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Jennifer Ribarsky, OECD

Agenda Item 5.1 Distinction between volumes and prices when the value of land changes AEG Meeting Washington DC, 8-10 September 2014. Jennifer Ribarsky, OECD. Request for written consultation. Requested by the joint Eurostat-OECD Taskforce on Land and other Non-financial assets

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Jennifer Ribarsky, OECD

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  1. Agenda Item 5.1 Distinction between volumes and prices when the value of land changes AEG Meeting Washington DC, 8-10 September 2014 Jennifer Ribarsky, OECD

  2. Request for written consultation • Requested by the joint Eurostat-OECD Taskforce on Land and other Non-financial assets • The value of land on the balance sheet changes due to changes in the surrounding amenities… • AEG to provide conceptual guidance on whether this change is recorded as an other change in volume (OCVA) or as a revaluation

  3. The issue… • SNA in general treats differences in quality as differences in volume • Value of land is determined by the economic use, location, and size of plot • … but also by surrounding amenities (such as parks, high quality schools, and access to public transportation)

  4. What does the SNA say about economic use? • Paragraph 12.23 • Different qualities are economically different from each other. Same principal applies to assets • Changes in economic use are quality changes and are shown as changes in classification (in OCVA) • Increase in the value of the asset due to changes in economic use are treated as additional amounts of the asset (recorded in OCVA) • For example, the reclassification of cultivated land to land underlying buildings … the change in quality of the asset due to changes in its economic use is regarded as the appearance of additional amounts of the asset.

  5. What else does the SNA say? • Paragraph 12.21 • Not all land in the geographic surface area of a country is necessarily within the asset boundary of the SNA • Land may acquire value because of activity in the vicinity • For example, land becomes more desirable because a new development is established nearby or the creation of an access road… any increase [in the value of the land] due to adjacent capital activity is recorded as economic appearance

  6. Outcome of consultation • 5 out of 9 responses to record “changes in the value of land that are due to changes in the surrounding amenities of the land” as holding gains (revaluations) and not as volume changes • Many of the arguments against treating as volume changes were more of a practical nature

  7. AEG arguments for recording as OCVA • The price of land is not only determined by the economic use, location, size, but also by surrounding amenities which, therefore, should be considered quality elements • When these surrounding amenities change the adjacent land changes simultaneously. These externalities generate an increase (or decrease) in volume of the stock of land (reference was made to 12.21 in support)

  8. AEG arguments for recording as revaluation • Changes in surrounding amenities is too broad and that OCVA should be restricted to rare cases such as when land enters the SNA production boundary • Difficult in practice to identify amenities, and there would be a risk that the amenities would not be comprehensive or objectively selected • In economic literature, adjustment for amenities is not without controversy • The treatment of amenities as revaluation was consistent with similar treatments in national accounts, such as the effects of spillovers from R&D.

  9. AEG opinion • To record changes in the value of land that are due to changes in the surrounding amenities of the land as revaluations • Because no clear cut majority in favour or against the above opinion … • allow for the recording of incidental and exceptionally large changes in the value of land due to changes in the surrounding amenities can be looked upon as changes in quality and thus be recorded as other changes in volume.

  10. Questions for the AEG • Does the AEG agree that, • From a purely conceptual point of view, changes in the value of land due to changes in the surrounding amenities of the land are to be recorded as volume changes? • In practice, these changes may not be identifiable, and thus end up in revaluations? • If in practice a country can identify incidental and exceptionally large changes in the value of land due to changes in surrounding amenities then this change can be looked upon as a change in quality and thus be recorded as other changes in volume?

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