and depreciation
• Also, appreciation (although, negative user cost?!)
• However, often seen as a 'notional' measure
User Cost method
EMG Conference 13 – 15 December 2006
Imputes the value of the flow of services via the market rental price for housing:
• Owner-occupiers as unincorporated dwellings(cf National Accounts treatment)
• Estimated rental of the owner-occupied dwelling
• However, can be difficulties with govt intervention; • composition of rental + owner-occupied housing
Rental Equivalence method
EMG Conference 13 – 15 December 2006
Best suited as a measure of:
Changes in purchasing power
• Appropriate for income adjustment
• Measures actual monetary outlays on consumer goods and services
• Owner-occupied housing is actual payments
Payments
EMG Conference 13 – 15 December 2006
Can be estimated two ways:
• Simple revaluation method
• Debt profile method
Treatment of Mortgage Interest
EMG Conference 13 – 15 December 2006
Estimates:
movement in house prices
compounded with movements in interest rates
Simple revaluation method
EMG Conference 13 – 15 December 2006
Estimates:
Opportunity cost of deferring purchase of dwelling an additional year
Quality is seen as the ability of the loan to service the purchase of the same quality of housing as in the base period (rather, profile of mortgages as exists in the base period.)
Debt Profile method
EMG Conference 13 – 15 December 2006
Best suited as a measure of:
Consumer Inflation
• Acquisition of consumer goods and services in the base period
• Used by the RBNZ in monetary policy setting
• Owner-occupied housing – net additions to the housing stock, within sector 'nets out'
Acquisitions
EMG Conference 13 – 15 December 2006
Purchase of New Housing
• Constant quality price index
• the acquisitions approach
• Sample and price indicator design
CPI produced by Statistics NZ
EMG Conference 13 – 15 December 2006
Treatment of owner-occupied dwellings•Owner-occupiers as unincorporated ent.
Household Income and Outlay Account•Gross output from owner-occupying
•Rental equivalence
National Accounts Framework
EMG Conference 13 – 15 December 2006
Real disposable income measure:
Some measure of income
Some measure of expenditure
Previously published by Statistics NZ
Real Disposable Income measures
EMG Conference 13 – 15 December 2006
• Real Disposable Income Index (RDI)
• Real Wage Rate Index RWRI
• Discontinued because:•population coverage•Definition of income•Use of LCI•Use of CPI•Misuse and misunderstanding
Previously published RDI
EMG Conference 13 – 15 December 2006
1997 Revision Advisory Committee to the CPI (RAC)•Removal of mortgage interest in headline CPI
1998 Advisory Committee on Economic Statistics
and 2004 RAC
Discussion of RDI measures
EMG Conference 13 – 15 December 2006
Household Income and Outlay Account with a choice of CPI (uses approach for consistency?)
or
Model of Consumer Utility
Possible frameworks
EMG Conference 13 – 15 December 2006
• Require greater coherence in user needs• Are existing house price index adequate?• What are the other emerging needs?• Real disposable income measure?• House prices and income measures
• Your comments...
Where to from here?
EMG Conference 13 – 15 December 2006
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