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Housing price indicies Subocz, Irene Ursula 1977

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HOUSING PRICE INDICIES by IRENE URSULA SUBOCZ Honours B.A., U n i v e r s i t y o f Western O n t a r i o ,  1975  A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF ..THE  REQUIREMENTS. FOR THE DEGREE OF MASTER OF SCIENCE (BUSINESS ADMINISTRATION)  in THE  FACULTY OF COMMERCE & BUSINESS ADMINISTRATION  We accept t h i s t h e s i s as conforming to the r e q u i r e d  THE  standard  UNIVERSITY OF BRITISH COLUMBIA April, 1 9 7 7  (^cT)  I r e n e U r s u l a Subocz, 1977  In p r e s e n t i n g t h i s  thesis  an advanced degree at the I  Library shall f u r t h e r agree  for  fulfilment of  the U n i v e r s i t y of B r i t i s h  make i t  freely available for  that permission  the requirements f o r  Columbia,  I agree  reference and  f o r e x t e n s i v e copying o f  this  that  study. thesis  s c h o l a r l y purposes may be granted by the Head of my Department or  by h i s of  in p a r t i a l  representatives.  this  thesis  It  is understood that copying or p u b l i c a t i o n  f o r f i n a n c i a l gain s h a l l  not be allowed without my  written permission.  Department o t ^ o ^ r n i ^ c - L The  University of B r i t i s h  2075 W e s b r o o k Vancouver, V6T  Date  1W5  Place  Canada  °-/^^L^XX^TU^-->  (  .  Columbia  /bC^>\^<.MSM^-*J£<-£-^-  (ii) ABSTRACT The t r e n d i n house p r i c e s i s o f importance to governments, f i n a n c i a l i n s t i t u t i o n s and households. no proven r e l i a b l e i n d i c a t o r o f house p r i c e s  currently  exists.  The l a c k o f an a c c u r a t e house p r i c e two major f a c t o r s .  However,  s e r i e s i s due t o  F i r s t convenient and a c c u r a t e data on house  p r i c e s are not r e a d i l y a v a i l a b l e and data c o l l e c t i o n from the Land R e g i s t r y  O f f i c e i s both time consuming  and c o s t l y .  The  second f a c t o r r e l a t e s t o the problem o f changes i n the q u a l i t y of the s e r i e s through time.  T h i s q u a l i t y problem has two  basic  aspects. F i r s t , the q u a l i t y o f the index may be i n f l u e n c e d  by  s h i f t s i n the d i s t r i b u t i o n o f s a l e s between d i f f e r e n t v a l u e s o f homes.  The second problem a r i s e s from the unique nature o f r e a l  e s t a t e as to i t s *  l o c a t i o n , age, c o n d i t i o n ,  etc.  Unlike other  i n d i c e s , t h e r e i s no s t a n d a r d i z e d u n i t o f housing to which  price  q u o t a t i o n s may, be reduced, thus the q u a l i t y o f the housing s o l d i n each y e a r w i l l be d i f f e r e n t . In t h i s study, the problems encountered i n sampling and constructing  a p r i c e index f o r the s i n g l e f a m i l y  housing s t o c k  are i d e n t i f i e d and a n a l y z e d both c o n c e p t u a l l y and The c o n c e p t u a l examination i n v o l v e s w e l l as an a n a l y s i s  empirically.  a review o f the l i t e r a t u r e as  of the methodologies employed  i n the con-  s t r u c t i o n o f the major housing i n d i c i e s i n use today. empirical  analysis  i s done through the c o n s t r u c t i o n  s e r i e s f o r the e i g h t  r a p i d l y growing c i t i e s and  The  of a p r i c e  municipalities  of the G r e a t e r Vancouver R e g i o n a l D i s t r i c t f o r the y e a r s 194-9 to 19?6.  The i n d i c i e s are based upon data o b t a i n e d from the Land  (iii) R e g i s t r y O f f i c e s i n B r i t i s h Columbia and are designed t o be s t a t i s t i c a l l y r e p r e s e n t a t i v e of a l l s a l e s f o r those a r e a s  during  the study p e r i o d . The a n a l y s i s forms a b a s i s f o r f u t u r e r e s e a r c h i n t o housing i n d i c i e s and i n p a r t i c u l a r , p r o v i d e s a r e l i a b l e benchmark s e r i e s a g a i n s t which a l t e r n a t i v e measures o f p r i c e changes can be t e s t e d .  TABLE OF CONTENTS Chapter 1  Chapter 2  THE NEED FOR A HOUSING PRICE INDEX A.  INTRODUCTION  B.  THE NEED FOR A HOUSING PRICE INDEX  EXISTING RESEARCH AND INDICIES A. B.  Chapter 3  PREVIOUS STUDIES PRESENT PUBLISHED DATA 1. S t a t i s t i c s Canada - S h e l t e r Component o f CPI 2. S t a t i s t i c s Canada - New House Prices 3. C. M. H. C. k-. M u l t i p l e L i s t i n g s S e r v i c e 5. TEELA 6. Other I n d i c i e s STATISTICAL AND CONCEPTUAL PROBLEMS  A.  B. Chapter k-  THE DATA BASE AND INDEX A.  B. C. D. Chapter 5  STATISTICAL PROBLEMS. 1. Sampling Procedure 2. A d d i t i o n s t o the Stock 3. Demolitions k. Sampling Over Geographic Areas 5. Sampling W i t h i n A G e o g r a p h i c a l Area 6. Seasonal V a r i a t i o n ?. Base P e r i o d 8. Tenure Type 9. Treatment o f "New P r o d u c t s " CONCEPTUAL PROBLEMS  SAMPLING PROCEDURE 1. The Data Base 2. S e l e c t i o n o f the Universe 3. Sample S i z e 4. Data C o l l e c t i o n and E d i t i n g 5. D e m o l i t i o n s COMPUTATION OF THE INDEX TURNOVER RATES AGREEMENTS FOR SALE  THE PROBLEM OF QUALITY CHANGE IN A HOUSE PRICE INDEX A.  PRICE CHANGES BY VALUE RANGE STATISTICAL IMPLICATIONS FOR THE INDEX  (v)  TABLE OF CONTENTS, Cont'd Chapter 5  B. C. D. E.  Chapter 6  VALUE RANGE - CONCEPTUAL . . CONSIDERATIONS AGE CATEGORIES - CONCEPTUAL CONSIDERATIONS VALUE RANGE AND VINTAGE CATEGORY BAILEY, MUTH & NOURSE MODEL  CONCLUSION  L i s t o f Tables L i s t of Figures Acknowledgements References Appendix A Appendix B Appendix C  SAMPLING PROCEDURE DERIVATION OF SAMPLE SIZE AND INDICIES THE DATA  79 82 92 93 96  .(iv) ,(v) ,(vi) ,105 ,110  ,114,116  (vi)  LIST OF TABLES Table I  Comparison o f E x i s t i n g P r i c e Data  ...... 26  Table I I  Example o f S h i f t i n g S a l e s E f f e c t s on the P r i c e Index  ...... 4-0  Table I I I  Source and S i z e o f the Sample  4-7  Table IV  Sample S i z e By Year  51  Table V  The P r i c e Index and Turnover Rates 1949-1976  Table V I  Agreements F o r Sale  Table V I I  C r i t i c a l P r i c e s F o r Assignment To Value C l a s s e s D i s t r i b u t i o n o f S a l e s Among Value Ranges By Year  Table V I I I  53  ...... 62 68 72  Table IX  Percentage o f Homes T r a n s a c t i n g Each Year By Value Range  77  Table X  Weighting F a c t o r s F o r Age Aggregated Indicies  89  Table XI  Rates o f Change I n P r i c e s F o r MLS Index and LRO Index  99 ,  LIST OF FIGURES Figure  1  House P r i c e Index - C u r r e n t and Constant Dollars  Figure  2  Turnover Rates f o r Housing and the P r i c e Index  Figure  3  A Comparison o f P r i c e I n d i c i e s Using T o t a l and Agreement F o r S a l e Data Only  Figure  k  A Comparison o f the O v e r a l l P r i c e Index to Index E x c l u d i n g Agreement F o r Sale Data  Figure  5  P r i c e I n d i c i e s By Value Range  Figure  6  P r i c e I n d i c i e s By Cumulative Value Ranges - Low and Low-Middle Value Ranges  Figure  7  P r i c e I n d i c i e s By Cumulative Value Ranges - Low-Middle and T o t a l Value Ranges  Figure  8  A Comparison o f the Weighted Value Range Index t o the O v e r a l l P r i c e Index  Figure  9  P r i c e I n d i c i e s By Age Category  Figure  10  Age-Weighted P r i c e  Figure  11  A Comparison o f the Age-Weighted to the O v e r a l l P r i c e Index  Figure  12  Appreciation  Figure  13  A Comparison o f the B-M-N to LRO Index  Figure  14  Comparison o f the MLS Index t o the O v e r a l l P r i c e Index  Figure  15  Comparison o f New House P r i c e Index t o O v e r a l l Index  Indicies Index  o f the Housing Stock 1 9 7 5 Model Index  (viii)  ACKNOWLEDGEMENTS  In author  the course  received Dr.  S.W.  committee,  of the preparation  valuable Hamilton,  gave  much  who  and advice.  Dr.  a n d D r . K.  Zerbst  committee. his  was  the chairman time  the other  In addition, the assistance  comments  i n the development  the  individuals. of the thesis  i n providing  S p e c i a l thanks Horn,  thesis,  f r o m many  of h i s valuable  encouragement R.  assistance  of this  are also members  of Prof.  of the thesis,  guidance,  extended  to  of the thesis D.  Baxter f o r  deserve  special  mention. The of  assistance  t h e Land  District  Registry  were  incorporated  from  David  in  Dale  i n aiding  into  financial  assistance  Mortgage  and Housing  Division  i s also  was  and d u r i n g  Province  Richard  of data  provided  Miller  Regional of the  t o me,  acknowledged, was  of British  and  Eleanor  and A.L. Ananthanarayanan, acknowledged. both  and t h e Urban  that  staff  In addition, the assistance  the thesis research,  collection  the  Vancouver  are gratefully  Corporation  gratefully  f o r data  of Housing,  that  from  i n p r o v i d i n g much  Graeme E a d i e ,  of the data  studies  ment  thesis.  i n the collection  graduate  assistant  i n assisting  this  Johnson,  t h e programming  received  O f f i c e s i n the Greater  fundamental  data  Olsen  and c o - o p e r a t i o n  during  by  Land  as i s t h e  provided  Columbia.  The  my  Central Economics financial  by t h e Depart-  CHAPTER 1 THE A.  NEED FOR A HOUSING PRICE INDEX  INTRODUCTION T h i s paper i s concerned w i t h the i d e n t i f i c a t i o n and  a n a l y s i s o f a methodology f o r f o r m u l a t i n g a housing p r i c e i n d e x . The  index, as a r e s u l t o f the methodology adopted, w i l l be r e -  p r e s e n t a t i v e o f measures o f p r i c e changes o f the housing s t o c k , r a t h e r than a measure o f the p r i c e o f an average house o r the measure o f the change i n the p r i c e o f housing s o l d i n any p e r i o d . The importance  f i r s t p o r t i o n o f the paper i s a d i s c u s s i o n o f the  o f a p r i c e index f o r housing.  T h i s i s then f o l l o w e d  by a survey o f p r e v i o u s s t u d i e s t h a t have addressed to  this topic.  themselves  The second p o r t i o n o f t h i s chapter i s an examin-  a t i o n o f the methodologies  employed i n c o n s t r u c t i n g the major  housing i n d i c i e s ; c u r r e n t l y i n use today.  The l i m i t a t i o n s , as  w e l l as the a p p r o p r i a t e i n t e r p r e t a t i o n s o f these i n d i c i e s i s revealed. The  t h i r d c h a p t e r o f t h i s paper i s concerned w i t h a  review o f the c r i t e r i a  t h a t an a c c u r a t e index must meet.  Included i n t h i s , i s a d i s c u s s i o n o f the s t a t i s t i c a l and conc e p t u a l problems a s s o c i a t e d w i t h the d e s i g n and c o n s t r u c t i o n o f such an index. These concepts are then f u r t h e r i n v e s t i g a t e d  through  the a c t u a l c o n s t r u c t i o n of s e v e r a l i n d i c i e s from data obtained from the Land R e g i s t r y O f f i c e s i n the G r e a t e r Vancouver R e g i o n a l District. analysis.  The m a j o r i t y o f t h i s paper i s devoted t o t h i s <•  2. The c o n c l u s i o n w i l l take the form o f a s e t o r recommendations as t o the d i r e c t i o n t h a t f u t u r e r e s e a r c h should t a k e . A l s o i n c l u d e d w i l l be a b r i e f comparison o f the r e s u l t s obtained from t h i s study i n the e x i s t i n g B.  indicies.  THE NEED FOR A HOUSING PRICE INDEX The t r e n d i n house p r i c e s i s o f importance to govern-  ments, f i n a n c i a l i n s t i t u t i o n s and households. Changing p r i c e s and the r a t e a t which they change has s t r o n g i m p l i c a t i o n s f o r the consumer.  P r i c e s are used t o mea-  sure consumer w e l f a r e , r e c o g n i z e i n f l a t i o n ,  diagnose imbalances  i n the economy and i n d i c a t e the economic i n e q u i t i e s among income groups. Informed d i s c u s s i o n and government p o l i c i e s  directed  toward i n f l u e n c i n g house p r i c e s are p r e d i c a t e d on the assumption t h a t some r e l i a b l e means e x i s t s t o measure the change i n p r i c e s over time.  C o n f l i c t s o f t e n e x i s t as t o the nature' o f s p e c i f i c  problems and hence d i f f e r e n t i d e a s a r e presented as t o the a p p r o p r i a t e r e m e d i a l p o l i c i e s and programs.  Thus, a house p r i c e  index which would f a c i l i t a t e the m o n i t o r i n g o f the housing market, would have a d i r e c t b e a r i n g upon the e f f e c t i v e n e s s to which government p o l i c y and program o b j e c t i v e s c o u l d be  satisfied.  C o n s i d e r a b l e importance i s t h e r e f o r e p l a c e d on an  ( 1 ) Moore, G. H., The Role of P r i c e s i n the U n i t e d S t a t e s Economy, Keynote Address, Cento Symposium on P r i c e S t a t i s t i c s , Turkey, 1 9 7 0 .  3.  index i n the d e t e r m i n a t i o n of housing p o l i c y and i n the e v a l u a t i o n of the e f f e c t i v e n e s s of p o l i c y . A housing p r i c e index i s not s o l e l y used t o changes i n house p r i c e s .  denote  Housing comprises almost o n e - t h i r d o f  the t o t a l Consumer P r i c e Index f o r Canada.  The Consumer P r i c e  Index i s used i n p r i v a t e c o n t r a c t s , COLA c l a u s e s and i n p u b l i c policy.  T h i s emphasizes the n e c e s s i t y t h a t the housing component  o f t h i s index a c c u r a t e l y r e f l e c t the t r e n d i n house p r i c e s i n Canada. F i n a n c i a l i n s t i t u t i o n s are i n t e r e s t e d i n p a s t and f u t u r e t r e n d s of house p r i c e s .  Lenders want to know how  are changing as s e c u r i t y f o r t h e i r l e n d i n g . p r i c e s would be of v a l u e to a l l those who  prices  An index of house  invest i n r e a l estate  as w e l l as those whose b u s i n e s s i t i s t o n e g o t i a t e r e a l e s t a t e t r a n s a c t i o n s and to a d v i s e r e g a r d i n g them. " S u c c e s s f u l investment i n r e a l e s t a t e depends on the a b i l i t y to a n a l y z e v a l u e s p r o p e r l y and uns u c c e s s f u l investment u s u a l l y a r i s e s from the f a i l u r e to understand the f o r c e s that make v a l u e s and those t h a t destroy i t . " ( 2 ) A house g e n e r a l l y r e p r e s e n t s the major investment o f a household.  With an i n d i c a t o r o f housing p r i c e s , households  be b e t t e r informed as t o the f u t u r e worth o f t h e i r and w i l l be a i d e d i n making a prudent investment  will  investment  decision.  