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Price indexes for the construction industry

This article provides an overview of the indexes we use to measure price change in the construction industry.

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Construction price indexes – definitions

Stats NZ measures price change in the construction industry using the following price indexes.

Producers price index (PPI) – construction input index measures changes in prices paid by producers in this industry for inputs such as raw materials, fuel, and services. It excludes labour and capital costs paid by these businesses.

PPI construction output index measures changes in prices received by producers in this industry for the outputs they produce. It includes both new construction and the cost of ongoing maintenance and services.

Capital goods price index (CGPI) measures changes in prices of new physical assets. For the construction industry, these physical assets include residential and non-residential buildings, and infrastructure-related construction such as roads and pipelines. It excludes the cost of ongoing maintenance and services. This exclusion is the key difference between the PPI construction output index and CGPI for construction asset types.

Consumers price index (CPI) – purchase of new housing index measures the change in price of buying a newly built house, excluding the land the house is built on.

In the CPI, we don’t include the cost of existing housing because the purpose of the CPI is to measure change for New Zealand households as a whole. This means that transactions between households (e.g. existing housing) do not count towards the overall change, as there is no net gain of product to New Zealand households. The CPI is a consumption index and housing is generally not seen as ‘consumed’.

See purchase of housing and rentals in the CPI for more information on CPI house prices.

Labour cost index (LCI) – construction index measures changes in the wage rates employers in the construction industry pay to have the same job to the same standard.

Summary table of construction price indexes

The table below shows the price indexes for construction.  

 Price indexes for construction
 PPI input indexes  PPIQ.SQNEE0000 Construction
   PPIQ.SQNEE1100 Building construction
   PPIQ.SQNEE1200 Heavy and civil engineering construction
   PPIQ.SQNEE1300 Construction services
 PPI output indexes  PPIQ.SQUEE0000 Construction
   PPIQ.SQUEE1100 Building construction
   PPIQ.SQUEE1200 Heavy and civil engineering construction
   PPIQ.SQUEE1300 Construction services
 CGPI  CEPQ.S2GA Residential buildings
   CEPQ.S2GB Non-residential building
   CEPQ.S2GC Civil construction
 CPI home ownership  CPIQ.SE904201 Purchase of housing
 LCI  LCIQ.SG53E9 Construction

 

Data sources

We use the following data sources to compile the price indexes that measure price change in the construction industry.

PPI and CGPI

For the PPI and CGPI we use these data sources: 

  • survey prices collected from businesses within the construction industry
  • model prices for apartments and non-residential buildings
  • model prices for civil construction (mainly covering roads and bridge construction)
  • new house prices (excluding land value).

Model prices are hypothetical prices designed to represent the price of producing a typical building, road, or bridge. We use model prices so that we can compare prices over time, for producing the same quality of building or structure.

For example, a model price for constructing a typical office block includes prices for all the input costs required to build the office, such as concrete work, plumbing, electrical work, raw materials, labour, and other service costs. It also includes the contractors’ margin.

PPI and CPI 

We also use data on new house prices for the CPI. For new house prices used in the CPI and PPI, we survey the price of buying a newly constructed dwelling from builders that build standard-plan houses.

LCI

For LCI we use wage data collected from a survey of employers in the construction industry.

How construction price indexes are used

Inflation measure

These indexes measure the average price change across the construction industry, from a household, producer, and employer perspective.

Figure 1 shows a selection of these construction price indexes.

Figure 1

 

 

Note: CGPI all construction index is a combined weighted index of the CGPI residential buildings index, CGPI non-residential buildings index, and CGPI civil construction index.

Since June 2009, the CPI showed that prices paid by households for a new house (excluding land), rose 38 percent. By comparison, the PPI construction output index showed that prices received by producers in the construction industry rose 20 percent. Over the same period, wage rates paid by employers in the construction industry rose 18 percent.

Construction data in value of building work put in place

Some construction price indexes are used to deflate value data for calculating volume measures for the construction sector.

Value of Building Work Put in Place is a quarterly measure of construction activity using building consents issued as the frame of activity. The value of building work put in place is calculated from the quarterly building activity survey. It captures large value residential and non-residential construction projects, and models lower-value activity based on how construction values differ from consented values. The value of building work is then deflated by respective price indexes in the CGPI to give a measure of the volume of construction undertaken.

Building Consents Issued provides data for intended activity in the construction sector for both residential and non-residential buildings. Building consents data is supplied by all territorial authorities, and includes information on the location, consented value, building type, and floor area, for each construction job above $5,000. Building consent data is available on a regional, and territorial authority basis, and consent values are GST inclusive and not adjusted for inflation.

Construction lags behind when a consent is issued, so statistics on building consents issued are a good indicator of upcoming construction activity shown in the value of building work statistics.

Figure 2 shows the volume of building activity for residential, non-residential, and all buildings since the June1997 quarter. Overall, the volume of building activity for residential buildings been higher than non-residential building activity since 1997.

Figure 2 

29 September 2017: Figure 2 was originally published showing dollars in millions. We've corrected this to show billions.

Construction data in national accounts

Price indexes and value of building work put in place are used to calculate construction industry value added for the national accounts. The data is used in both the production-based and expenditure-based measures of gross domestic product (GDP).

The production-based measure of GDP calculates the final output of different industries. For the construction industry, PPI construction output indexes are used to deflate annual current price output, to remove the impact of price change. They include the PPI output indexes for building construction, heavy and civil engineering construction, and construction services.

The expenditure-based measure of GDP calculates the construction-related investment. It includes building work as well as transfer costs (such as real estate agent fees). The CGPI is used to deflate the value of current price data from the value of building work put in place for residential and non-residential construction. CGPI for civil construction is also used to deflate directly sourced data surveyed from construction companies.

In addition to value of building work put in place and price indexes data, national accounts also use other data sources such as the Annual Enterprise Survey, government data, and investment expenditure data.

See Gross Domestic Product: June 2017 quarter for more detailed information on national accounts data.

Links to more information about construction and housing

Trending topics – housing provides further perspective about building consents data, housing stock estimates, occupancy of homes, and the average number of people living in homes. 

Home construction – testing what we know provides information on housing construction based on experimental estimates.

Citation
Stats NZ (2017). Price indexes for the construction industry. Retrieved from www.stats.govt.nz.

ISBN 978-1-98-852834-2
Updated 29 September 2017

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