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4.3 Residential dwellings

The value-added associated with residential dwellings reflects the provision of housing services by the owners of housing to occupants regardless of whether the owner is also an occupant. In this regard, rental housing is clearly a market activity with expenditure on rents and output of services. Under SNA93, imputed rents of owner-occupied dwellings (OOD) are included in the National Accounts so that GDP is not affected by relative shifts in the size of the owner-occupied and rental housing sectors. The size of the output is relatively large, with housing services consumed by owner-occupiers in New Zealand comprising 8.7 percent of nominal GDP from 1990 to 2007. In Australia, housing services consumed by owner-occupiers and private renters made up 8.9 percent of nominal GDP over the same period (see table 1).

Figure 6 below uses each country's chosen methodology for the output of residential dwellings. Over the 1988 to 2008 period the reported expansions are over 100 percent and 25 percent for Australia and New Zealand respectively. Given that both countries experienced long housing booms during the 1998 to 2008 period and that rates of owner-occupation have not changed dramatically, the large difference in these growth rates suggests that differing measurement methodologies may be part of the explanation.

Figure 6 - Residential dwellings output volume index
Figure 6 - Residential dwellings output volume index.
Source: Statistics New Zealand and Australian Bureau of Statistics

The approaches are similar in many respects, although there are fundamental differences which appear to cause significantly different growth rates over time.

When calculating gross output, Statistics NZ uses the five-yearly census to benchmark dwelling numbers for owner-occupiers, and demography estimates are used to interpolate between census years. These totals are multiplied by an average rental price to calculate current price gross output. This average rental price is also benchmarked to the census. It is the volume indicator - essentially growth in census owner-occupied dwellings - which is of importance. The ABS approach is similar, in that the census is used as a benchmark. Interpolation between the five-yearly points is achieved by using movements in the productive capital stock of residential buildings owned by the household sector. While this interpolation technique is different to that of Statistics NZ, it is unlikely to create long-run divergences in growth rates between the two countries.

However, there are two fundamental differences in the approaches. Firstly, the ABS ‘ownership of dwellings' industry (represented in figure 6) in the National Accounts covers not only owner-occupied dwellings, but also private rental dwellings. In the New Zealand National Accounts, private rental dwellings are included within the property services industry. While this has an impact on the relative size of the ownership of dwellings industry in the two countries, the impact on growth rates is less obvious and not thought to be significant. In fact, in volume terms owner-occupied dwellings have grown at 3.7 percent annually in Australia from 1988-2008, while private rental dwellings have grown at 3.0 percent annually. Owner-occupied dwellings comprise approximately 75 percent of the aggregate.

Secondly, the Statistics NZ gross output volume measure is essentially the growth in the number of owner-occupied dwellings. There is no distinction between differences in the type or quality of the dwelling. The ABS approach also measures growth in the number of owner-occupied dwellings. However, it distinguishes different types of dwellings based on their location (ie, urban or rural) and the number of bedrooms. Each of the dwelling types are expenditure-weighted; if a dwelling type with a relatively high weight is growing faster than the average, then aggregate growth will be higher than the growth in the count of dwellings. This approach implicitly adjusts for quality, using location and the number of bedrooms as proxies for quality. To get a feel of the difference that this adjustment makes, figure 7 removes, for Australia, both private rented dwellings, and the implicit quality component. It commences in 1991 but for New Zealand, it is otherwise a replica of figure 6. Figure 7 simply reflects increases in the number of owner-occupied dwellings in both Australia and New Zealand. Over the 17 years from 1991 to 2008, the growth rates have been very similar, at 1.4 percent annually for Australia and 1.3 percent for New Zealand.

Figure 7 - Growth in number of residential dwellings
Figure 7 - Growth in number of residential dwellings.
Source: Statistics New Zealand and Australian Bureau of Statistics

In conclusion, the difference between figure 6 and 7 indicates that the implicit quality adjustment by the ABS largely accounts for the trans-Tasman difference in the output growth of ownership of dwellings. This adjustment amounts to approximately 0.15 percentage points of growth in economy-wide output per year over the period 1991 to 2008.

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