A h o u s i n g p r i c e index i s a l s o n e c e s s a r y t o c l o s e the gap i n r e s e a r c h r e l a t i n g t o new  c o n s t r u c t i o n , the mortgage mar-  ket and the l e v e l of market a c t i v i t y .  (2)  Wyngarden, Herman, "An Index o f L o c a l R e a l E s t a t e P r i c e s , " Michigan B u s i n e s s S t u d i e s , V o l . I, No. 2 , January 1 9 2 ? .  4.  S a t i s f a c t o r y p r i c e data on c o n s t r u c t i o n i s important as c o n s t r u c t i o n c o n s t i t u t e s a s u b s t a n t i a l p r o p o r t i o n o f the investment component o f G.N.P. and i s a major c o n t r i b u t o r to the c y c l i c a l i n s t a b i l i t y o f the economy.  The output o f new  con-  s t r u c t i o n i s a good i n d i c a t o r o f the l e v e l o f economic a c t i v i t y which a f f e c t s incomes and  employment.  P r i c e i n d i c e s , and t h e i n f o r m a t i o n embodied i n them r e l a t i n g t o the l e v e l of market a c t i v i t y are n e c e s s a r y f o r f a c i l i t a t i n g g e n e r a l economic a n a l y s i s and f o r a s s i s t i n g b u s i n e s s f i r m s i n market p l a n n i n g and t h e i r g e n e r a l economic and b u s i n e s s research. A p r i c e index a l s o f u r n i s h e s an important b a s i s f o r r e s e a r c h i n the mortgage market.  Both the government and  finan-  c i a l i n s t i t u t i o n s have a s u b s t a n t i a l i n t e r e s t i n mortgage funds through loans and l o a n guarantee  programs.  P r i c e data are a b a s i c  r e s e a r c h t o o l and t h e r e f o r e , the development o f a  statistically  a c c u r a t e p r i c e s e r i e s i s important to them. No proven r e l i a b l e index o f house p r i c e s c u r r e n t l y exists.  A h i g h l y complex network of p o s s i b l e data f o r an index  is available  (e.g. M u l t i p l e L i s t i n g S a l e s , TEELA, S t a t i s t i c s  Canada, C e n t r a l Mortgage & Housing C o r p o r a t i o n ) , but a l l these have been proven t o p r o v i d e b i a s e d e s t i m a t e s of p r o p e r t y v a l u e s . ^ (3)  These b i a s e s w i l l be d i s c u s s e d i n a subsequent  (4)  See f o r e.g. Baxter, D. "Published Housing Data: Trends & E v a l u a t i o n " pp. 419-4-48, Hamilton, S.W., "Housing P r i c e Indexes: Theory and P r a c t i c e , " pp. 3 8 3 - 4 1 9 , both i n Housing: I t ' s Your Move, U n i v e r s i t y o f B r i t i s h Columbia, Vancouver, 1976; P r i e s t , B a i l e y , A l f o r d , R e l i a b i l i t y E v a l u a t i o n of 1971 Census R e p o r t i n g o f " S e l l i n g V a l u e " of Owner Occupied D w e l l i n g U n i t s : A Micro-Match w i t h Comparison S a l e s Catalogues P r o v i d e d by Members o f the C.R.E.A.. S t a t i s t i c s Canada, 1 9 7 3 .  chapter.  5. The  l a c k o f an a c c u r a t e house p r i c e s e r i e s i s due t o  two major f a c t o r s .  F i r s t , a l a c k of data?  second, the  problem  of changes i n q u a l i t y of the s e r i e s over time. In g e n e r a l , convenient and a c c u r a t e data on house p r i c e s are not r e a d i l y available:. A p o s s i b l e source o f data i s the Land R e g i s t r y O f f i c e . However, these data are not e a s i l y a c c e s s i b l e as the system designed f o r a purpose  o t h e r than s u p p l y i n g p r i c e i n f o r m a t i o n .  As a r e s u l t , data c o l l e c t i o n from t h i s source would be time suming and  was  con-  costly. The  second problem  r e l a t e s to t h a t o f h o l d i n g the  q u a l i t y of the index c o n s t a n t through time.  This quality  problem  has two b a s i c a s p e c t s . First,  the q u a l i t y of the index may  change due t o a  s h i f t i n the q u a l i t y o f p r o p e r t i e s t h a t are s o l d a t d i f f e r e n t times.  Thus, a change r e f l e c t e d i n the index may  be due t o a  s h i f t i n the d i s t r i b u t i o n o f s a l e s between d i f f e r e n t  quality  homes. A second problem a r i s e s from the unique nature o f r e a l e s t a t e as t o i t s ' l o c a t i o n , age, c o n d i t i o n , type, e t c .  Unlike  o t h e r i n d i c i e s , t h e r e i s no s t a n d a r d i z e d u n i t o f housing t o which p r i c e q u o t a t i o n s may  be reduced.  housing s t o c k each y e a r w i l l be  The q u a l i t y o f the f i x e d different.  In t h i s study, the index f o r the average p r i c e o f the housing s t o c k w i l l be e s t i m a t e d .  I n f o r m u l a t i n g any index, the  q u a n t i t y t h a t i s b e i n g measured i s kept constant from p e r i o d to period.  An index measuring  ( i . e . the average  the average p r i c e o f houses t h a t  s a l e s p r i c e ) would be measuring  a different  sold  q u a n t i t y each y e a r as the homes t h a t s e l l each y e a r d i f f e r from y e a r to y e a r . However, i n an index measuring the average p r i c e o f the stock, the q u a n t i t y ( s t o c k ) , measured each y e a r i s r e l a t i v e l y constant ( a d d i t i o n s and d e m o l i t i o n s t o the stock form only a s m a l l p r o p o r t i o n o f the stock i n each y e a r ) .  Thus, i t i s a  measure of the average p r i c e o f the stock and not the average sales price that i s desire.  In a d d i t i o n , government p o l i c y and  homeowners and f i n a n c i a l i n s t i t u t i o n s concerns are a l l d i r e c t e d toward the h o u s i n g s t o c k and not j u s t  sales.  CHAPTER 2 EXISTING RESEARCH AND  INDICIES  T h i s s e c t i o n i s concerned w i t h a review of the l i t e r a t u r e on housing p r i c e i n d i c i e s and an a n a l y s i s and cism o f the major housing i n d i c i e s i n use today. of  the methodologies  An  existing criti-  examination  used i n the major i n d i c i e s w i l l be  presented  i n o r d e r to r e v e a l the l i m i t a t i o n s as w e l l as the a p p r o p r i a t e i n t e r p r e t a t i o n s of the indexes.  In a subsequent  s e c t i o n , a com-  p a r i s o n w i l l be made o f the movement o f LRO index to some of the e x i s t i n g ones to see i f a s u i t a b l e surrogate e x i s t s . A.  PREVIOUS STUDIES There have been numerous s t u d i e s undertaken  to e x p l a i n  f l u c t u a t i o n s i n the p r i c e o f housing.  Very few s t u d i e s however,  have addressed themselves  o r f o r m u l a t i n g a methodo-  to examining  logy by which to compile a r e l i a b l e i n d i c a t o r of house p r i c e s . T h i s can l a r g e l y be a t t r i b u t a b l e not to a l a c k of i n t e r e s t but t o the d i f f i c u l t i e s  i n o b t a i n i n g data.  A few papers e x i s t however,  which d i s c u s s the m e t h o d o l o g i c a l c o n s i d e r a t i o n s of c o n s t r u c t i n g p r i c e i n d i c i e s and i n p a r t i c u l a r , the q u a l i t y a s p e c t s . W y n g a r d e n ^ was work i n t h i s f i e l d .  one of the f i r s t  H i s o b j e c t i v e was  economists  to pioneer  to f i n d a method o f c o l l e c -  t i n g data on r e a l e s t a t e p r i c e movements t h a t would be o f use i n the c o n s t r u c t i o n o f an i n d e x .  In o r d e r to minimize q u a l i t y  vari-  a t i o n s i n the u n i t s s o l d each year, he advocated the use o f an index based on the repeated s a l e s o f i n d i v i d u a l p r o p e r t i e s .  (5)  Wyngarden, Herman, An Index o f L o c a l R e a l E s t a t e P r i c e s . Bureau o f Business Research, U n i v e r s i t y of Michigan, Ann Arbor, Michigan, 1927. <  8. An index was for  compiled o f a l l the r e l a t i v e p r i c e s asked  i n s u c c e s s i v e l i s t i n g s which were f i r s t  l i s t e d i n the same  y e a r and the median p r i c e r e l a t i v e i n each y e a r was  chosen as  b e i n g r e p r e s e n t a t i v e of p r i c e s i n the market as a whole.  These  p r i c e r e l a t i v e s were then converted t o l i n k r e l a t i v e s i n o r d e r t o show the r e l a t i o n s h i p which an index i n a g i v e n y e a r bears t o the index i n the p r e c e e d i n g y e a r r a t h e r than the y e a r i n which the p r o p e r t y was  first  listed.  The u s u a l i n d i c i e s employ a f i x e d base^iconcept where the index base does not change over s u c c e s s i v e p e r i o d s .  Chaining  however, i n v o l v e s a c o n s t a n t l y s h i f t i n g base p e r i o d by u p d a t i n g the base p e r i o d , one p e r i o d a t a time so t h a t the index f o r any g i v e n p e r i o d uses the p r e v i o u s p e r i o d as a base. then l i n k e d i n a m u l t i p l i c a t i v e f a s h i o n .  T h i s index i s  The r e s u l t i n g index from  c h a i n i n g has much l a r g e r v a l v e s than that from a f i x e d base as i t compounds the r e s u l t of p r i c e changes between more than  two  p e r i o d s while the f i x e d base index i s c a l c u l a t e d independent  of  p r i c e changes which have o c c u r r e d i n the i n t e r v e n i n g y e a r s between the c u r r e n t and base p e r i o d . ^ ^ ^ T h i s index was  then t e s t e d by Wyngarden a g a i n s t another  index c o n s t r u c t e d from l i s t i n g s of p r o p e r t i e s i n c o n c u r r e n t y e a r s , a g a i n u s i n g the same procedure of c h a i n l i n k i n g .  Both indexes  were found to behave s i m i l a r l y , thus u p h o l d i n g the former index. The to  sample was  a l s o d i s a g g r e g a t e d i n t o geographic areas  examine the f o r c e s a f f e c t i n g r e a l e s t a t e p r i c e s i n each of the  ( 6 ) Adelman, I . , G r i l i c h e s Z. "An Index of Q u a l i t y " , J o u r n a l of the American S t a t i s t i c a l A s s o c i a t i o n . September 1961,  No. 2 9 5 . V o l . 5 6 . pp. 535-555'  9. districts. was  The p r i c e index f o r each o f the a r e a s v a r i e d and i t  thus recommended t h a t a l l subsequent r e s e a r c h on house  prices  be based on r e l a t i v e l y homogeneous g e o g r a p h i c a l a r e a s . Rapkin, Winnick, B l a n k ^ ^ ^ and Burnstien,^®  ^ i n separate  a r t i c l e s a l s o address the q u a l i t y problem i n the. c o n s t r u c t i o n housing p r i c e index.  of a  In o r d e r to overcome the problem o f d i f f e r e n t  q u a l i t y v a r i a t i o n s o f the u n i t s exchanged  eachFyear, they attempt  to s t a n d a r d i z e housing by u s i n g the concept o f s u b s t i t u a b i l i t y i n t h i s manner.  Housing i s a p h y s i c a l good but i t i s d e s i r e d f o r s e r -  v i c e s which i t r e n d e r s .  They s t a t e t h a t d i f f e r e n t q u a l i t y houses,  although t h e y are not p e r f e c t  s u b s t i t u t e s f o r each o t h e r and  may  s e l l a t d i f f e r e n t p r i c e s a t the same p o i n t i n time, are almost i d e n t i c a l as t o the s e r v i c e s they o f f e r .  Thus, they compete w i t h  each o t h e r as a l t e r n a t i v e s f o r homebuyers i n a s i n g l e The a u t h o r s  market.  f e e l t h a t although t r e a t i n g housing o r any consumer  durable good as a p h y s i c a l u n i t may pose problems i n the c o n s t r u c t i o n o f an index, treatment on the b a s i s o f s e r v i c e a f l o w s  rendered  poses no l i m i t a t i o n s .  ( 9) Triplets  ' suggests a method of q u a l i t y adjustment by  changing the b a s i s o f the p r i c e q u o t a t i o n from the p h y s i c a l u n i t of sale  ( i . e . the house) to i t s u t i l i t y  flow).  T h i s approach i s s i m i l a r to the one expounded upon i n the  (7)  ( i . e . the housing s e r v i c e  Rapkin, C , Winnick, L., Blank, D., Housing Market A n a l y s i s . The I n s t i t u t e f o r Urban Land Use and Housing S t u d i e s , Columbia U n i v e r s i t y , C i t y o f New York, 1953.  ( 8 ) B u r n s t i e n , M.L., "Measurement o f Q u a l i t y Change i n Consumer Durables", The Manchester S c h o o l o f Economics and S o c i a l S t u d i e s , September 1961, pp. 269-279. ( 9 ) T r i p l e t t , J a c k . Theory o f Hedonic P r i c e Indexes. Washington, Bureau o f Labor S t a t i s t i c s , S t a f f Paper, No. 31.  10.  above a r t i c l e s .  T r i p l e t t argues t h a t a d i f f e r e n c e i n p h y s i c a l  design i s not a concept o f d i f f e r e n t q u a l i t y but j u s t a d i f f e r e n c e i n the s e t o f a t t r i b u t e s (e.g. number o f bathrooms, garage, e t c . ) . Since indexes a r e economic measurements,the q u a l i t y c r i t e r i a should be an economic one — quality.  that i s —  user evaluation  as t o  Consumer b e h a v i o u r r e l a t e s t o a f l o w o f s e r v i c e s and  thus, i t i s t h e s e r v i c e flow and not the good i t s e l f which i s the proper u n i t o f a n a l y s i s . Gavett the  inaccuracies  good.  and Kaplan,  i n separate a r t i c l e s  discuss  o f u s i n g c o s t data t o e v a l u a t e the q u a l i t y o f a  Kaplan s t a t e s t h a t due t o the unhomogeneous nature o f con-  s t r u c t i o n , q u a l i t y adjustments tend t o be based on the c o s t o f i n p u t s r a t h e r than the output.  The b a s i c problem w i t h t h i s  approach he s t a t e s , i s t h a t i t i g n o r e s changes i n p r o d u c t i v i t y . He t r i e s t o overcome t h i s problem by r e d e f i n i n g output i n teasms o f i n t e r m e d i a t e products.or as an a l t e r n a t i v e , the use o f inputsa d j u s t e d by a f a c t o r o f p r o d u c t i v i t y change f o r each y e a r . states that c u r r e n t  p r i c e i n d i c i e s , by o m i t t i n g  He  this productivity  change f a c t o r , do not r e f l e c t the change i n the s e l l i n g p r i c e o f a p a r t i c u l a r b u i l d i n g but a change i n the p r i c e o f a f i x e d of m a t e r i a l s  and l a b o u r i n v o l v e d  Gavett  criticizes  uate the q u a l i t y o f a good.  (10)  list  i n the s t r u c t u r e .  the use o f i n p u t p r i c e s t o e v a l The c u r r e n t  assumption i s t h a t  Gavett, T. " Q u a l i t y o f Pure P r i c e I n d i c i e s " , Monthly Labor • Review. March 1 9 6 7 , V o l . 9 0 , No. 3 , U.S. Dept. o f Labor , pp. 1 6 - 2 0 .  (11) Kaplan, Norman, "Some Notes on the D e f l a t i o n o f C o n s t r u c t i o n " , J o u r n a l o f the American S t a t i s t i c a l A s s o c i a t i o n , September 1 9 5 9 , V o l . 5^, No. 2 8 7 . pp. 5 3 5 - 5 5 5 .  1  increased  costs  or p r i c e s are  synonymous w i t h a h i g h e r q u a l i t y  good b e i n g produced or consumed. concept i s i g n o r e d .  costs.  Here a g a i n , the  productivity  As a r e s u l t o f p r o d u c t i v i t y advances,  s t a t e s that i t i s p o s s i b l e In t h i s i n s t a n c e ,  •  1  he  to produce a s u p e r i o r good a t lower the c o s t c r i t e r i a w i l l r e s u l t i n a  c l i n i n g p r i c e index when q u a l i t y has  de-  actually risen.  (12) Jaszi —i.e.  c o s t s and  t h a t the two  t r i e s to r e c o n c i l e the two  N  utilities.  concept o f q u a l i t y  Under p e r f e c t c o m p e t i t i o n , he  concepts are i d e n t i c a l .  states  Each consumer w i l l equate  h i s purchases to h i s m a r g i n a l u t i l i t y o f a good r e l a t i v e t o i t s p r i c e u n t i l i t i s equal to the m a r g i n a l u t i l i t y of another good r e l a t i v e to i t s p r i c e .  Since i n long run e q u i l i b r i u m p r i c e s  are  e q u a l to c o s t s , r e l a t i v e marginal u t i l i t i e s w i l l e q u a l r e l a t i v e p r i c e s and  r e l a t i v e costs. Most o f the  l i t e r a t u r e w r i t t e n over the past decade  housing p r i c e i n d i c i e s discusses The  on  the hedonic p r i c e index approach.  a d o p t i o n o f hedonic p r i c e i n d i c i e s techniques i s a p p a r e n t l y a  r e s u l t of the changes.  d e s i r e t o cope w i t h the problems posed by  quality  T h i s technique i s c u r r e n t l y b e i n g i n v e s t i g a t e d  S t a t i s t i c s Canada f o r f o r m u l a t i n g  a p r i c e index f o r new  by and  e x i s t i n g housing. The can be  premise u n d e r l y i n g  characterized  t h i s index i s that a p r o p e r t y  by a number o f a t t r i b u t e s ( f o r example, l o t  s i z e , number o f bedroorms, r e c r e a t i o n room, e t c . ) and  the  of the house i s r e l a t e d to the nature of these a t t r i b u t e s . f i x i n g the time p e r i o d and (12)  price By  o b s e r v i n g the p r i c e s of homes e x h i b i t i n g  J a s z i , George, "An Improved Way o f Measuring Q u a l i t y Change", Review'of Economics and S t a t i s t i c s , August 1962,  pp. 332-335-  12. v a r y i n g (but b a s i c a l l y s i m i l a r ) a t t r i b u t e s , through a m u l t i p l e r e g r e s s i o n t e c h n i q u e , i t i s p o s s i b l e to a r r i v e a t an v a l u a t i o n o f these c h a r a c t e r i s t i c s .  implicit  In succeeding y e a r s , when  c h a r a c t e r i s t i c s change, the i m p l i c i t p r i c e o f a c h a r a c t e r i s t i c can be deducted from whatever change a c t u a l l y o c c u r r e d .  This  technique f o r housing i s an a d o p t i o n o f an approach put forward (13) by G r i l i c h e s  i n 1961  v  f o r automobiles  i n an attempt t o c o n s t r u c t a p r i c e index  v  Several authors  E s t a t e t h a t ^orie of 'the  difficulties  w i t h hedonie i n d i c i e s i s that-due.toe t h e ; l a r g e number of- charge? t e r i s t i c s , the number o f p r o p e r t i e s e x h i b i t i n g the v a r i o u s s t r u c t u r a l - a t t r i b u t e s / h a s t o be v e r y l a r g e i n o r d e r f o r the c o e f f i c i e n t o f the v a r i a b l e s to;be s i g n i f i c a n t * problem o f how  There i s a l s o the  to measure the q u a l i t y o f the neighborhood through  time. , Another problem i s data c o l l e c t i o n .  The time, money  and problems spent i n w r i t i n g , e d i t i n g and r e v i e w i n g the  specifi-  c a t i o n s as w e l l as c o l l e c t i n g the p r i c e q u o t a t i o n s would be enormous. (13)  G r i l i c h e s , Z u i , "Hedonie P r i c e Indexes f o r Automobiles; An Econometric A n a l y s i s o f Q u a l i t y Change", The P r i c e S t a t i s t i c s o f the F e d e r a l Government. G e n e r a l S e r i e s No.73, 1961,:pp. 37-196.  (14) The o r i g i n a l technique was f i r s t i n t r o d u c e d by A. J . Court i n "Hedonie P r i c e Indexes w i t h Automotive Examples" i n The Dynamics o f Automobile Demand, i n 1939. However, he used a pooled r e g r e s s i o n between the base and the c u r r e n t year, so t h a t the r e g r e s s i o n c o e f f i c i e n t s o r i m p l i c i t p r i c e s o f the c h a r a c t e r i s t i c s were f o r c e d i n t o an average which reduced the a c c u r a c y o f the d a t a . (15)  See T r i p l e t t , J . , The Theory o f Hedonie P r i c e Indexes. Bureau of Labor S t a t i s t i c s - S t a f f Paper No. 3 1 ; Brown, S. L. P r i c e V a r i a t i o n s i n New FHA Houses 1959-1961; A Report of Researchsi'n Methods o f C o n s t r u c t i n g P r i c e Indexes. Bureau o f the Census Working Paper No. 31» Mieszkowski, P., Saper, A. t Trends i n the Value o f Toronto Housing. 1 9 6 5 - 1 9 7 3 , C e n t r a l Mortgage and Housing C o r p o r a t i o n , Working Paper 7 6 - 2 .  13. A s i d e from the M u l t i p l e L i s t i n g S e r v i c e , no  other source c u r r e n t l y  c o l l e c t s s p e c i f i c a t i o n s r e l a t i n g to p r o p e r t i e s . should be  drawn from the  I d e a l l y , a sample  stock o f p r o p e r t i e s r a t h e r than .from  s a l e s ( t h i s w i l l be f u r t h e r e l a b o r a t e d upon i n the next  chapter),  so t h a t t h i s would i n v o l v e o b t a i n i n g s p e c i f i c a t i o n s about housing stock  —  an impossible  task.  Mieskowski & S a p e r ^ ^  compare two  t i o n s t h a t a hedonic p r i c e index model may l i n e a r r e g r e s s i o n model where the value f u n c t i o n of the property's  the  possible  take.  One  specificai s the  basic  o f a house i s an a d d i t i v e  c h a r a c t e r i s t i c s . The a d d i t i v e nature  o f the f u n c t i o n i m p l i e s t h a t an a d d i t i o n a l c h a r a c t e r i s t i c such as a bathroom adds a constant  absolute  amount to the v a l u e  of  the  property. The  second model employs a semi-log s p e c i f i c a t i o n .  c o e f f i c i e n t s are i n t e r p r e t e d t h a t a u n i t change i n the i s t i c s of the p r o p e r t y constant  changes the value  percentage v a l u e .  i o u s c h a r a c t e r i s t i c s add (for  The  character-  o f the p r o p e r t y by  semi-log model i m p l i e s t h a t  more i n absolute  value  The  a var-  to l a r g e r homes  example, an a d d i t i o n a l bathroom on an expensive home i s l i k e l y  to be more v a l u e d The  than an a s m a l l e r o l d e r home).  b a s i c c r i t i c i s m t h a t the a u t h o r s o f f e r a g a i n s t  semi-log s p e c i f i c a t i o n i s t h a t i t v i o l a t e s the a b s o l u t e  the  dollar  f i g u r e s quoted i n b u i l d i n g c o s t s , where some d o l l a r amount per square f o o t o f f l o o r a r e a i s g i v e n . reduced somewhat by  However, t h i s problem can  s u b s t i t u t i n g a quadratic  term f o r house  be  and  l o t s i z e so t h a t i f the marginal c o n t r i b u t i o n of these v a r i a b l e s  (16)  ibid  14. t o house v a l u e s i n a negative  d e c l i n e s as they i n c r e a s e , t h i s would be r e f l e c t e d  value  f o r the q u a d r a t i c  A f t e r comparing the two l o g model as i t s reasoning t h a t l i n e a r estimates may Kain and  terms.  models, they favour  the  semi-  i s more r e a l i s t i c though they s t a t e not be any (17)  Quigley  less  accurate.  a l s o employed a hedonic p r i c e index  a p p r o a c h , i n t h e i r study but  promoted the use  of f a c t o r a n a l y s i s as  an i n i t i a l step p r i o r to r e g r e s s i o n a n a l y s i s .  The  use  of f a c t o r  a n a l y s i s reduces the degree of m u l t i - c o l i n e a r i t y as i t s i n g l e s out the most important v a r i a b l e s to d e f i n e q u a l i t y .  T h e i r study i s  not an attempt to c r e a t e a hedonic p r i c e index but  t r i e s to  define  a group, o f v a r i a b l e s t h a t would d e f i n e environmental q u a l i t y and attempts to determine i t s e f f e c t on housing Related  to the q u a l i t y problem i n f o r m u l a t i n g a p r i c e  index, i s the problem of d e p r e c i a t i o n . t i o n a r i s e s i n formulating sumer durables, to d e p r e c i a t i o n .  The  problem of  (or sample) i s s u b j e c t  As a r e s u l t o f the a g i n g process,  1  deprecia-  an index i n t h a t i n the case o f con-  such as housing, the stock  of a f i x e d sample has Laube*  values.  the q u a l i t y  d e t e r i o r a t e d d u r i n g the study p e r i o d .  d e f i n e s the annual d e p r e c i a t i o n r a t e f o r  housing as being the d i f f e r e n c e i n s e l l i n g p r i c e s between i d e n t i c a l houses s e l l i n g i n consecutive the d e p r e c i a t i o n r a t e can be f o r age  years.  He  two  suggests t h a t  estimated by u s i n g a dummy v a r i a b l e  i n a hedonic p r i c e index r e g r e s s i o n .  (1?) Quigley, J . , Kain, J . , " E v a l u a t i n g the Q u a l i t y of the R e s i d e n t i a l Environment", Environment P l a n n i n g , V o l . 2, 1969. (18) Laube, J . , Hedonic P r i c e s and Q u a l i t y Index; A T h e o r e t i c a l Review, C e n t r a l Mortgage sand Housing C o r p o r a t i o n , Mimeograph, March 1975•  15. The  d e p r e c i a t i o n r a t e can a l s o be a l t e r e d by  which r e s u l t i n an upgrading o f the sample q u a l i t y . a study by G r e b l e r , Winnick and B l a n k , are g r e a t e r than the value  gains  due  V 7 /  repairs  According  the d e p r e c i a t i o n  to a l t e r a t i o n s .  to  losses  Therefore,  an estimate of an index without t a k i n g these f a c t o r s i n to account i s biased  downwards. Laube^ ^ b e l i e v e s that i n periods 20  of e x c e s s i v e  demand  f o r housing, there i s a g r e a t e r i n c e n t i v e f o r homeowner to r e p a i r their properties.  Thus, he views the r a t e of d e p r e c i a t i o n  as  b e i n g a f u n c t i o n o f economic c o n d i t i o n s as w e l l as the r e s u l t of the p r o c e s s of  aging. (?i )  B a i l e y , Muth and model v e r y  Nourse  s i m i l a r to the one  N  ' have formulated  t i o n s o f Wyngarden.  index  proposed by Wyngarden* i n t h a t i t  i s based on repeated s a l e s of p r o p e r t i e s . the s t a n d a r d . r e g r e s s i o n  an  However, they employ  technique r a t h e r than the manual t a b u l a -  T h i s approach, as i n the former one,  attempt t o e l i m i n a t e the q u a l i t y problems due  i s an  to changing q u a l i -  t i e s of the u n i t s s o l d each year . While t h i s approach minimizes q u a l i t y v a r i a t i o n s , i t s data base i s dependent upon p r o p e r t i e s which have s o l d a t l e a s t twice d u r i n g the  study p e r i o d .  l a r g e number of o b s e r v a t i o n s  T h i s procedure may  as some p r o p e r t i e s may  eliminate  a  have o n l y  s o l d once, p a r t i c u l a r l y d u r i n g a study p e r i o d w i t h a s h o r t time (19) G r e b l e r , L., Blank, D., Winnick, L., C a p i t a l Formation i n R e s i d e n t i a l Real E s t a t e , N a t i o n a l Bureau o f Economic Research, 1956. ( ) Laube, J . , op. c i t . (21) B a i l e y , M., Muth, R., Nourse, H., "A R e g r e s s i o n Method f o r Real E s t a t e P r i c e I n d i c e s C o n s t r u c t i o n " , American S t a t i s t i c a l A s s o c i a t i o n J o u r n a l , December iyo_>, pp. 933-942. 2 0  horizon.  The  B a i l e y , Muth and  Nourse model i s a l s o more a p p l i -  c a b l e i n s t a b l e neighborhoods were l i t t l e o r no changes are o c c u r r i n g which may  environmental  have an impact on p r i c e s .  A model which combines both the B a i l e y , Muth and model and  Nourse  the hedonie p r i c e index approach has been formulated  by  (22) Chinloy*  ' i n o r d e r t o q u a n t i f y the e f f e c t o f d e p r e c i a t i o n  the housing s t o c k .  He formulates a p r i c e index f o r a  homogeneous community o f housing and depreciation —  t e s t s ife f o r two  zero d e p r e c i a t i o n and  relatively forms of  geometric d e p r e c i a t i o n .  f u r t h e r s t r a t i f i e s the sample i n t o d i f f e r e n t age  He  c a t e g o r i e s , to  see i f d e p r e c i a t i o n r a t e s v a r y among d i f f e r e n t p r o p e r t y B.  on  vintages.  PRESENT PUBLISHED DATA 1.  S t a t i s t i c s Canada - S h e l t e r Component of S t a t i s t i c s Canada p u b l i s h e s  which comprises approximately 30$ Therefore,  CPI  an index of housing c o s t s  of the Consumer P r i c e Index.  i t i s necessary t h a t t h i s component a c c u r a t e l y  the t r u e t r e n d o f the c o s t o f h o u s i n g . presented by two  indicies —  reflect  Housing i n the CPI  i s re-  the S h e l t e r Index, c o n t r i b u t i n g  51%  of the index, and  the Household Operations Index, which comprises  the remaining 4-3$  of the housing component of the  The  S h e l t e r Index i s composed of the r e n t index (4-7$),  which i n c l u d e s r e n t a l s (97.7$) and (2.3$).  the c o s t of tenant r e p a i r s  This rent component e s t i m a t e s the p r i c e change of a con-  s t a n t q u a l i t y of r e n t e d accomodation. (22)  index.  I t i s intended  to be  a  C h i n l o y , Peter, "Hedonie P r i c e and D e p r e c i a t i o n Indexed For R e s i d e n t i a l Housing. A L o n g t i t u d i n a l A p p r o a c h ^ . . Department o f Economics, U n i v e r s i t y o f Western O n t a r i o , Mimeograph, 1975•  17. measure o f p r i c e changes only and vailing  not a market measure o f  rents. R e n t a l f i g u r e s are obtained  f o r c e every s i x months and  from a survey o f the  s i n g l e f a m i l y homes, a d j u s t e d  f a c i l i t i e s which the s t r u c t u r e may  The  by for  offer.  "Costs of Household Ownership" comprises the of the S h e l t e r Index.  