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Andy Baldwin - Alice Nakamura - Marc Prud’Homme Prices Division - Statistics Canada

Empirical estimates of the various approaches to measuring the cost of “owner-occupied” shelter in Canada. Andy Baldwin - Alice Nakamura - Marc Prud’Homme Prices Division - Statistics Canada and the University of Alberta Presented at the ILO/UNECE conference on CPIs, May 2010

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Andy Baldwin - Alice Nakamura - Marc Prud’Homme Prices Division - Statistics Canada

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  1. Empirical estimates of the various approaches to measuring the cost of “owner-occupied” shelter in Canada Andy Baldwin - Alice Nakamura - Marc Prud’Homme Prices Division - Statistics Canada and the University of Alberta Presented at the ILO/UNECE conference on CPIs, May 2010 Computational and technical assistance: Serra Erdur Wendy Li

  2. Introduction • Why ? • Different indexes for different purposes • Escalator of wages • Nominal incomes to real income series • Deflator for expenditure series • Indicator of inflation • International comparisons • Shelter is an important expenditure • Shelter = 27% • Owned accommodation = 16% • Sensitivity of the CPI to the approach used ILO/UNECE 2010

  3. Introduction • Six various measures are presented based on four different concepts • Statistics Canada’s Official Concept (user cost) • Rental equivalence • Money outlays (payments approach) • Net purchases (acquisitions approach) ILO/UNECE 2010

  4. The approaches: description • Official concept • Definition: Measures the price induced changes associated with the cost of owning and using a given stock of owner-occupied dwellings. Includes actual and imputed costs. • Advantages: • Robust because it relates to a fixed stock of dwellings. • Covers elements similar to those that a landlord factors in when fixing rents. ILO/UNECE 2010

  5. The approaches: description • Rental equivalence • Definition: Imputes changes of market rents to the population of homeowners. • Advantages: • Consistent with the national accounts. • Isolates the consumption flow of owner-occupied housing from the savings flow. ILO/UNECE 2010

  6. The approaches: description • Money outlays (payments approach) • Definition: Measures price induced changes associated with the consumption related payments of owner-occupied housing. • MO 1: Excluding equity payment • MO 2: Including equity payment • Advantages: • Reflects actual costs to homeowners for their shelter. No imputation or notional amounts are involved. • Most of the population would identify their own home ownership experiences with this concept. • Escalator of money incomes ILO/UNECE 2010

  7. The approaches: description • Net purchases (acquisitions approach) • Definition: Measures changes in market (transaction) prices for owned accommodation (with or without mortgage interest charges). • = purchases of new and existing owner-occupied dwellings minus sales of such dwellings • “Net” purchases of existing dwellings is insignificant therefore net purchases = new purchases. • NP 1: Based on purchases • NP 2: Based on down payments and discounted mortgage payments (Alan Blinder, 1980) • Advantages: • Preferred measure for monitoring inflation and for monetary policy. ILO/UNECE 2010

  8. The approaches: description • No owned accommodation • (Not computed in this version) • Definition: Simply exclude homeownership from the CPI. Housing is an purely a financial asset. • Advantages: • Easy solution and compatible with the current HICP and other country practices. ILO/UNECE 2010

  9. Table 1. The various components and their weights in % of owned accommodation, 2001 basket. ILO/UNECE 2010

  10. Table 2. Owned accommodation’s share by homeownership concept by %, 2001 basket.* ILO/UNECE 2010

  11. Results Price Index Series for Owned Accommodation (January 2000 = 100) ILO/UNECE 2010

  12. Results Price Index Series for Shelter using NHPI (January 2000 = 100) ILO/UNECE 2010

  13. Results Price Index Series for All items using NHPI (January 2000 = 100) ILO/UNECE 2010

  14. Table 3. Overall growth rates (%) for the various measures of homeownership. Period: January 2000 to May 2006. ILO/UNECE 2010

  15. Table 4. Annual growth rates (%) for the various measures of homeownership. Period: January 2000 to May 2006. ILO/UNECE 2010

  16. Concluding remarks • The NHPI ILO/UNECE 2010

  17. Concluding remarks • The CPI is sensitive to the homeownership approach used • No single generally acceptable concept but there is one depending on what you want your CPI to be. • Data availability drives the possibility of producing these series. • Dwelling prices are volatile and so is an index that includes the current value of a dwelling. ILO/UNECE 2010

  18. The end ILO/UNECE 2010

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