QUANTITY AND PRICE INDEXES FOR CONSTRUCTION

C. M. Jones, G. J. Garston and A. E. Ansmits

Review of Income and Wealth, 1978, vol. 24, issue 3, 257-278

Abstract: Construction has traditionally constituted one of the problem areas in the preparation of industry price and quantity statistm with in the system of national accounts of most countries. The difficulty stems from what is considered to be the unique character of construction projects. This has unnecessarily impeded the calculation of output price indexes and has resulted in the use of various input‐based prices as proxies for output prices. One of the objectives of the development of the system of construction price statistics described in this paper is to permit deflation of the outputs of construction industries in order to produce industry output data in constant prices in a manner consistent with measures for the rest of the economy. This is a more promising approach to improving constant price industry and expenditure measures within the SNA framework than attempting such improvements through the collection of a vast array of quantity data. Construction industries sell specified configurations of materials‐in‐place which are, to borrow the jargon of other fields, sub‐assemblies of some total system. As in other areas of industrial pricing, some of these products are simple and some are complex. Trade contractors sell these sub‐assemblies or commodities mainly to an owner‐builder or to a general contractor who, in turn, resells the trade contractors’ commodities along with whatever sub‐assemblies the general contractor has produced. These sub‐assemblies, when combined with, for example, the relevant outputs (or sub‐assemblies) of manufacturers, the design services of service industries and the purchasers’ own contributions, yield the wide variety of plant and structures which constitute the various classes of gross fixed capital formation, which are not typically solely the outputs of the construction industries. The resulting contractors’ selling price indexes will provide deflators for the whole range of outputs of the various construction industries. These will become part of the system of industry selling price indexes from which relevant indexes for the various goods and services can be selected and combined with appropriate weights to yield arrays of deflators for the highly complex capital expenditures of business, institutions and government. Ultimately this integrated system of construction industry statistics will permit the preparation of gross output and value added measures, in both current and constant prices, to be calculated for the construction industries as an integral part of the Canadian System of National Accounts, as well as provide a key element for improving the deflation of fixed capital formation.

Date: 1978
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