labour  are based on the a c t u a l r e n t p a i d  i n d i v i d u a l s f o r apartment and  53$  pre-  jremaining  index f o r t h i s component attempts  to t r a c e movements i n the v a r i o u s expenses i n c u r r e d by homeowners: property  taxes (30$), the mortgage i n t e r e s t r a t e (33$), r e p a i r s  (10$) and p r o p e r t y insurance new  (3.0$) and the replacement cost o f  homes (24$). ^The  u s e r c o s t and  new  houses component of the CPI,  i n l i n e with  the  nominal o u t l a y s concept does not c o n s i d e r houses  as a s s e t s i n the consumer's market basket o f purchases. (24) w e i g h t i n g o f the new  houses component,  consumption approach, i s d e r i v e d from the annual d e p r e c i a t i o n of the s t o c k the t a r g e t group".  J l  c o n s i s t e n t w i t h the "replacement c o s t of  o f houses owned and  o f the l a n d and  value  of the p r o p e r t y . ^ ^  value  f o r d e p r e c i a t i o n -- one  the  l i v e d i n by  T h i s i s c a l c u l a t e d by s u b t r a c t i n g  value  The  the  a f a c t o r f o r c a p i t a l a p p r e c i a t i o n , from  the  Thus, t h i s c a l c u l a t i o n w i l l y i e l d a of the c o s t s of homeownership.  (23)  CMHC, Canadian Housing S t a t i s t i c s . 1974,  (24)  The w e i g h t i n g d i f f e r e n t i a l a l s o a f f e c t s the mortgage i n t e r e s t and insurance c o s t components s i n c e these are c a l c u l a t e d as a f u n c t i o n of the p r i c e index f o r the new houses c omponent. DBS The Consumer P r i c e Index f o r Canada (1949=100), Catalogue No. 62^5lb, O c c a s i o n a l , March 1961, p. 15. McFadyen, S., Hobart, R., The Impact o f I n f l a t i o n on the  (25) (26)  p.  100.  Canadian Housing Market, Urban Growth and Land D i r e c t o r a t e , M i n i s t r y o f State f o r Urban A f f a i r s , 1975, Pg. 6.  18. P r e s e n t measures o f t h e " p r i c e o f new houses" a r e based on the movements i n l a b o u r and m a t e r i a l c o s t indexes weighted on the b a s i s o f the p r o p o r t i o n spent i n the base y e a r on these f a c t o r s i n the c o n s t r u c t i o n s t a r t s o f s i n g l e f a m i l y detached The  dwellings,..  labour index i s based on b a s i c wage r a t e s taken from union con-  t r a c t s r e l a t i n g t o the main t r a d e s o f importance employed i n residential construction  ^ (Annual value  o f labour  - 64-008).  A  p r o d u c t i v i t y adjustment o f 2.9$ p e r annum i s a p p l i e d t o the wage rates.  '  The m a t e r i a l s index i s based on l i s t p r i c e s  obtained  from manufacturing ( i . e . M a t e r i a l P r i c e Indexes - 62-007). D i f f e r e n t m a t e r i a l and design requirements found throughout Canada r e q u i r e d i f f e r e n t weights t o the input items f o r each I d e a l l y , a p r i c e change i n these i n p u t should  area.  commodities  r e f l e c t a fundamental change i n supply and demand i n g i v e n  markets and should be among the e a r l i e s t i n d i c a t o r s o f change t h a t may l a t e r be r e f l e c t e d i n the change o f the housing p r i c e index. However, t h i s assumption i s erroneous.  The p r i c e t h a t a new house  w i l l command a t any p o i n t i n time i s , as i n other  commodity  markets, determined by the i n t e r a c t i o n o f demand and supply. Furthermore, the p r i c e o f this^new housing i s determined i n conj u n c t i o n w i t h the p r i c e s o f e x i s t i n g u n i t s which may have been built  s e v e r a l decades ago with d r a m a t i c a l l y d i f f e r e n t c o n s t r u c t i o n  c o s t s and t e c h n o l o g i e s .  The l e v e l o f c o n s t r u c t i o n c o s t s w i l l  a f f e c t the r a t e a t which u n i t s a r e added t o the s t o c k .  only  A lower  l e v e l of construction costs, ceterus paribus, w i l l r e s u l t i n l a r g e r p r o f i t s a c c r u i n g t o the d e v e l o p e r .  (27)  T h i s w i l l i n c r e a s e the  The p r o d u c t i v i t y measure i s c a l c u l a t e d u s i n g the r a t i o o f m a t e r i a l s to labour, i n r e a l terms, l i n e a r i l y r e g r e s s e d overtime. The adjustment has been made s i n c e 1949.  19. r a t e a t which new  u n i t s w i l l be added to the  t h i s premise overlooks  stock.  the e f f e c t s of demand and  Therefore,  supply  i n the  housing market i n determining the p r i c e of housing. The  procedure used a l s o n e g l e c t s  the e f f e c t on p r i c e o f  changes i n s i z e and q u a l i t y of the home, v a r i a t i o n i n c o n s t r u c t i o n industry p r o f i t labour.  r a t e s , and  s u b s t i t u t i o n between m a t e r i a l s  and  More s e r i o u s l y , land c o s t s , the most r a p i d l y i n c r e a s i n g  component of new  house p r i c e s are excluded.  Another shortcoming  of the index i s that housing s t a r t s do not n e c e s s a r i l y imply housing completions i n the y e a r were found to be  same p e r i o d .  o n l y $6%  S t a r t s i n the (28 )  previous  of u n i t s completed.  Many t e c h n o l o g i c a l changes have occurred  i n the  construc-  t i o n i n d u s t r y i n r e c e n t y e a r s which are l i k e l y to have a s u b s t a n t i a l a f f e c t on the s t a t i s t i c a l measurement of p r o d u c t i v i t y so t h a t i t may not be a constant 2.9$ as assumed. Dennis d i s c u s s e s some (29) o f these changes. One  o f the changes i s t h a t there has been a s h i f t  c o n s t r u c t i o n work away from the c o n s t r u c t i o n s i t e to the  of  factory.  F a c t o r y p r o d u c t s used f o r c o n s t r u c t i n g housing are becoming l a r g e r and  more complex.  At the extreme, an e n t i r e s t r u c t u r e can be  duced a t the f a c t o r y and the c o n s t r u c t i o n s i t e .  then simply  transported  and  assembled a t  Thus, t h e r e has been a b l u r r i n g of  d i f f e r e n c e between c o n s t r u c t i o n and  pro-  the  manufacturing.  (28) Baxter, Housing; I t s Your Move. Op. C i t . (29)  Samuel,J. Dennis, "Current Changes i n C o n s t r u c t i o n and T h e i r E f f e c t s on S t a t i s t i c a l Measurements, Bureau of the Census - Proceedings of the Business and S t a t i s t i c a l S e c t i o n . The American S t a t i s t i c a l A s s o c i a t i o n , 19?1, Washington, D.C., pg. 30-39.  20. Another problem i s t h a t more and being provided  more new  withis:fixtures such as g a r b e u r a t o r s ,  homes a r e fridges,  dishwashers, e t c . which were f o r m e r l y  not i n c l u d e d .  it  to decide whether to  i s becoming i n c r e a s i n g l y d i f f i c u l t  stoves,  Therefore,  these a d d i t i o n a l f e a t u r e s as f u r n i s h i n g s or as p a r t of the  regard con-  s t r u c t i o n c o s t s of the home. The changing. the  composition o f r e s i d e n t i a l c o n s t r u c t i o n i s a l s o  A large proportion  of s i n g l e f a m i l y housing i s t a k i n g  form of townhouses o r rowhouses.  multi-family, increasing.  owner-occupied d w e l l i n g s  In a d d i t i o n , the number of b u i l t each y e a r i s  T h i s phenomena i s f u r t h e r c o m p l i c a t e d by  b u i l d i n g s where the f i r s t few  multi-use  f l o o r s of a b u i l d i n g may  be  devoted  to commercial uses, while the upper f l o o r s c o n t a i n condominium units.  P r o d u c t i v i t y f i g u r e s must somehow make adjustments f o r  these changes i f they are t o be  accurate.  As a r e s u l t , the i n t r e p r e t a t i o n a s s i g n e d of the  portion  index i s t h a t i t r e f l e c t s the changes i n the p r i c e s of a  fixed l i s t but  to t h i s  of m a t e r i a l s and  labour i n v o l v e d i n b u i l d i n g a house  does not r e f l e c t the changes i n the market v a l u e o f  the  structure. The  mortgage i n t e r e s t component o f the CPI  on the b a s i s o f the new est r a t e .  house p r i c e index times a weighted  Mortgage i n t e r e s t r a t e s f o r the c u r r e n t p e r i o d  two$:ofo.the o v e r a l l weighted i n t e r e s t r a t e ; the present p r e v i o u s  interest costs.  w i t h the b a s i s o f the o v e r a l l CPI  period.  intercomprise  remaining 98$  re-  T h i s methodology i s i n c o n s i s t e n t concept.  A pure p r i c e index i s  designed to measure changes i n the p r i c e f a c i n g the today.  i s calculated  consumer  Thus the r e l e v a n t i n t e r e s t r a t e i s the r a t e i n the  current  21. Another shortcoming o f the i n t e r e s t c o s t t a b u l a t i o n i s t h a t i t i g n o r e s the mortgage i n t e r e s t c o s t o f e x i s t i n g p r o p e r t i e s and the i n t e r e s t c o s t s on vendor f i n a n c e d m o r t g a g e s . ^ extent t h a t these  d i f f e r from the i n t e r e s t c o s t on new  t h i s w i l l d i s t o r t the index The  housing  To  homes,  considerably.  component of the CPI appears to be  on the nominal o u t l a y s approach. - able because o f the omission  the  prepared  T h i s approach seems q u e s t i o n -  of the investment aspects  of  (31) homeownership. hensive  The u s e r c o s t approach would be more compre-  i n t h a t i n a d d i t i o n to the present  component o f the  index,  i t would a l s o take i n t o account c a p i t a l g a i n s and r e t u r n on owner's e q u i t y .  C a p i t a l gains must be c o n s i d e r e d  s i n c e the  net  c o s t of h o l d i n g a durable a s s e t i s reduced when i t a p p r e c i a t e s i n (32) value over the h o l d i n g p e r i o d .  A r e t u r n on e q u i t y should  be  i n c l u d e d as t h e r e i s an o p p o r t u n i t y c o s t i n c u r r e d by the owner, f o r i f he were to s e l l h i s p r o p e r t y , he c o u l d i n v e s t the money and  earn i n t e r e s t income. The  Household Operations  kj>% of the housing  Index comprises the  component of the CPI.  remaining  T h i s index i s a l s o  based on the nominal o u t l a y s approach and measures the change i n the c o s t s of f u e l , f u r n i t u r e , a p p l i a n c e s , f l o o r c o v e r i n g s , u t e n s i l s and  other s u p p l i e s and  services.  linen,  As such, i t appears t o  be a poor i n d i c a t o r of the c o s t o f housing. (30) Baxter, Housing, I t ' s Your Move. Op. C i t . (31) McFadyen, Hobart, The Impact o f I n f l a t i o n on the Canadian Housing Market, p. 4. ~~~ (32) i cases where p r o p e r t y taxes are dependent on the assessed market value of the p r o p e r t y , the a b s o l u t e h o l d i n g c o s t s may i n c r e a s e but t h e i r impact may not outweigh the e f f e c t of c a p i t a l a p p r e c i a t i o n . n  22. 2.  S t a t i s t i c s Canada - New The  New  House P r i c e s  House P r i c e Index p r o v i d e s an estimate of  r a t e o f change o f new  house p r i c e s f o r twelve l a r g e  a r e a s i n Canada.  index i s based upon the  ported  The  by b u i l d e r s who  b u i l d more than one  the  metropolitan  selling price re-  hundred u n i t s  per  (33)  year i n a c i t y . ^ ' w  The  housing u n i t s i n c l u d e d i n the  a g i v e n b u i l d e r are s e l e c t e d i n such a way of the  sample are r e p r e s e n t a t i v e  sample f o r  t h a t the p r i c e change  o f the p r i c e change o f  b u i l d e r ' s t o t a l s a l e s of housing u n i t s .  In 1971»  the  which i s the  base y e a r f o r the index, the f i r m s r e p o r t i n g p r i c e s accounted f o r between 60 t o 70$ of the areas.  s i n g l e f a m i l y u n i t s t a r t s i n the metro  For each c i t y , weights are a s s i g n e d to each f i r m to r e -  f l e c t the  r e l a t i v e importance of the  f i r m i n the s i n g l e  family  housing market i n each y e a r . The  index r e f l e c t s the change i n the  labour and m a t e r i a l s which the b u i l d e r must pay i d e n t i c a l s t r u c t u r e i n the  costs of to b u i l d  same or comparable l o c a t i o n .  q u a l i t y of the index i s h e l d constant by examining the through the y e a r s .  land, ana The same model  I f the model l o s e s i n s a l e s appeal and  is  r e p l a c e d by another model, the d i f f e r e n c e i n the q u a l i t y between the two  s t r u c t u r e s i s s a i d t o be the d i f f e r e n c e i n the p r i c e s  t h i s difference i s adjusted t h a t may  have occurred  l o c a t i o n occurs,  by the b u i l d e r f o r any  i n b u i l d i n g the new  the p r i c e i s a d j u s t e d  model.  and  change i n c o s t I f a change i n  on a comparison o f the  two  areas as to p h y s i c a l s p e c i f i c a t i o n s and neighbourhood a m e n i t i e s . (33)  There are no indexes f o r Vancouver because the number o f b u i l d e r s c o n s t r u c t i n g the same model of house i n succ e s s i v e p e r i o d s is. not l a r g e enough to be r e p r e s e n t a t i v e of these markets.  23. A possible  shortcoming t o t h i s approach as d i s c u s s e d  (34) by T r i p l e t t , the  ' i s t h a t t h e r e may be a tendency on the p a r t o f  developer to o v e r s t a t e  j u s t i f y a p r i c e change.  the q u a l i t y adjustments i n o r d e r t o  Some developers may contend t h a t  never change a p r i c e without an e q u i v a l e n t  they  change i n q u a l i t y and  that a l l q u a l i t y changes a r e always t r a n s m i t t e d  i n t o p r i c e changes.  As a r e s u l t , pure p r i c e changes may be u n d e r s t a t e d . Whether a r e p o r t e d  c o s t change can l e g i l a i n a t e i y be r e -  garded as a q u a l i t y change a l s o poses a problem. be able  A developer may  t o a c h i e v e economies o f s c a l e i n l a b o u r o r t e c h n i c a l  e f f i c i e n c y i n a p a r t i c u l a r p r o j e c t i n one y e a r l e a d i n g t o a r e duction  i n costs.  I t i s a l s o p o s s i b l e that he may, i n another  project, i n c u r r unusually high costs conditions,  etc.  subsoil  A change i n c o s t s here, does not n e c e s s a r i l y  imply a change i n q u a l i t y . by c o n s t r u c t i o n  due t o d i f f i c u l t  Thus an adjustment o f s e l l i n g  prices  c o s t data t o r e f l e c t a change i n q u a l i t y c a n  s e r i o u s l y b i a s the p r i c e index. The  major shortcoming o f t h i s index i s that i t too i s  based on the premise t h a t a change between the p r i c e s o f d i f f e r e n t d w e l l i n g s i s due t o the d i f f e r e n c e i n input  costs.  