Use of rental equivalence method in CPI

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

2. Housing in the CPI – weights (%)

3. 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

4. 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

5. 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

6. 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?

7. 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

8. Rental market in Norway, cont.

9. 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

10. 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

11. 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

12. 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

13. 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