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Accounting for Housing in a CPI

  • Diewert, Erwin
  • Nakamura, Alice O.

Statistical agencies in different nations usually use the rental equivalence approach to the treatment of housing in their CPIs but a few countries use the user cost approach. The paper argues that an opportunity cost approach is the correct theoretical framework for accounting for OOH in a CPI. This approach, first mentioned in a 2006 OECD paper by Diewert, is developed more fully here. We explore the relationship of this new approach to the usual rental equivalency and user cost approaches. The new approach leads to an Owner Occupied Housing Opportunity Cost (OOHOC) index that is a weighted average of the rental and the financial opportunity costs.

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Paper provided by Vancouver School of Economics in its series Economics working papers with number erwin_diewert-2009-19.

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Length: 33 pages
Date of creation: 05 Mar 2009
Date of revision: 12 Mar 2009
Handle: RePEc:ubc:bricol:erwin_diewert-2009-19
Contact details of provider: Web page: http://www.economics.ubc.ca/

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  1. Theodore M. Crone & Leonard I. Nakamura & Richard P. Voith, 2004. "Hedonic estimates of the cost of housing services: rental and owner-occupied units," Working Papers 04-22, Federal Reserve Bank of Philadelphia.
  2. Diewert, Erwin, 2002. "Harmonized indexes of consumer prices: their conceptual foundations," Working Paper Series 0130, European Central Bank.
  3. Dennis R. Capozza & Paul J. Seguin, 1995. "Expectations, Efficiency, and Euphoria in the Housing Market," NBER Working Papers 5179, National Bureau of Economic Research, Inc.
  4. Bert M. Balk & W. Erwin Diewert & Alice O. Nakamura, 2009. "Introduction to price and productivity measurement for housing," Working Papers 09-5, Federal Reserve Bank of Philadelphia.
  5. Carol Corrado & Charles Hulten & Daniel Sichel, 2004. "Measuring capital and technology: an expanded framework," Finance and Economics Discussion Series 2004-65, Board of Governors of the Federal Reserve System (U.S.).
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  7. Bajari, Patrick & Benkard, C. Lanier & Krainer, John, 2004. "House Prices and Consumer Welfare," Research Papers 1840, Stanford University, Graduate School of Business.
  8. Arturo Estrella, 2002. "Securitization and the efficacy of monetary policy," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 243-255.
  9. Theodore Crone & Leonard I. Nakamura & Richard Voith, 2008. "Rents have been rising, not falling, in the postwar period," Working Papers 08-28, Federal Reserve Bank of Philadelphia.
  10. Shiller, Robert J., 2007. "Understanding Recent Trends in House Prices and Home Ownership," Working Papers 28, Yale University, Department of Economics.
  11. Diewert, W E, 1974. "Intertemporal Consumer Theory and the Demand for Durables," Econometrica, Econometric Society, vol. 42(3), pages 497-516, May.
  12. Andrew Bauer & Nicholas Haltom & William Peterman, 2004. "Examining contributions to core consumer inflation measures," FRB Atlanta Working Paper No. 2004-7, Federal Reserve Bank of Atlanta.
  13. Hoffmann, Johannes & Kurz-Kim, Jeong-Ryeol, 2006. "Consumer price adjustment under the microscope: Germany in a period of low inflation," Working Paper Series 0652, European Central Bank.
  14. Randal Verbrugge, 2009. "The Puzzling Divergence of Rents and User Costs, 1980-2004," Working Papers 422, U.S. Bureau of Labor Statistics.
  15. Christensen, Laurits R & Jorgenson, Dale W, 1969. "The Measurement of U.S. Real Capital Input, 1929-1967," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 15(4), pages 293-320, December.
  16. Dougherty, Ann & Van Order, Robert, 1982. "Inflation, Housing Costs, and the Consumer Price Index," American Economic Review, American Economic Association, vol. 72(1), pages 154-64, March.
  17. Robert J. Hill & T. Peter Hill, 2003. "Expectations, Capital Gains, and Income," Economic Inquiry, Western Economic Association International, vol. 41(4), pages 607-619, October.
  18. David Genesove, 1999. "The Nominal Rigidity of Apartment Rents," NBER Working Papers 7137, National Bureau of Economic Research, Inc.
  19. Dale Jorgenson, 1967. "The Theory of Investment Behavior," NBER Chapters, in: Determinants of Investment Behavior, pages 129-175 National Bureau of Economic Research, Inc.
  20. Hulten, Charles R. & Wykoff, Frank C., 1981. "The estimation of economic depreciation using vintage asset prices : An application of the Box-Cox power transformation," Journal of Econometrics, Elsevier, vol. 15(3), pages 367-396, April.
  21. Katz, Arnold J, 1983. "Valuing the Services of Consumer Durables," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 29(4), pages 405-27, December.
  22. Hulten, Charles R & Wykoff, Frank C, 1996. "Issues in the Measurement of Economic Depreciation: Introductory Remarks," Economic Inquiry, Western Economic Association International, vol. 34(1), pages 10-23, January.
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