An i n c r e a s e  i n q u a l i t y i s not n e c e s s a r i l y r e f l e c t e d i n h i g h e r c o s t s which a r e then r e f l e c t e d i n h i g h e r house p r i c e s .  As d i s c u s s e d  i n the p r e -  v i o u s s e c t i o n , house p r i c e s a r e s e t i n the market through the i n t e r a c t i o n o f demand and supply.  Construction  c o s t s w i l l not  a f f e c t the p r i c e o f h o u s i n g . (34) T r i p l e t t , Jack, " Q u a l i t y B i a s i n & P r i c e Indexes and New Methods o f Q u a l i t y Measurements," P r i c e Indexes and Q u a l i t y Change, G r i l i c h e s , Z. (ed.), Harvard U n i v e r s i t y  Press, 1971, pg. 180-212.  24. The  sampling procedure used by S t a t i s t i c s Canada i s a l s o  open t o q u e s t i o n .  The s m a l l developers t h a t have been omitted by  the survey, w h i l e i n d i v i d u a l l y not a l a r g e p a r t o f the market, may d i f f e r s i g n i f i c a n t l y i n the v a l u e and q u a l i t y o f housing they produce.  Small developers may d i f f e r from the l a r g e r developers  i n t h a t t h e i r homes a r e not u s u a l l y c o n s t r u c t e d i n l a r g e s i o n s but i n s m a l l areas s c a t t e r e d over the c i t y .  subdivi-  Large  developments, on the o t h e r hand tend t o be l o c a t e d i n on the p e r i phery o f the c i t y where l a r g e t r a c t s o f land a r e a v a i l a b l e . there may be a p r i c e d i f f e r e n t i a l due to l o c a t i o n a l  Thus,  differences.  Some o f the developers omitted may be custom b u i l d e r s who a r e a b l e to charge premiums f o r t h e i r s e r v i c e s .  T h e r e f o r e , the o m i s s i o n o f  t h i s segment o f the housing market may s i g n i f i c a n t l y i n f l u e n c e the behaviour o f the index. 3.  C. M. H. C. C e n t r a l Mortgage and Housing C o r p o r a t i o n does not pub-  l i s h a housing p r i c e index b u t does p r o v i d e some house p r i c e data i n i t s annual p u b l i c a t i o n , Canadian Housing S t a t i s t i c s .  Since  19?4, the average p r i c e s o f new NHA f i n a n c e d housing f o r 24 c i t i e s and 20 major urban areas has been p u b l i s h e d . The p r i c e data i s obtained from f i n a n c i a l  institutions  that g r a n t NHA mortgages and the p u b l i s h e d p r i c e i s an unweighted mean of a l l s a l e s o f new houses f i n a n c e d under the N a t i o n a l Housing A c t .  S a l e s p r i c e s a r e a l s o p u b l i s h e d on NHA f i n a n c e d  e x i s t i n g d w e l l i n g s and a r e c o l l e c t e d i n much the same manner. These p r i c e s have been used as a g e n e r a l p r i c e index by the government.  The major shortcoming o f the data i s t h a t i t i s  r e s t r i c t e d by the method o f f i n a n c i n g —  a l l p r o p e r t i e s have NHA  25. i n s u r e d mortgages.  The number o f loans f i n a n c e d has f l u c t u a t e d  through time i n response t o the changing terms o f these loans w i t h r e s p e c t t o i n t e r e s t r a t e s , l o a n t o value r a t i o s , and a m o r t i z a t i o n periods.  Most s e r i o u s , however, a r e the l i m i t s set on the l o a n  amounts  T h i s tends, e s p e c i a l l y i n p e r i o d s o f r a p i d i n f l a t i o n , t o  s  t r u n c a t e the t o p p a r t o f the market and the average p r i c e o f t h e NHA  house w i l l then be downward b i a s e d .  The s i z e o f t h e sample  w i l l a l s o v a r y w i t h the f i n a n c i a l c o n d i t i o n s .  I n some areas i t  can be so s m a l l as t o be s t a t i s t i c a l l y i n s i g n i f i c a n t .  Thus, on  the whole the t r e n d produced by CMHC s t a t i s t i c s i s u n r e l i a b l e . CMHC housing c o s t s were converted i n t o a simple index form and compared t o t h e two housing indexes p u b l i s h e d by S t a t i s t i c s Canada.  (See Table 1 ) .  There appeared  t o be no correspondence  between the CMHC index and the o t h e r two i n d i c i e s .  26. TABLE I COMPARISON OF' PRICE DATA (1971 l°°) a  CITY  Montreal  (4)  Toronto  (6)  Ottawa-Hull  (6)  YEAR  NEW HOUSE PRICE INDEX ( 1 )  REGIONAL CITIES HOUSING COMPONENT 1 2 )  C.M.H.C i l l  1971 1972  100.0  100.0 101.6  .100.0 101.0 114.8 130.8  1973 1974 1975  (4)  h)  Edmonton  (4)  104.5 112.3 122.6  1971 1972  100.0 110.2  1975  171.6 171.0  100.0 102.1 106.3 115.1 126.4  190.3  1973 1974  137.6  1971 1972 1973  100.0 112.0 138.2 171.2  *(5)  ^  100.0 105.4 109.3  89.9 *(5)  100.0 98.0 103.0 102.4  178.3  100.0 103.1 107.8 116.8 127.4  100.0 105.2 128.4 163.5 177.5  100.0 102.4 106.1 115.5 130.3  100.0  100.0 110.0 I26.4 162.3  100.0  1975  195.0  N/A N/A lN/A 111.8 125.7  1971 1972  100.0 109.1 132.6 172.8 205.3  N/A N/A N/A  100.0  1971 1972  1973 1974 1975  Calgary  125.8  177.7  1974 1975  Winnipeg  107.6  1971 1972  1973 1974  1973 1974 1975  117.7 131.4  *(5) 99.3 116.9 128.3  *(5) 104.4 113.5 131.5  *(5)  106.6  118.9 131.1  *(5)  27  COMPARISON OF PRICE DATA (Cont'd) Source:  S t a t i s t i c s Canada. C a t . No. 62-OO7.  Source:  S t a t i s t i c s Canada, C a t . No. 6 2 - 0 0 2 .  Source:  S e l f t a b u l a t e d index on b a s i s o f "Dwelling C o s t " f i g u r e i n Canadian Housing S t a t i s t i c s , t a b l e "Average D w e l l i n g C o s t s , Down Payments, P r i n c i p a l and I n t e r e s t , Taxes and Gross Debt S e r v i c e f o r New Housing Under the N a t i o n a l Housing A c t , Canada by Urban Areas, ( D o l l a r s ) " . "Dwelling Cost" i s based on "owners and a c c e p t a b l e purchasers a t time of s a l e " .  Data r e f e r s t o s i n g l e f a m i l y d w e l l i n g s f o r t h a t c i t y i n a l l indexes. T h i s t a b l e was n o t g i v e n i n 1975• No f i g u r e was p u b l i s h e d as t o the average p r i c e o f NHA f i n a n c e d homes by Urban A r e a . Data r e f e r s t o s i n g l e f a m i l y d w e l l i n g s f o r t h a t c i t y f o r a l l indexes w i t h the e x c e p t i o n o f the New House P r i c e Index where the index i n c l u d e s s i n g l e f a m i l y d w e l l i n g s and condominiums.  28. 4.  Multiple L i s t i n g s Service Multiple L i s t i n g s Service  (MLS) data are another source  of p r i c e i n f o r m a t i o n used to i n d i c a t e house p r i c e s .  While the  data i s a t t r a c t i v e i n t h a t i t i s r e a d i l y a v a i l a b l e and p r o v i d e s a wealth of i n f o r m a t i o n  about i n d i v i d u a l l i s t i n g s , t e s t s have  shown that i t i s not a r e l i a b l e i n d i c a t o r o f house p r i c e s . The  major shortcoming o f MLS data i s that i t does not  have a complete coverage o f a l l s a l e s as i t omits a l l p r i v a t e and exclusive sales. proportions  Since  these excluded s a l e s make up v a r y i n g  o f t o t a l house s a l e s i n any p e r i o d and t h e i r p r i c e s  may d i f f e r from those i n the MLS data, complete r e l i a n c e on MLS p r i c e data c o u l d prove Varying  critical.  proportions  o f t o t a l house s a l e s a r e s o l d  through the MLS i n any p e r i o d , depending on how " s o f t " the market is.  In a buyer's market, i t i s expected t h a t more homes would be  s o l d through MLS as most people would want the exposure of t h e i r homes that the l i s t i n g s p r o v i d e .  Conversely, i n a s e l l e r ' s mar-  k e t , i t would be expected that more homes would be s o l d p r i v a t e l y . Thus, omission o f p r i v a t e and e x c l u s i v e s a l e s would a f f e c t the index  accordingly. MLS data a l s o has a tendency t o under-represent more  expensive homes.  The reason f o r t h i s i s t h a t these homes have a  l i m i t e d market and r e q u i r e the e x t r a a t t e n t i o n that an e x c l u s i v e l i s t i n g provides. concentrated  Since the more expensive homes tend to be  i n c e r t a i n geographic areas o f the c i t y , the s p a t i a l  scope of the MLS data i s a l s o l i m i t e d .  The i m p l i c a t i o n s o f the  (35) Hamilton, S.W., "House P r i c e I n d i c i e s : Theory and P r a c t i c e " Housing: I t ' s Your Move. U n i v e r s i t y o f B r i t i s h Columbia,  Vancouver,  1976, pp. 383-418.  29. under-representation impact on the  o f h i g h e r p r i c e d homes w i l l have an  important  index.  An average s e l l i n g p r i c e f i g u r e f o r homes i s p u b l i s h e d monthly by the S e r v i c e . all  However, t h i s f i g u r e i n c l u d e s not  only  the r e s i d e n t i a l s a l e s i n t h a t month but commercial and  t r i a l p r o p e r t i e s as w e l l .  indus-  Moreover, t h i s index i s f u r t h e r b i a s e d  by the v a r y i n g p r o p o r t i o n s t h a t each p r o p e r t y use makes up of the t o t a l MLS 5.  s a l e s each month.  TEELA TEELA i s a marketing survey company which p u b l i s h e s i n -  f o r m a t i o n c o l l e c t e d from the Land R e g i s t r y O f f i c e f i l e s t r a n s a c t i o n s and mortgages. index per se, i t was  While the agency does not p u b l i s h an  i n v e s t i g a t e d as a p o s s i b l e source  f o r the f o r m u l a t i o n of an  of TEELA  o f data  index.  S e v e r a l shortcomings have been found i n the about the use  on  literature  data.  In theory, TEELA i s supposed to r e c o r d a l l the r e c o r d s w i t h i n a g i v e n area d u r i n g a g i v e n p e r i o d .  property  However, i t  has been found  t h a t many t r a n s a c t i o n s have o c c u r r e d t h a t TEELA  has not r e c o r d e d .  The  extent of t h i s problem i s unknown but i t  does c a s t doubts on the accuracy The  of t h i s  dates p r o v i d e d on the TEELA cards are not the  o f s a l e s of p r o p e r t i e s and have no date.  data.  standard  As such, t h i s makes i t v e r y d i f f i c u l t  dates  r e l a t i o n t o the s a l e s to o b t a i n p r i c e  averages f o r short term p e r i o d s . (36)  Dale-Johnson, D., Housing Market Data, Urban Land Economics D i v i s i o n , F a c u l t y of Commerce and Business A d m i n i s t r a t i o n , U n i v e r s i t y of B r i t i s h Columbia, prepared f o r the Department o f Housing, Government of B r i t i s h Columbia,  1976.  30. Thus any attempts t o use TEELA i n f o r m a t i o n  f o r purposes  of c o n s t r u c t i n g an index should be t r e a t e d w i t h d i s c r e t i o n . 6.  Other I n d i c i e s Two Canada-wide r e a l e s t a t e f i r m s —  L i m i t e d and Royal T r u s t Canadian c i t i e s .  —  A. E. LePage  c u r r e n t l y p u b l i s h house p r i c e data f o r  This information  i s l a r g e l y provided  as a s e r -  v i c e t o t h e i r agents and customers r a t h e r than as an i n d i c a t o r of p e r i o d to p e r i o d changes i n p r i c e s . The  Royal T r u s t data i s o f p a r t i c u l a r i n t e r e s t as i t  attempts t o m a i n t a i n a somewhat constant houses on which the p r i c e q u o t a t i o n s  q u a l i t y concept i n the  are g i v e n .  P r i c e s have been  compared, c i t y by c i t y , on two i d e n t i c a l house models through the years. handles.  Both homes a r e t y p i c a l o f the s t y l e that the f i r m u s u a l l y The main advantage o f t h i s p r i c e data i s t h a t  p r i c e changes have been r e p o r t e d  since  on i d e n t i c a l l y s p e c i f i e d u n i t s  from p e r i o d t o p e r i o d , a l l p r i c e v a r i a t i o n s can be c o n s i d e r e d "pure" p r i c e changes.  as  31. CHAPTER 3 -' *-"•:  STATISTICAL AND  CONCEPTUAL PROBLEMS  T h i s c h a p t e r w i l l review the c r i t e r i a t h a t an index must meet. c e p t u a l and  Included  accurate  i n t h i s , i s a d i s c u s s i o n o f the c o n -  s t a t i s t i c a l problems a s s o c i a t e d w i t h the d e s i g n  of  i n d i c i e s , such as they p e r t a i n to h o u s i n g . A.  STATISTICAL PROBLEMS 1.  Sampling Procedure Since i t i s i m p o s s i b l e  to i n c l u d e and  p r i c e a l l the  homes i n the housing u n i v e r s e , i t t h e r e f o r e becomes n e c e s s a r y to choose a sample from the s t o c k . from each other and may  As each house sampled may  command a d i f f e r e n t p r i c e , i t becomes  n e c e s s a r y to sample a r e p r e s e n t a t i v e number of homes from stock and  to estimate  differ  an average or median p r i c e .  the  However, as  only a s m a l l p r o p o r t i o n of a l l the houses i n the stock and/or sample turnover  i n any p e r i o d , i t w i l l be these homes and  the e n t i r e sample t h a t w i l l provide The  not  our data base.  major problem w i t h the e x i s t i n g data are t h a t they (37)  have an unknown e s t i m a t i n g e r r o r . f a i l u r e s i n sampling have been due with unknown u n i v e r s e s .  According  to Maisel,  "  t o the f a c t t h a t they d e a l  This occurs,  f o r example, when MLS  N.H.A. f i g u r e s are used as measures o f a l l s a l e s w i t h i n universe.  past  I t i s unknown what percentage of a l l sales are  or  the placed  through the M u l t i p l e L i s t i n g s S e r v i c e or what percentage o f a l l s a l e s are f i n a n c e d under the N a t i o n a l Housing A c t . T h i s problem i s f u r t h e r aggravated by the f a c t t h a t (37)  M a i s e l , S. "Housing Data obtained By Sampling P u b l i c Records", Land Economics V o l . 30-31, 1954-55t PP.  257-268.  the  32. above procedure, while i t does p r o v i d e data on s a l e s , p r o v i d e s no i n f o r m a t i o n c o n c e r n i n g the r e l a t i o n s h i p between t h i s  price  data and the value o f the housing s t o c k , t o which t h i s p r i c e i s said to pertain to.  data  The e x i s t i n g data today c o n t a i n s an  unidentified hybrid of properties. The  sample, i n o r d e r t h a t i t be r e p r e s e n t a t i v e o f the  u n i v e r s e , must be composed o f a l l p r o p e r t i e s , r a t h e r than o f p r o p e r t i e s which have j u s t s o l d .  F o r each p r o p e r t y i n the sample,  s a l e s data should then be o b t a i n e d .  I n t h i s manner the r e s u l t s  can be a n a l y z e d i n terms o f a l l housing u n i t s i n the u n i v e r s e and not j u s t t h a t p o r t i o n o f the u n i v e r s e t h a t has s o l d through the M.L.S. o r has been N.H.A. f i n a n c e d .  