FORECASTING THE INDICE DU CO€T DE LA CONSTRUCTION (ICC)

Vanessa Muscarà

ERES from European Real Estate Society (ERES)

Abstract: The ICC, a quarterly indicator to which rents in France are annually indexed, led to significant rental growth in 2006; Q3 saw the index increase by 8.1% y-o-y. Since its inception (1954), the quarterly index has on average, grown by 5.4% y-o-y, reflecting a standard deviation of 4.3%. Given the impact on investment returns, we set out to forecast the index up to 2011. However, the French national statistics office (INSEE), was unable to provide us with a breakdown of its constituents; the method of calculation is partly subjective, consisting in comparing the construction cost of a residential building under construction with a notional building in the preceding reference period. Consequently, we set out to identify appropriate independent variables. A simple correlations exercise concluded that movements in the ICC were not explained by macroeconomic growth indicators (e.g. French GDP). As the name suggests (Construction Cost Index), variations in the index are likely to be influenced by movements in raw materials. Based on oil prices, our preferred model suggests that the ICC will on average experience a 2.5% y-o-y growth rate over the forecasting period. This model passed all the diagnostic tests and was used to derive the forecasts presented in our study. Ironically, the ICC was replaced by the 'ILC' index (Indice Locatif des Commerces) for retail property in 2008. The index is composed of 50% CPI + 25% ICC + 25% Retail Sales Index. In February, the ILC recorded a 2.41% increase, well below the ICC long term average.

JEL-codes: R3 (search for similar items in EconPapers)
Date: 2008-01-01
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