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Daniel Griffiths Statistics New Zealand. Owner-occupied Housing in the New Zealand Consumers Price Index. EMG Conference 13 – 15 December 2006. Introduction. What we will cover Background to house prices Recent initiatives Current house price measures

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daniel griffiths statistics new zealand
Daniel Griffiths

Statistics New Zealand

Owner-occupied Housing in the New Zealand Consumers Price Index

EMG Conference 13 – 15 December 2006

introduction
Introduction

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(?)

EMG Conference 13 – 15 December 2006

house prices
House Prices

Why house prices?

Owner-occupied housing:

  • Housing as a consumption good
  • Housing as an investment
  • Composite of consumption and investment

EMG Conference 13 – 15 December 2006

recent work in new zealand
Recent work in New Zealand

Reserve Bank of New Zealand workshop:

“Housing, Savings, and the Household Balance Sheet”

  • Investigation into Saving v Savings
  • Household wealth and asset prices

EMG Conference 13 – 15 December 2006

the saving identity
The Saving Identity

SD = IT + INT – CFK – ΔB – CT

EMG Conference 13 – 15 December 2006

current house price measures
Current House Price Measures

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?

EMG Conference 13 – 15 December 2006

quotable value new zealand
Quotable Value New Zealand

What is currently produced:

  • Average sale price
  • Quarterly House Price Index
  • Although, some issues with the measures...

EMG Conference 13 – 15 December 2006

real estate institute of new zealand
Real Estate Institute of New Zealand

What is currently produced:

  • Median sale price for houses and sections
  • Median days to sell
  • Sales volumes
  • Regional breakdowns

EMG Conference 13 – 15 December 2006

conceptual approaches to cpis
Conceptual approaches to CPIs

Three main conceptual approaches to the measurement of owner-occupied housing in a Consumers Price Index

  • Uses
  • Payments
  • Acquisitions

EMG Conference 13 – 15 December 2006

slide10
Uses

Best suited as a measure of:

Cost of Living

  • Measured via the 'user cost' or 'rental equivalence' methods

EMG Conference 13 – 15 December 2006

user cost method
User Cost method

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

EMG Conference 13 – 15 December 2006

rental equivalence method
Rental Equivalence method

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

EMG Conference 13 – 15 December 2006

payments
Payments

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

EMG Conference 13 – 15 December 2006

treatment of mortgage interest
Treatment of Mortgage Interest

Can be estimated two ways:

  • Simple revaluation method
  • Debt profile method

EMG Conference 13 – 15 December 2006

simple revaluation method
Simple revaluation method

Estimates:

movement in house prices

compounded with movements in interest rates

EMG Conference 13 – 15 December 2006

debt profile method
Debt Profile method

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.)

EMG Conference 13 – 15 December 2006

acquisitions
Acquisitions

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'

EMG Conference 13 – 15 December 2006

cpi produced by statistics nz
CPI produced by Statistics NZ

Purchase of New Housing

  • Constant quality price index
  • the acquisitions approach
  • Sample and price indicator design

EMG Conference 13 – 15 December 2006

national accounts framework
National Accounts Framework

Treatment of owner-occupied dwellings

  • Owner-occupiers as unincorporated ent.

Household Income and Outlay Account

  • Gross output from owner-occupying
  • Rental equivalence

EMG Conference 13 – 15 December 2006

real disposable income measures
Real Disposable Income measures

Real disposable income measure:

Some measure of income

Some measure of expenditure

Previously published by Statistics NZ

EMG Conference 13 – 15 December 2006

previously published rdi
Previously published RDI
  • 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

EMG Conference 13 – 15 December 2006

discussion of rdi measures
Discussion of RDI measures

1997 Revision Advisory Committee to the CPI (RAC)

  • Removal of mortgage interest in headline CPI

1998 Advisory Committee on Economic Statistics

and 2004 RAC

EMG Conference 13 – 15 December 2006

possible frameworks
Possible frameworks

Household Income and Outlay Account with a choice of CPI (uses approach for consistency?)

or

Model of Consumer Utility

EMG Conference 13 – 15 December 2006

where to from here
Where to from here?
  • 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...

EMG Conference 13 – 15 December 2006