R e l a t e d t o t h i s , i s the need  f o r knowledge about t u r n o v e r r a t e d u r i n g each p e r i o d so t h a t the sample c a n be weighted.  Weighting  i s d e s i r a b l e f o r two reasons.  F i r s t , weighting e l i m i n a t e s some o f the s t a t i s t i c a l  distortions  i n the index, i n t h a t i t c o n t r o l s f o r s h i f t s i n the t u r n o v e r among homes o f d i f f e r i n g q u a l i t i e s i n each y e a r .  T h i s w i l l be  f u r t h e r e l a b o r a t e d upon i n the f o l l o w i n g s e c t i o n .  Secondly,  weighting the sample by some f a c t o r t h a t a c t u a l l y r e p r e s e n t s the composition o f the sample w i t h r e s p e c t to t h a t f a c t o r , changes the meaning o f the index i n t h a t i t becomes r e p r e s e n t a t i v e o f the p r i c e changes o f the sample (and hence the s t o c k ) , and i s not merely r e p r e s e n t a t i v e o f the p r o p e r t i e s s o l d .  Without  w e i g h t i n g , we have t o make the r a t h e r s t r o n g assumption  t h a t the  p r i c e o b t a i n e d i n any p e r i o d r e p r e s e n t s the e n t i r e market. I d e a l l y , a permanent sample s h o u l d be drawn from the e n t i r e housing stock o f the u n i v e r s e t o be s t u d i e d .  A l l trans-  a c t i o n s c o n c e r n i n g these p r o p e r t i e s may then be o b t a i n e d from  33. the c e n t r a l l a n d r e g i s t r y system i n the a r e a .  T r a n s a c t i o n s con-  c e r n i n g these p r o p e r t i e s can, i n most c a s e s , be t r a c e d back to the o r i g i n a l owner o f the p a r c e l or to a d e s i r e d date of o r i g i n of the index, as a l l h i s t o r i c a l r e c o r d s are k e p t . a l s o be updated each y e a r as new  The data can  t r a n s a c t i o n s on the p r o p e r t i e s  occur. 2.  A d d i t i o n s To The The  about two  Stock  stock of housing i n Canada c u r r e n t l y i n c r e a s e s by  to three percent each y e a r though t h i s r a t e  f l u c t u a t e between a r e a s .  may  I t i s n e c e s s a r y to up-date the sample,  through an examination o f b u i l d i n g p e r m i t s , ^ p r e s e n t a t i v e o f the changing housing s t o c k .  t  o  make i t r e -  However, t h i s  poses  a major problem where the q u a l i t y of the index i s concerned. The dileraa i s whether to m a i n t a i n a constant q u a l i t y of the index i t s e l f by adding o n l y a constant number of  new  houses each y e a r t o the sample or t o m a i n t a i n a r e p r e s e n t a t i v e sample of the stock by a l l o w i n g an a d d i t i o n i n some p r o p o r t i o n o f the new  houses b u i l t each y e a r (what p r o p o r t i o n ? ) , though the  number of new  homes b u i l t each y e a r may  vary.  The a l t e r n a t i v e t h a t i s chosen w i l l a l s o i n f l u e n c e the t u r n o v e r r a t e f o r t h a t y e a r and subsequent usually sold shortly a f t e r construction.  years.  New  homes are  Consequently,  the  a d d i t i o n s to the sample w i l l i n v a r i a b l y i n c r e a s e the t u r n o v e r r a t e i n t h a t y e a r as they w i l l have a g r e a t e r l i k e l i h o o d o f b e i n g s o l d than the r e s t of the sample. The number o f new (38)  a d d i t i o n s t o the sample w i l l  also  s i n c e b u i l d i n g permits i s s u e d do not e q u a l b u i l d i n g compl e t i o n s i n any y e a r , a more accurate-method of o b t a i n i n g a measare o f the a d d i t i o n s t o the stock, may be the new a d d i t i o n s to the assessment r o l e , i f i t i s p o s s i b l e t o i d e n t i f y these on the r o l e .  34  i n f l u e n c e the t u r n o v e r r a t e i n subsequent years as the t u r n o v e r i s c a l c u l a t e d as the number o f homes b e i n g s o l d i n a p e r i o d as a percentage period.  o f the t o t a l u n i v e r s e o f homes e x i s t i n g i n t h a t  The a d d i t i o n s t o the sample i n each y e a r w i l l become  p a r t o f t h a t t o t a l u n i v e r s e i n subsequent y e a r s . Another problem r e l a t e d to u p d a t i n g the sample i s the maintenance o f the i n i t i a l l y cision.  p r e s c r i b e d degree o f sampling  pre-  I d e a l l y , the sampling p r e c i s i o n should be kept c o n s t a n t  through time but changes i n t o t a l stock w i l l r e q u i r e changes i n the sample s i z e .  I f the number o f homes r e q u i r e d t o m a i n t a i n  sampling p r e c i s i o n i s not equal t o the number o f to  homes r e q u i r e d  keep our index q u a l i t y c o n s t a n t , o r t o m a i n t a i n r e p r e s e n t a t i v e -  ness o f the age d i s t r i b u t i o n o f the stock, some s o r t o f agreement (39) must f i r s t be reached. 3.  Demolitions P r o p e r t i e s which a r e demolished  from the sample immediately  should be e l i m i n a t e d  a f t e r d e m o l i t i o n and n o t i n c l u d e d as  p a r t o f the s t o c k . 4.  Sampling  Over Geographic  Areas  A housing index c r e a t e d f o r a p a r t i c u l a r p a r t o f Canada i s n o t a p p l i c a b l e to Canada as a whole due to'; the nature o f the r e a l e s t a t e market.  Housing  i s produced  d i f f e r e n t m u n i c i p a l c o n d i t i o n s (e.g. minimum l o t s i z e , requirements) (39)  local  under servicing  and may not be comparable i n the m a t e r i a l s used  T h e o r e t i c a l l y , i t has been found t h a t the l a r g e r the u n i v e r s e , the s m a l l e r the p r o p o r t i o n a t e sample s i z e r e q u i r e d t o be r e p r e s e n t a t i v e . of the h o u s i n g stocks- For example a 100,000 population s i z e may r e q u i r e a 5 $ ( i . e . 5 » ° 0 0 ) sample t o be s t a t i s t i c a l l y s i g n i f i c a n t a t a g i v e n c o n f i d e n c e i n t e r v a l , w h i l e a 200,000 p o p u l a t i o n may r e q u i r e o n l y a 1.5$ ( i . e . 3.000) sample t o be s t a t i s t i c a l l y s i g n i f i c a n t f o r the same l e v e l o f sampling p r e c i s i o n . T h i s would r e q u i r e a r e d u c t i o n i n the sample s i z e through time as the t o t a l housing s t o c k grew, i f a c o n s t a n t degree o f sampling p r e c i s i o n were t o be maintained.  3$. (e.g. b r i c k versus stucco) and the types o f housing c o n s t r u c t e d (e.g. condominiums, no basements).  I f individual regional  indicies  are aggregated i n t o a n a t i o n a l index, each r e g i o n must be a s s i g n e d an a p p r o p r i a t e weight.  Even so, e r r o r i s i n e v i t a b l e i n the a p p l i -  c a t i o n o f the index t o any s p e c i f i c a r e a . I t must a l s o be noted t h a t i n d i c i e s ^ c o m p i l e d f o r d i f f e r e n t r e g i o n s do not p r o v i d e a v a l i d b a s i s f o r i n t e r - c i t y  comparisons  as base y e a r p r i c e s may have been extremely h i g h o r low i n one city. 5.  Sampling W i t h i n A G e o g r a p h i c a l Area A r e p r e s e n t a t i v e sample o f the e n t i r e housing stock  must be chosen and t h i s sample i s c r i t i c a l i n determining the q u a l i t y o f the index. I t i s a l s o important t h a t there be r e c o g n i t i o n o f the b a s i c d i f f e r e n c e between a " l a r g e " v e r s u s a "good" sample. sample chosen must be done w i t h s t a t i s t i c a l 6.  Any  precision.  Seasonal V a r i a t i o n I t may be necessary t o a d j u s t t h e index f o r seasonal  f l u c t u a t i o n s i n the t u r n o v e r r a t e .  This i s p a r t i c u l a r l y  import-  ant f o r e a s t e r n Canada where the r e s i d e n t i a l c o n s t r u c t i o n i n d u s t r y v i r t u a l l y shuts down d u r i n g the w i n t e r months.  The l a t e  spring  and summer months a r e marked by a l a r g e number o f new homes coming on the market.  T h i s i n c r e a s e i n c o n c e n t r a t i o n o f new  housing t u r n o v e r i n one p a r t i c u l a r p e r i o d w i l l s t r o n g l y i n f l u e n c e the behaviour o f the index.  T h i s adjustment  would n o t be nece-  s s a r y i n a r e g i o n such as Vancouver where r e s i d e n t i a l c o n s t r u c t i o n i s c a r r i e d out on a year-round 7.  basis.  Base P e r i o d The base p e r i o d s e l e c t e d should not be one i n which  36.  e r r a t i c p r i c e movements a r e o c c u r i n g o r i n extreme economic  conditions.  underlying  There must be a s t a b l e base to serve f o r  comparative changes i n the p r i c e l e v e l through time. 8.  Tenure Type Not a l l homes s o l d i n the market a r e f o r owner occupancy  purposes.  Some of the p r o p e r t i e s purchased are f o r investment  purposes and are l e a s e d out. The q u e s t i o n a r i s e s as to whether owner-occupied  units  would not command a d i f f e r e n t p r i c e from the r e n t a l u n i t s . S e p a r a t i n g the owner-occupied u n i t s from the tenant o c c u p i e d u n i t s would be an i m p o s s i b l e t a s k .  As such, a second q u e s t i o n  a r i s e s as t o whether apartment b u i l d i n g s s h o u l d not a l s o be i n c l u d e d i n the sample as they too are h o u s i n g u n i t s used f o r r e n t a l purposes. In response t o the second q u e s t i o n , the e x c l u s i o n o f apartment b u i l d i n g s can be j u s t i f i e d on two grounds.  The  first  and the most obvious r e a s o n i s t h a t f o r the purposes o f formul a t i n g an i n d e x we wish to keep the q u a l i t y o f the goods i n the index as homogeneous as p o s s i b l e .  There i s an enormous q u a l i t y  d i f f e r e n c e between apartment b u i l d i n g s and s i n g l e f a m i l y houses, b o t h i n terms of the q u a l i t y o f the p h y s i c a l u n i t i t s e l f and i n terms o f the q u a l i t y o f housing s e r v i c e s o f f e r e d by the two  units.  T h e r e f o r e , f o r purposes o f m a i n t a i n i n g a homogeneous q u a l i t y i n the items i n our index, apartment u n i t s s h o u l d be t r e a t e d separately. Secondly, whereas the r e n t s charged on s i n g l e f a m i l y detached u n i t s and those charged on m u l t i - f a m i l y u n i t s are d e t e r mined i n the same market, the c a p i t a l v a l u e s f o r the two  different  37. s t r u c t u r e s a r e determined  i n separate markets.  Since f o r the  purposes o f o u r index we a r e concerned w i t h c a p i t a l v a l u e s o n l y , m u l t i - f a m i l y s t r u c t u r e s should be excluded from our sample. I n response t o the f i r s t q u e s t i o n posed above, the c a p i t a l v a l u e s o f homes f o r owner occupancy and r e n t a l are j o i n t l y determined  i n the same market.  purposes  T h e r e f o r e , there i s  no reason t o separate (even i f p o s s i b l e ) these two tenure types i n f o r m u l a t i n g an index for, s i n g l e f a m i l y detached d w e l l i n g s . The concept o f tenure does not present a problem i f the purpose  o f the index i s d e f i n e d as measuring  the change i n  the p r i c e o f the stock o f s i n g l e f a m i l y detached houses.  In t h i s  d e f i n i t i o n , a l l s i n g l e f a m i l y detached u n i t s w i l l be i n c l u d e d , r e g a r d l e s s o f tenure t y p e . 9.  Treatment  o f "New P r o d u c t s "  U n t i l v e r y r e c e n t l y , the "treatment o f new p r o d u c t s " problem would not have been encountered housing i n d e x .  i n the c o n s t r u c t i o n o f a  However, as a r e s u l t o f changing t a s t e s , incomes  and technology, the condominium has come i n t o b e i n g and i s winn i n g a major share o f the housing market. condominium p r e s e n t s a s e r i o u s problem  The treatment o f the  as t o how i t i s t o be  i n t r o d u c e d i n t o the index. Again, the problem  i s one o f m a i n t a i n i n g a constant  q u a l i t y among the items i n our index.  As w i t h apartments, the  p h y s i c a l u n i t and the type o f housing s e r v i c e s o f f e r e d by the condominium u n i t and a s i n g l e f a m i l y home d i f f e r . Since the condominium u n i t ,  i s a r e l a t i v e l y new pheno-  mena and s i n c e they d i f f e r " q u a l i t a t i v e l y " , i t i s unknown as t o whether t h e i r p r i c e s a r e determined  i n the same market as s i n g l e  38. f a m i l y homes. Due two,  i t may  t o the l a r g e d i f f e r e n c e s t h a t e x i s t between the  be b e s t t o c o n s t r u c t separate i n d i c i e s f o r each.  Should t h e i r p r i c e movements p a r a l l e l each other, these i n d i c i e s c o u l d then be aggragated w i t h a weighted base; the w e i g h t i n g b e i n g i n p r o p o r t i o n to each's r e l a t i v e share of the housing market. B.  CONCEPTUAL PROBLEMS D i f f i c u l t i e s i n the f o r m u l a t i o n o f a housing index  a r i s e s i n p a r t because  houses a r e durable goods.  The CPI  attempts  to measure the changes over time i n the p r i c e of a f i x e d market basket of goods and s e r v i c e s consumed by a g i v e n t a r g e t group i n a s e l e c t e d base p e r i o d .  F o r non-durables, purchase and consump-  t i o n are r o u g h l y synonomous and thus market p r i c e s can be used for pricing.  With housing however, the consumption  g r e a t e r than the l e n g t h o f the p r i c i n g p e r i o d .  period i s  T h e r e f o r e market  data cannot p r o v i d e an a c c u r a t e guide to e i t h e r the q u a n t i t y con(40) sumed o r the consumption  c o s t i n any g i v e n p e r i o d . (Li)  Three approaches  have been suggested by S t e i n e r  x  for  t r e a t i n g consumer durable goods such as housing: 1.  An index of the p r i c e s o f a s s e t s purchased  ( o r con-  t r a c t e d f o r ) by members of the index p o p u l a t i o n s . 2.  An index of the c u r r e n t (nominal) o u t l a y s out of income made by member's o f the index p o p u l a t i o n .  (40) McFayden, S., Hobart, R., The Impact o f i n f l a t i o n on the Canadian Housing Market, M i n i s t r y of S t a t e f o r Urban A f f a i r s , 1976. (41) S t e i n e r , P., "Consumer Durables i n an Index of Consumer P r i c e s " , The P r i c e S t a t i s t i c s of the F e d e r a l Government, S t a f f - P a p e r No. 6, (New York: N a t i o n a l Bureau of Economic Research), 1961.  