andy baldwin - alice nakamura - marc prud’homme prices division - statistics canada
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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 - PowerPoint PPT PresentationTRANSCRIPT
Empirical estimates of the various approaches
to measuring the cost of “owner-occupied”
shelter in 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
Computational and technical
assistance:
Serra Erdur
Wendy Li
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
Shelter in the CPIShelter in the CPI ILO/UNECE 2010ILO/UNECE 2010 22
IntroductionIntroduction
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
Introduction Approaches Components Results Conclusion
Shelter in the CPIShelter in the CPI ILO/UNECE 2010ILO/UNECE 2010 33
IntroductionIntroduction
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)
Introduction Approaches Components Results Conclusion
Shelter in the CPIShelter in the CPI ILO/UNECE 2010ILO/UNECE 2010 44
The approaches: descriptionThe 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.
Introduction Approaches Components Results Conclusion
Shelter in the CPIShelter in the CPI ILO/UNECE 2010ILO/UNECE 2010 55
The approaches: descriptionThe 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.
Introduction Approaches Components Results Conclusion
Shelter in the CPIShelter in the CPI ILO/UNECE 2010ILO/UNECE 2010 66
The approaches: descriptionThe 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
Introduction Approaches Components Results Conclusion
Shelter in the CPIShelter in the CPI ILO/UNECE 2010ILO/UNECE 2010 77
The approaches: descriptionThe 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.
Introduction Approaches Components Results Conclusion
Shelter in the CPIShelter in the CPI ILO/UNECE 2010ILO/UNECE 2010 88
The approaches: descriptionThe 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.
Introduction Approaches Components Results Conclusion
Shelter in the CPIShelter in the CPI ILO/UNECE 2010ILO/UNECE 2010 99
Table 1. The various components and their weights in % of owned accommodation, 2001 basket.Table 1. The various components and their weights in % of owned accommodation, 2001 basket.
Commodity group OFFICIAL RE MONEY OUTLAYS NET PURCHASEEXCLUDING
EQUITY PAYMENT
INCLUDING EQUITY
PAYMENT
PURCHASES DOWNPAYMENTS AND MORTGAGE PAYMENTS
Homeowners’ maintenance and repairs 9.6 6.0 11.9 9.8 11.8 11.6Condo charges 2.0 2.5 2.1 2.5 2.5Property taxes 20.9 26.0 21.4 25.6 25.2Insurance premiums 5.1 3.3 6.4 5.3 6.3 6.2Mortgage insurance 1.2 1.5 1.2Mortgage interest charges 36.7 45.6 37.7 1.4Replacement cost 19.5Real estate commissions 2.7 3.4 2.8 3.3 3.3Legal fees 0.9 1.1 0.9 1.1 1.1Other shelter services 1.4 1.7 1.4 1.7 1.6Equivalent rent 90.
7Down payments (NP2) 15.2Home purchase (NP1) 47.8Discounted Mortgage payments 31.9Net equity = Down payment + principal share of payment - sale of house 17.4
Introduction Approaches Components Results Conclusion
Shelter in the CPIShelter in the CPI ILO/UNECE 2010ILO/UNECE 2010 1010
Table 2. Owned accommodation’s share by homeownership concept by %, 2001 basket.* Table 2. Owned accommodation’s share by homeownership concept by %, 2001 basket.*
Introduction Approaches Components Results Conclusion
Commo-dity grouping
Official Rental
equiva-lence
Money outlays Net purchase
No equity pmt
With equity pmt
PurchasesDown
pmt and mgt pmt
Shelter 58.6 66.2 53.2 58.0 53.6 54.0
All-items
15.3 19.9 12.6 14.9 12.8 13.0
Shelter in the CPIShelter in the CPI ILO/UNECE 2010ILO/UNECE 2010 1111
ResultsResults
Price Index Series for Owned Accommodation (January 2000 = 100)Price Index Series for Owned Accommodation (January 2000 = 100)
Introduction Approaches Components Results Conclusion
Shelter in the CPIShelter in the CPI ILO/UNECE 2010ILO/UNECE 2010 1212
ResultsResults
Price Index Series for Shelter using NHPI (January 2000 = 100)
Introduction Approaches Components Results Conclusion
Shelter in the CPIShelter in the CPI ILO/UNECE 2010ILO/UNECE 2010 1313
ResultsResults
Price Index Series for All items using NHPI (January 2000 = 100)
Introduction Approaches Components Results Conclusion
Shelter in the CPIShelter in the CPI ILO/UNECE 2010ILO/UNECE 2010 1414
Table 3. Overall growth rates (%) for the various measures of homeownership. Period: January 2000 to May 2006. Table 3. Overall growth rates (%) for the various measures of homeownership. Period: January 2000 to May 2006.
Introduction Approaches Components Results Conclusion
Owned accommodation
Shelter All-items
Official 20.2 20.8 17.1
Rental equivalence
10.9 15.3 15.7
Money outlays 1 16.1 18.4 16.5
Money outlays 2 8.7 14.0 15.4
Net purchases 1 30.0 26.6 18.6
Net purchases 2 23.3 22.7 17.6
Shelter in the CPIShelter in the CPI ILO/UNECE 2010ILO/UNECE 2010 1515
Table 4. Annual growth rates (%) for the various measures of homeownership. Period: January 2000 to May 2006. Table 4. Annual growth rates (%) for the various measures of homeownership. Period: January 2000 to May 2006.
Owned accommodation
Shelter All-items
Official 2.24 2.89 1.91
Rental equivalence 1.43 1.82 1.79
Money outlays (1) 1.77 2.0 1.84
Money outlays (2) 1.03 1.58 1.73
Net purchase (1) 3.30 2.92 2.08
Net purchase (2) 2.31 2.34 1.93
Introduction Approaches Components Results Conclusion
Shelter in the CPIShelter in the CPI ILO/UNECE 2010ILO/UNECE 2010 1616
The NHPI
Concluding remarksConcluding remarksIntroduction Approaches Components Results Conclusion
Shelter in the CPIShelter in the CPI ILO/UNECE 2010ILO/UNECE 2010 1717
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.
Concluding remarksConcluding remarksIntroduction Approaches Components Results Conclusion
Shelter in the CPIShelter in the CPI ILO/UNECE 2010ILO/UNECE 2010 1818
The end