Measurement of construction output Christian Gysting, Lars Gustafsson Statistics Denmark

Contents Background Current sources and methods New sources Impact of applying new sources Statistical documentation covering PPI for construction will be available in December 2017. Perhaps a more in-depth technical documenataion will be written later as a supplement.

Background Report (2013) from The Danish Productivity Commission; The national accounts figures does not give a true picture of the development of the productivity in the construction industry. Statistics Denmark – in consultation with major stakeholders – decides to improve the calculations. Report (2010) produced in collaboration with the Danish Industry and Construction Authority gives description on how calculations can be improved.

Output by products, 2013. Mill. DKK. Percentage Dwellings 55.297 27,0% New construction 15.406 7,5% Capital repair 28.329 13,8% Current repair 11.563 5,6% Non-residential buildings 58.324 28,5% 30.123 14,7% 10.267 5,0% 17.934 8,8% Other structures 50.991 24,9% New structures/Capital repair 38.738 18,9% 12.253 6,0% Supplements (Own-account production) 40.267 19,7% Total output, Construction industry 204.880 100,0%

Current sources and methods Estimation methods for the construction industry at current prices: Output: Each product is compiled separately Total output is equal to sum of products Value added: SBS used as source Intermediate consumption: Estimated as a residual

Current sources - output by products (I) Construction of new dwellings and private non-residential buildings: Price multiplied with quantity method: Number of square meters x price per square meter. Quantities from the Danish register on buildings (BBR) Prices from a benchmark and taking forward by construction cost index SBS data on investment in non-residential buildings

Current sources - output by products (II) Current and capital repair Price multiplied with quantity method: Number of employees x turnover per employee Quantities from Employment in the construction industry (by kind) Prices from a benchmark and taking forward by construction cost index Separation of current and capital repair by using information from cost surveys / HBS

Current sources - output by products (III) Gross fixed capital formation for non-residential buildings and other structures Sources: SBS and government statistics Additional information on export, import and VAT used for compiling output Own account repair and maintain Source: Household budget survey (HBS) Item also includes addition for black economy activity

Current sources – constant prices Constant price figures derived by the use of 2 kind of cost indices: Construction cost index for residential buildings Construction cost index for civil engineering projects Cost indices (only) measure changes in wages and intermediate inputs

Current sources and method - disadvantages Cost indices: Does not cover impact of changes in margins or productivity Quantity variables (Square meters or employment by kind): Does not cover impact of quality or productivity changes

New sources 3 new sources will be available for the construction industry: Turnover by products (business statistic). Extent of subcontracts within the construction industry (business statistic). Producer price indices for construction, none of the above mentioned will be used as a source in the PPI for construction.

New sources: Turnover by products Decomposition of turnover by products: New construction (gross fixed capital formation) Dwellings Non-residential buildings Capital repair (gross fixed capital formation) Current repair (intermediate consumption) Other structures New structures (gross fixed capital formation) Other

New sources: Subcontracting Output for the construction industry is calculated excluding subcontracting Turnover by products include subcontracting – a correction is necessary Question added to the cost survey for the construction industry - will be used to identify the extent of subcontracting Scope in 2015 according to the cost survey: 56.571 mill. DKK

New sources: Producer price indices for construction The following price indices for construction will be developed, but not necessarily published: One family homes – Hedonic, based on reported characteristics for standard houses (will be published!) Apartment blocks – Model pricing, compilation outsourced Repair and maintenance – Model pricing (will be published!) Highways – Model pricing, compilation outsourced Price data is sent to DST quarterly from COWI – a Danish builder. Prices cover construction of standard apartment block components. Not all areas can be covered by hedonics because of too few observations are available from builders. DK is a small country. Instead model pricing is used.

New sources – impact The first results for 2015 for the construction industry shows lower level of production and a lower real growth rate But the first results must be interpreted with caution: The year 2015 is the first year with new survey The year 2015 is still a provisional year Further research needed to investigate discrepancies

Impact – output by products 2015, Mill. DKK Current NA New sources Difference Dwellings 64.445 66.401 1.956 New construction 18.929 35.637 16.709 Capital repair 32.847 14.099 -18.748 Current repair 12.669 16.664 3.995 Non-residential buildings 63.012 49.747 -13.265 30.724 22.640 -8.083 12.638 16.153 3.516 19.650 10.953 -8.697 Current method

Impact – output by products 2015, Mill. DKK Current NA New sources Difference Other structures 50.089 42.784 -7.305 New structures/Capital repair 37.558 34.217 -3.341 Current repair 12.531 8.566 -3.964 Other 10.641 Current method

Impact – output by products 2015, Mill. DKK., Current NA New sources Difference Dwellings 64.445 66.401 1.956 Non-residential buildings 63.012 49.747 -13.265 Other structures 50.089 42.784 -7.305 Other 10.641 Supplements 41.992 Total output 219.538 211.565 -7.973

Impact – real growth rates Period Current NA New sources Total output for Construction industry, real growth rates 2015 3,8% 2,9% Current method