39. 3.  An index o f t h e u s e r ( o r o p p o r t u n i t y ) c o s t o f consuming the s e r v i c e s produced by the a s s e t s i n question. "For  goods o f v e r y s h o r t d u r a b i l i t y , the concepts  become v i r t u a l l y i d e n t i c a l } f o r goods o f s u b s t a n t i a l d u r a b i l i t y , but which a r e t y p i c a l l y h e l d f o r t h e i r whole u s e f u l l i v e s and which a r e purchased r e g u l a r l y , the  concepts d i f f e r , but t h e three tend t o the same  r e s u l t . . . F o r commodities o f long d u r a b i l i t y t h a t are p e r f o r c e purchased only i n t e r m i t t e n t l y because the amount o f expenditure ( o r investment) on the i n d i v i dual a c q u i s i t i o n i s a l a r g e f r a c t i o n o f annual income, the  d i f f e r e n c e s i n the three approaches become sub-  s t a n t i a l where i n a d d i t i o n the a s s e t s a r e t y p i c a l l y not  h e l d throughout t h e i r f u l l u s e f u l l i v e s , the  d i f f e r e n c e s become extreme.  These c o n d i t i o n s a r e  s t r i k i n g l y p r e s e n t w i t h r e s p e c t t o homeownership, and to  a somewhat l e s s e r extent w i t h automobile purchase «(4-2) and u s e . Steiner's f i r s t  approach would p r o v i d e the best  method f o r an index f o r the p r i c e o f housing as a p h y s i c a l good. Both the c u r r e n t nominal o u t l a y s approach and the u s e r c o s t approach attempt t o measure the c o s t o f consuming a f l o w o f housing s e r v i c e s .  These l a t t e r approaches a r e more s u i t e d f o r  index i n c o r p o r a t i o n i n t o the CPI. the  a s s e t p r i c e approach w i l l be  (4-2) i b i d , p. 305.  F o r the purposes o f t h i s paper, examined.  40 The major q u e s t i o n w i t h regards t o the r e l i a b i l i t y o f the a s s e t p r i c e approach t o a housing p r i c e index r e l a t e s t o the  (43) q u a l i t y problem.  T h i s problem may a r i s e i n t h r e e ways.  F i r s t , the q u a l i t y o f the index may change due t o a displacement through be  o f s a l e s o f one v a l u e range by another v a l u e range  time.  Thus, a change r e f l e c t e d i n the index may p a r t i a l l y  due t o a s h i f t i n the d i s t r i b u t i o n o f s a l e s a c r o s s value  ranges r a t h e r than r e s u l t from a "pure" p r i c e change i n the p r i c e o f housing.  The impact  o f a v a r y i n g sample i n a market  w i t h many house types can be c o n s i d e r a b l e .  Consider the f o l l o w -  i n g example: TABLE I I  Year  Average Price  -  Price.Index (Year I 100) .s  of S a l e s i n High Value Range & Average P r i c e r i n t h a t Range  % o f Sales i n Low Value Range &'Average P r i c e i n t h a t Range  I  $56,000  100  50$  $60,000  50$  $40,000  11(a)  $47,500  95  25$  $70,000  75$  $40,000  11(b)  $55,000  110  50$  $70,000  50$  $40,000  A c c o r d i n g t o Table I I , average house p r i c e s f e l l  from  $50,000 i n Year I t o $47,500 i n Year I I , r e p r e s e n t i n g a f i v e cent d e c l i n e .  T h i s same t a b l e however, shows the  o f s a l e s i n the two y e a r s by v a l u e range.  per-  distribution  I n Year I , f i f t y  per-  cent o f the s a l e s each took p l a c e i n one o f the v a l u e ranges and the average p r i c e f o r t h a t y e a r i s a weighted average o f these two v a l u e ranges.  I n the f o l l o w i n g y e a r however, t h r e e times as  many homes were s o l d i n the low value range as i n the h i g h v a l u e (^3) The f o l l o w i n g a n a l y s i s r e l i e s h e a v i l y on S. w. Hamilton's "Housing P r i c e Indexes: Theory and P r a c t i c e , Housing. I t ' s Your Move, UBC, Vancouver, 1976, pg. 383-416.  41.  range.  T h e r e f o r e , the unweighted average of these p r i c e s would  r e f l e c t a d e c l i n e i n the average p r i c e as a r e s u l t of the  shift  i n the d i s t r i b u t i o n of s a l e s from the h i g h value range t o the value range.  low  However, the a b s o l u t e p r i c e i n the h i g h v a l u e range  had i n f a c t i n c r e a s e d and had the d i s t r i b u t i o n o f s a l e s between value ranges been the same as i n Year I , the index would have r e f l e c t e d a t e n percent i n c r e a s e i n house p r i c e s f o r t h a t y e a r (Year I I ( b ) ) .  T h e r e f o r e , f a i l u r e to a d j u s t f o r t h i s has b i a s e d  the p r i c e index downwards. A second problem a r i s e s from the unique nature of r e a l e s t a t e as to l o c a t i o n , c o n d i t i o n , type, e t c . dexes every good possesses  In most p r i c e i n -  the same c h a r a c t e r i s t i c s as  o t h e r good sampled f o r the index i n t h a t y e a r .  every  Any d i f f e r e n c e  i n c h a r a c t e r i s t i c s would imply t h a t a d i f f e r e n t good i s i n v o l v e d . Consequently,  f o r most i n d i c i e s , i t i s easy to choose a r e p r e s e n -  t a t i v e item and e s t a b l i s h a p r i c e to r e p r e s e n t a l l items. housing however, the p h y s i c a l s t r u c t u r e , l o c a t i o n ,  With  surrounding  neighbourhood, e t c . , a l l v a r y from p r o p e r t y to p r o p e r t y .  Unlike  f o r o t h e r goods, t h e r e i s no s t a n d a r d i z e d u n i t o f housing  to  which p r i c e q u o t a t i o n s may  be  reduced.  T h i s problem i s f u r t h e r aggravated by the f a c t t h a t the q u a l i t y of the i n d i v i d u a l u n i t s may  change w i t h time.  The  con-  cept of q u a l i t y i n c l u d e s p h y s i c a l c o n d i t i o n of the improvements (which u s u a l l y d e p r e c i a t e w i t h t i m e ) , the r e l a t i v e l o c a t i o n a c c e s s i b i l i t y of a p r o p e r t y (which may  be a l t e r e d by new  and  constru-  c t i o n i n the a r e a or by a change i n the t r a n s p o r t a t i o n system), r e n o v a t i o n s and a d d i t i o n s to the e x i s t i n g s t r u c t u r e and the s u r rounding neighbourhood.  42. F a i l u r e to account f o r q u a l i t y d i f f e r e n c e s s e l y a f f e c t our measure o f p r i c e s .  will  adver-  I d e a l l y we wish t o m a i n t a i n  a c o n s t a n t q u a l i t y o f the house toeing p r i c e d through time. However, i f a q u a l i t y improvement i n a home (e.g. an a d d i t i o n being b u i l t ) ,  f a i l u r e t o a d j u s t f o r t h i s improvement w i l l  i n an overstatement i n the p r i c e .  Conversely, a d e t e r i o r a t i o n i n  the q u a l i t y o f the house ( e . g . d e p r e c i a t i o n w i l l u n d e r s t a t e the p r i c e .  result  o f the s t r u c t u r e )  T h e r e f o r e , the omission o f q u a l i t y  adjustments may have a s u b s t a n t i a l  e f f e c t on the r e s u l t s o f our  index as a whole. To some extent however, a change i n one p r o p e r t y may be o f f s e t by a change i n another. a l a r g e number o f p r o p e r t i e s being cancelled  Price indicies,  incorporating  may r e s u l t i n some q u a l i t y changes  out, though t h i s magnitude can not be measured.  43. CHAPTER 4 THE DATA BASE AND INDEX T h i s c h a p t e r i s comprised  o f two p a r t s .  The f i r s t  i n v o l v e s a d e s c r i p t i o n o f the sampling procedure used. p a r t i s concerned with the computation  The second  o f a p r i c e index and an  examination o f i t s movement w i t h r e s p e c t t o the c o n d i t i o n s i n the economy.  Included i n t h i s , i s an examination o f t u r n o v e r and  t h e i r s i g n i f i c a n c e i n the index.  Rights-to-purchase t r a n s a c t i o n s  are a l s o b r i e f l y a n a l y z e d . A.  SAMPLING PROCEDURE 1.  The Data Base I t was decided on the b a s i s o f a p r e v i o u s study conduc-  ted by the F a c u l t y o f Commerce and Business A d m i n i s t r a t i o n a t the U n i v e r s i t y o f B r i t i s h Columbia  i n 1967, that the data would be  c o l l e c t e d from the r e c o r d s o f the Vancouver and New Westminster Land R e g i s t r y o f f i c e s which serve the G r e a t e r Vancouver R e g i o n a l District. The Land R e g i s t r y System i n B r i t i s h Columbia  records  the r e g i s t r a t i o n o f a l l i n t e r e s t s i n o r r i g h t s t o r e a l p r o p e r t y . D e t a i l s o f mortgages, agreements f o r s a l e , l i e n s , e t c . f o r a l l p r o p e r t i e s a r e r e c o r d e d and a r e r e a d i l y a v a i l a b l e f o r i n s p e c t i o n . 2.  S e l e c t i o n o f the Universe F o r t h i s study, the u n i v e r s e i n c l u d e d a l l the s i n g l e  f a m i l y detached housing s i t u a t e d i n the r a p i d l y growing communit i e s o f the G r e a t e r Vancouver R e g i o n a l D i s t r i c t .  These i n c l u d e d  Coquitlam, Richmond, White Rock, Surrey, Port Coquitlam, the D i s t r i c t o f North Vancouver, Port Moody and D e l t a .  The c r i t e r i a  used t o s e l e c t these areas were t h e i r d e c e n t e n t i a l growth r a t e s  44. from 1940 t o 1970 as w e l l as t h e i r f u t u r e p r o j e c t e d growth r a t e s r e l a t i v e to o t h e r areas i n the G.V.R.D.  Areas w i t h s i m i l a r  r a t e s o f p o p u l a t i o n growth would tend t o have s i m i l a r r a t e s o f new c o n s t r u c t i o n and turnover  r a t e s and would tend t o be a l i k e  i n such c h a r a c t e r i s t i c s as the age d i s t r i b u t i o n o f t h e i r housing stock,  l o c a t i o n and t h e i r p h y s i c a l design.  Thus, t h i s  stratifi-  c a t i o n was undertaken t o keep our sample as homogeneous as p o s s i b l e with respect  t o those f a c t o r s .  I t was decided  t h a t the sample would be  representative  of a l l the m u n i c i p a l i t i e s and c i t i e s as a whole, as t o sample a c c u r a t e l y f o r each i n d i v i d u a l c i t y and m u n i c i p a l i t y would r e q u i r e an unreasonably l a r g e sample. universe  However, the sample s i z e o f the  was d i s t r i b u t e d p r o p o r t i o n a t e l y among a l l the c i t i e s and  m u n i c i p a l i t i e s according  to t h e i r housing stock i n January 1976.  I t was n e c e s s a r y t o s t r a t i f y the sample f u r t h e r  accord-  i n g t o the p r o p o r t i o n o f homes t h a t had been b u i l t p r i o r t o and subsequent to December 31, 1963.  Information regarding  proper-  t i e s i n the f a s t growth m u n i c i p a l i t i e s and c i t i e s o f the u n i v e r s e had  been recorded  from 1949 o r t h e i r date o f c o n s t r u c t i o n i f con-  s t r u c t e d a f t e r January 1, 1949, t o December 1963 i n the a f o r e mentioned study a t U.B.C. and the i n f o r m a t i o n was a v a i l a b l e f o r i n c o r p o r a t i o n i n t o t h i s study.  The sample had been randomly  s e l e c t e d from the assessment r o l e s o f the c i t i e s and m u n i c i p a l i t i e s involved.  A l l t h a t was r e q u i r e d f o r t h i s p r o p o r t i o n o f the  sample was an update o f the s a l e s on the p r o p e r t i e s up t o J u l y 1976.  Approximately 40% o f the housing stock o f the u n i v e r s e i n  1976 had been c o n s t r u c t e d  p r i o r t o December 31, 1963.  of the sample represented  housing c o n s t r u c t e d  Thus 40$  p r i o r t o that  date.  45. The  sample o f homes c o n s t r u c t e d a f t e r December 1963  was  s e l e c t e d from v a r i o u s sources as c o - o p e r a t i o n from a l l the a s s e s s ment o f f i c e s c o u l d not be o b t a i n e d .  The  different  sources  i n c l u d e d m u n i c i p a l b u i l d i n g p e r m i t s , r e c o r d s of water  connections  and the assessment r o l e s of some m u n i c i p a l i t i e s and c i t i e s . these sources, the l e g a l d e s c r i p t i o n and age  of the d w e l l i n g were  recorded as had been done w i t h the p r e v i o u s data. d e s c r i p t i o n would be used i n t i t l e  From  The  legal  searches a t the Land Registry-  o f f i c e s and the age would be used i n the subsequent a n a l y s i s of the p r i c e  index. The  p r o p e r t i e s i n a l l c i t i e s and m u n i c i p a l i t i e s were  randomly s e l e c t e d from t h e i r s o u r c e s .  I t was  n e c e s s a r y to " g r o s s -  up" the c a l c u l a t e d r e q u i r e d sample s i z e i n order t h a t the  sampling  procedure«would r e s u l t i n the r e q u i r e d number o f s i n g l e f a m i l y u n i t s f o r each m u n i c i p a l i t y , the two  time p e r i o d s ( i . e . p r i o r to  and  and f o r the u n i v e r s e as a  subsequent to December 31,  1963)  whole. 3.  Sample S i z e In the e a r l i e r study, i t was  r a t e i n the f a s t growth areas was percent  found t h a t the  approximately  turnover  t e n to twenty  ( t h a t i s , a f i v e to t e n y e a r ownership p e r i o d ) .  sampling p r e c i s i o n f o r  sample has thus been set a t -  f o r a t e n y e a r l e v e l o f t u r n o v e r and a t a n i n e t y percent interval.  C a l c u l a t i o n s i n d i c a t e d t h a t a sample o f 1785  would be s t a t i s t i c a l l y r e p r e s e n t a t i v e of the u n i v e r s e . sample s i z e r e p r e s e n t s I.55 January  1976.  percent of the t o t a l housing  The 1 year confidence properties This stock i n  46. Approximately 2,300 p r o p e r t i e s i n a l l were searched. Four hundred  p r o p e r t i e s were e l i m i n a t e d due to mistakes i n the  r e c o r d i n g of data, incomplete i n f o r m a t i o n , e t c . sample s i z e c o n s i s t s of 1916 p r o p e r t i e s .  Thus the  final  Table I I I i n d i c a t e s the  r e q u i r e d and a c t u a l sample s i z e , s t r a t i f i e d a c c o r d i n g to p e r i o d , a r e a and f o r the u n i v e r s e as a whole. f o r January 1964  - June 1976  The sources of the sample  p e r i o d are a l s o p r o v i d e d .  (See  Appendix A f o r e x p l a n a t i o n o f sampling procedure and Appendix B f o r formula used i n the d e r i v a t i o n o f siample  size).  