Use of rental equivalence method in CPI CPI workshop Istanbul, 10 – 13 October 2011

Housing in the CPI – weights (%)

Data in CPI for COICOP 04 Rental survey, monthly –Actual rentals –Imputed rentals - owner-occupied housing (OOH) Prices on materials for maintenance and of the dwelling, monthly Prices on services for maintenance of the dwelling, quarterly (wage statistics) Water and miscellaneous services to dwelling, yearly Energy, monthly

Why OOH is difficult Purchase of goods and services –CPI’s restricted to consumer goods and services acquired in monetary transactions –Purchase of dwellings – investment or consumption ? Housing is fixed capital – purchases of dwellings are excluded from household consumption Purchase of a dwelling – access to a service (shelter services) Household: a mix between consumption and investment

How to measure OOH? Cost-of living index –User cost –Rental equivalence –Payment Inflation index –Acquisition Choose of approach depends on the principal purpose of a CPI Preferred approach not always possible –Omission of OOH? –Harmonised consumer price index

Rental equivalence CPI in Norway is based on a cost-of-living concept, and not a inflation concept –Measure OOH by using rental equivalence Rental equivalence –The cost to owner-occupiers of using the dwelling –Follows the rentals of corresponding rental dwellings –Are rental dwellings corresponding to owner-occupied dwellings?

Rental market in Norway Population and housing census 2001: –23 % of the households is tenants –77 % of the households is owner-occupiers Young people dominates among tenant Short terms rental contracts dominates Rental- and the owner-occupied housing differs: –Owner-occupiers have larger dwellings –More single houses among owner-occupiers –Higher income –Tenants tends to live in the big cities

Rental market in Norway, cont.

Rental market survey Annual survey of rentals (level) Introduced in 2006 Around 7000 tenants  Relations between tenant and landlord  Location and quality of dwelling  Contractual relationship The sample of tenants is basis for a monthly rental survey (2500 tenants) Monthly rental survey – used in the CPI to measure both actual and imputed rents

Rental market survey - sampling procedures Annual rental market survey –Paper-and web questionnaire –Computer assisted telephone interview –Electronic data from municipalities and student organisations –The lack of a high quality register of tenants – a challenge Monthly survey on rent by computer assisted telephone interview –Tenants are changing their letting status during the year –Young people (tenants) – difficult to get in touch with

Rental market survey – users CPI –Indices for owner-occupiers and tenants, change of price NA –Indicator for housing consumption in both NA and QNA, change of price HES –Used as input for owner-occupiers in HBS, level of price –Regression model – log model Landlords to choose a rent level

Computation Weighted mean values Different weights for tenants and owner occupiers –Geographical areas and the size of the dwelling (number of rooms) –Un-weighted arithmetic mean value within each strata

Dissemination Actual and imputed rents in CPI –Index level – rental growth –National results, no disaggregation because of small sample Rental market survey (annual) –Average rents –Geographic areas, number of rooms, utility floor space, type of building, letting status, period of tenancy