Owner-occupied housing costs and the consumer price index

Steven Bourassa

New Zealand Economic Papers, 1998, vol. 32, issue 1, 71-82

Abstract: The cost of owner-occupied housing is a difficult and controversial component of the consumer price index. The methods used to measure these costs in New Zealand violate basic principles: the items sampled are not constant-quality and the costs are not per period. Moreover, the weight given to mortgage interest rates is inappropriate given the low average loan-to-value ratio in New Zealand, which implies that the after tax return on alternative investments is the most important rate. The theoretically correct user cost is examined as an alternative to the current method, but rejected due to measurement problems. In contrast, the rental equivalence method is both theoretically sound and administratively feasible.

Date: 1998
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DOI: 10.1080/00779959809544283

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