47. TABLE  III  SOURCE AND SIZE OF THE SAMPLE Area  Number o f S i n g l e Family Homes 1964  1976  Sample S i z e Required Actual 1964 1976  Source o f 1964 1976 Sample  1964 1976  Coquitlam  6,000  13,500  97  113  90  180  Bldg Permits  Richmond  10,000  22,500  160  187  152  194  Bldg Permits  D i s t r i c t of North Van.  10,000  17,000  119  139  130  152  Bldg Permits  P o r t Coquitlam  2,000  6,500  48  54  40  82  Water Connections  P o r t Moody  1,000  3,500  23  27  10  30  Water Connections  18,000  30,000  216  253  195  275  White Rock  2,000  4,500  39  38  41  40  B.C.A.A.  Delta  4.000  17.500  121 142  _82  218  B.C.A.A.  Surrey  Total  47,000 115,000  827  958  '—1 -1— 1 r—1  1,785  745 1.171  i - ri - l  1,916  B»C.A.Ai .•_  48. The  a c t u a l number o f p r o p e r t i e s recorded  what from the r e q u i r e d number.  Despite  changed.  to i n c o r r e c t l e g a l  s u b d i v i s i o n s where the l e g a l d e s c r i p t i o n had  T h i s was  sample c o n s t r u c t e d 4.  some-  the g r o s s i n g up f a c t o r ,  a l a r g e number of p r o p e r t i e s were l o s t due d e s c r i p t i o n s and  deviates  p a r t i c u l a r l y t r u e f o r the p o r t i o n p r i o r to  of;the  1964.  Data C o l l e c t i o n and E d i t i n g The  f o l l o w i n g i n f o r m a t i o n was  c o l l e c t e d f o r each o f  the  properties. 1. 2. 3. 4. 5-  Age of the d w e l l i n g Location ( i . e . c i t y or municipality) Date of s a l e (month and y e a r ) Form i n which the s a l e took place ( i . e . agreement f o r s a l e or t r a n s f e r o f c l e a r t i t l e ) The S a l e s P r i c e A f t e r the i n f o r m a t i o n was  c o l l e c t e d , the data  was  e d i t e d to e l i m i n a t e non-armslength t r a n s a c t i o n s , t r a n s f e r s upon death and was  incomplete t r a n s a c t i o n s data.  c o l l e c t e d from b u i l d i n g permits,  Since  some of the  sample  i t i s p o s s i b l e that even  though a t r a n s a c t i o n took p l a c e w i t h i n months of the issuance the b u i l d i n g permit, i t may may  of  have only i n v o l v e d land as the house  not y e t have been c o n s t r u c t e d .  Thus p o s s i b l e l a n d  trans-  a c t i o n s were e l i m i n a t e d by the f o l l o w i n g procedure. An index of house p r i c e s was sales i n a given year.  In 1949,  value was  Transactions  of l e s s than $1,500 and  i n g permit had been i s s u e d i n 1948 land and  as a mean of a l l  the c o s t of a house l o t  estimated a t approximately $1,500. t h a t i n v o l v e d a value  computed  or 1949  was  i n that y e a r  f o r which a b u i l d -  were c o n s i d e r e d  e l i m i n a t e d from subsequent computations.  as  T h i s $1,500  then i n f l a t e d each y e a r by the house p r i c e index  49. c a l c u l a t e d formerly  to e s t a b l i s h a l o t value  A l l t r a n s a c t i o n s t h a t occurred each year and  s t r u c t e d i n t h a t o r the previous  A g a i n t h i s index was  that had  then t a b u l a t e d without the  the c r i t e r i a f o r m e r l y was  The  1949 for  A g a i n , p r o p e r t i e s t h a t d i d not meet T h i s procedure  T h i s occurred  on the  properties  third  e l i m i n a t e d v a l u e s were not used i n f o r m u l a t i o n  iteration.  o f the p r i c e  index or i n computation of s a l e s as p a r t of the turnover 5»  new  estimated l o t value  o u t l i n e d were e l i m i n a t e d .  eliminated.  in  l o t values.  repeated u n t i l the i t e r a t i o n s converged and no  were being  A  used to i n f l a t e the $lf500 f i g u r e i n  established.  '  r e p o r t e d l y been con-  year, were e l i m i n a t e d .  f o r the e n t i r e study p e r i o d so t h a t a new each y e a r was  (44)  v  below the estimated l o t value  involved a property  house p r i c e index was  i n each y e a r .  rates.  Demolitions Since i t would be v e r y time consuming to check w i t h  each area to f i n d i f d e m o l i t i o n  permits had been i s s u e d on  p r o p e r t i e s i n the sample, the f o l l o w i n g procedure was I f the age  o f the s t r u c t u r e was  any  adopted.  very o l d ( u s u a l l y i n excess of  40-45 y e a r s a t the time of t r a n s a c t i o n ) and a t r a n s a c t i o n p r i c e f o r the p r o p e r t y was  extremely low i n what appeared to be  an  arm's-length t r a n s a c t i o n f o l l o w e d by another t r a n s a c t i o n w i t h a r e l a t i v e l y h i g h p r i c e compared to the former, then i t was assumed t h a t the t r a n s a c t i o n p r i o r to the h i g h value a t r a n s f e r of l a n d . demolished one  The  property  was  then a r b i t r a r i l y  month p r i o r t o the s a l e of the  removed from the sample, e f f e c t i v e t h a t date. (44)  one  " l a n d " and  involved considered was  It i s possible  Since no index f o r land p r i c e s e x i s t e d during the study p e r i o d , the house p r i c e index was used. I t i s conceded however, t h a t the p r i c e of land does not n e c e s s a r i l y i n c r e a s e a t the same r a t e as housing and the procedure used was r a t h e r a r b i t r a r y .  50. t h a t the t r a n s a c t i o n p r i o r to the r e l a t i v e l y high p r i c e d one merely a non-arm's-length t r a n s a c t i o n and  not one  However, the d e m o l i t i o n  c o n s i d e r a t i o n was  f e l t to be  due  of the  to the advanced age  involving land. justified  property.  As a r e s u l t of the a d o p t i o n of t h i s procedure, 28 p e r t i e s were t r e a t e d as demolished. represented 1888  Thus while 1916  The  properties was  number o f houses i n the sample i s s m a l l e r  i n the e a r l i e r y e a r s of the  study p e r i o d and grows progressively-  l a r g e r each y e a r r e f l e c t i n g the new  c o n s t r u c t i o n i n our  i n d i c a t e s the sample s i z e i n each y e a r .  The  universe. difference  between the s i z e each year i s the a d d i t i o n s to the stock demolitions  pro-  the f i n a l sample s i z e , the a c t u a l sample in3il9?6  properties.  Table "IV  was  i n that year.  less  51. TABLE IV SAMPLE SIZE BY YEAR YEAR  SAMPLE SIZE  ADDITIONS TO THE STOCK CJ)  234 253 26? 2?8 304 328 373 416 465 543 623 661  1 9 4 9  1950 1951 1952 1 9 5 3 1 9 5 4  1955 1956 1957 1958 1959 1 9 6 0  1961 1962 1963  6 9 2  715 740  1 9 6 4  1965 1 9 6 6  1967 1 9 6 8 1 9 6 9  1970 1971 1972 1973 19?4  1975 1976  >  774 823 870 985 1,069 1,138 1,239 1,334 1,482 1,691 1.784 1,881 1,888  22 19 1 4  11 26 2 4  45 43 ^9 78 80 38 31 23 25 36 51 50 119 87 71 101 9 6  153 2 1 4  94 97 7  K%)  DEMOLITIONS (PER YEAR)  10.38 8.12 5.53 4.12 9.35 7.89 13.72 11.53 11.78 16.77 14.73 6.10 4.69  3.32 3.5 4.86 6.59 6.08 13.68 8.83 6.64  8.88 7.75 11.45 14.44  5.56 5.44 .37  2 2 3 4 3 2 1 5 5 1  52. B.  COMPUTATION .OF THE -INDEX The  index i s t a b u l a t e d on the b a s i s o f 2,641 t r a n s a c t i o n s  f o r 1916 p r o p e r t i e s .  Almost 20$ o f the sample d i d not t u r n o v e r  during the study p e r i o d y e t due t o the manner i n which the sample was drawn, the data i s a l s o a p p l i c a b l e to the n o n - t r a n s a c t i n g segment o f the housing  universe.  A r e l a t i v e f o r each y e a r was c a l c u l a t e d based on the r a t i o o f the mean p r i c e o f s i n g l e f a m i l y homes s o l d i n each y e a r to the mean p r i c e i n 1971. i n constant  T h i s s e r i e s i s presented i n Table IV  and c u r r e n t d o l l a r s and i s i l l u s t r a t e d i n F i g u r e 1  The u n d e r l y i n g assumptions„of the p r i c e index a r e as f o l l o w s . I t i s assumed t h a t the t r a n s a c t i o n s p r i c e s r e f l e c t market v a l u e .  I n a l l l i k e l i h o o d , the recorded  true  transaction prices  i n the e a r l i e r y e a r s have some margin o f e r r o r and i t i s p o s s i b l e t h a t some non-arm's-length t r a n s a c t i o n s were undetected. T h i s index a p p l i e s t o both new and e x i s t i n g houses. An examination o f Table IV  r e v e a l s a v a r y i n g number o f new homes  coming on the market each y e a r . and  The movement o f p r i c e s f o r new  e x i s t i n g housing i s assumed t o be i d e n t i c a l f o r the purposes  of the index.  However, i t i s acknowledged t h a t the a b s o l u t e  p r i c e l e v e l o f new housing may be s l i g h t l y h i g h e r  than the o l d  as a premium may be p a i d f o r a new house i n "mint" c o n d i t i o n . An i n c r e a s e i n the number o f new homes i n any y e a r r e l a t i v e t o another would r e s u l t i n a c o r r e s p o n d i n g i n c r e a s e i n the l e v e l o f the p r i c e index r e s u l t i n g i n a h i g h e r value b e i n g average value  imputed t o the  of the stock.  I t i s a l s o assumed t h a t the movement o f p r i c e s between any  two p e r i o d s approximates the movement i n p r i c e o f a s i n g l e  53. TABLE'V THE P R I C E  INDEX AND TURNOVER RATES  1949-•1976  (1971*100) PRICE (CONSTANT  INDEX DOLLARS)  YEAR  TURNOVER RATE (SALES/STOCK)  1949  11.54 6.32 7.12  20.7 30.0  3.29  29.8  1950 1951 1952 1953 1954  4.88  1956 1957 1958  9.86  1955  1959 1960 1961  1962 1963 1964 1965 1966 1967 1968 1969  1970 1971 1972 1973 1974  1975  25.0 25.9  5.I6 6.43 .  56.0 60.0 53.7  40.2 41.0 44.6 40.2 48.9  58.2  46.2  78.8  58.3 70.8  55-5  7.-54  64.5 48.3  3.91 7.48  — 1976 ( J u l y ) 27 y e a r mean 9.46  28.2 28.9 35.9  50.8  6.34 4.76 6.15 9.95 IO.56 12.58 13.55 11.15 9.60 13.71 19.03 24.13 13.73 13.34  17.4  41.8 42.2  6.17  37.3  66.6 68.0  84.5  92.9 98.2 99.8  _  DOLLARS)  12.0 17.9 16.4 16.9 19.3  24.9  7.19  (CURRENT  100.0 113.2 125.2 157.2 144.8  I65.8 -  94.4 98.0  .  100.0 118.9 139.8 195.3 200.6 231.6  5^, FIGURE 1  220  HOUSE PRICE INDEX a CURRENT AMD  210200  CONSTANT D0LL1RS (1971 = 1 0 0 )  -  1 90 -  18017Q  1 60-  1501401 30 *  120110-  Constant D o l l a r s Index Current D o l l a r s Index  49  51  53  55  ¥t  5 5 S I 63  65  67  3 5 7 1 ?3  ?5 Year  55. sample between the y e a r do not  two  involve  years.  the  However, the t r a n s a c t i o n s  same p h y s i c a l u n i t s nor  i s the  i n each  sample  size constant. I t i s a l s o assumed t h a t the e f f e c t s of and  a l t e r a t i o n s and  r e p a i r s to the  r e s i d u a l of an unknown magnitude.  sample c a n c e l Any  depreciation out  leaving a  improvements to the  proper-  t i e s would tend to make the p r i c e l a r g e r than the t h e o r e t i c a l l y correct price variation.  Conversely, d e p r e c i a t i o n  would cause  the p r i c e to underestimate the c o r r e c t p r i c e movement. The  current  the f i r s t y e a r o f the P r i c e s rose i n 1953 a recessionary  price  study f o l l o w e d  but  period  dollar  index  by a g e n t l e  a g a i n f e l l i n 19$4  i n the B.C.  rose  during  decline to  i n correspondence w i t h  economy.  A steady growth then  i n s u e d which can to a l a r g e degree be a t t r i b u t e d to the of the  N.H.A. i n 1954.  The  p r i c e increase  t i o n w i t h an expansionary p e r i o d and  I960 when the B.C.  went i n t o a d e c l i n e .  may  economy u n t i l l a t e  Prices again gradually only to drop to 1957  i n p a r t be  The  increase  due  r a t e s i n 1969.  was  occurred between 1973 recorded the h i g h e s t  NHA  largest price increase and  1974,  during  levels i n  which was  the  1963.  l a s t e d to  the  p a r t i c u l a r l y r a p i d a f t e r 1971  to the f r e e i n g of the  The  1959  the economy  increased  a r a p i d p r i c e ascent began which has  present day.  founding  continued i n conjunc-  unemployment r a t e rose and  following recovery period A f t e r 1963,  i n the  195?.  and  interest ceiling  between any a l s o the  two  period  years that  amount of market a c t i v i t y as denoted by  the  turnover r a t e s . The of housing and  index i s designed to r e f l e c t changes i n the the p u r c h a s i n g power of money.  price  However, the  price  56. o f $20,000 f o r a home i n 1955  does not r e p r e s e n t the  o f purchasing power as i t does i n 1975' today c o u l d not During the  c u r r e n t l y purchase a house i n these communities.  to i n f l a t i o n and  t e d i n the house p r i c e index. much as p o s s i b l e , the  these f l u c t u a t i o n s were r e f l e c -  To e l i m i n a t e  index was  P r i c e Index, u s i n g a 1971  t h i s influence  as  d e f l a t e d by the Canadian Consumer  base ( i . e . 1971=100).  t h i s r e v i s i o n are a l s o shown on F i g u r e  1 and  The  r e s u l t s of  Table V  .  As  would  expected, the c h i e f r e s u l t of t h i s p r o c e s s i s to i n c r e a s e  l e v e l of the it  same d o l l a r amount  study p e r i o d there were wide f l u c t u a t i o n s i n the  p r i c e l e v e l due  be  The  same amount  index o f house p r i c e s p r i o r to 1971  reduce i t f o r the y e a r s subsequent to The  tends i n the  d e f l a t e d s e r i e s during  the  and  the  to reduce  1971* e n t i r e study  period  same d i r e c t i o n as the o r i g i n a l index u n t i l  1974.  Here the r e a l d o l l a r house p r i c e s d e c l i n e though i n a c t u a l d o l l a r s the index e x p e r i e n c e s an i n c r e a s e .  In t h i s p e r i o d  the e f f e c t of the Consumer P r i c e Index was  of  so g r e a t  the c o n s t a n t index o f house p r i c e s below t h e i r 1973 i s , house p r i c e s i n 1974 o t h e r goods. 1975,  the  as to  force  level.  That  i n c r e a s i n g as r a p i d l y as were  But when house p r i c e l e v e l s a g a i n began to r i s e  they d i d not  the h i g h e s t  were not  inflation,  r e g a i n t h e i r p r e v i o u s 1974  p o i n t i n the new  l e v e l high.  Throughout the e n t i r e study p e r i o d  price i n to 1971»  of the o r i g i n a l index i s more g r a d u a l than the  magnitude of the  i s experienced i n 1959.  d i f f e r e n c e between the  the  rise  deflated.  The two  A f t e r 1971»  two i n d i c i e s  unlike  1976.  l a r g e s t d i f f e r e n c e i n a b s o l u t e p r i c e l e v e l s between the indicies p r i o r to 1971  Thus  s e r i e s i s experienced i n 1974  o r i g i n a l s e r i e s which r e c o r d s the h i g h e s t  in  the  increases  57. a t an e s c a l a t i n g  rate.  I t can be concluded t h a t a l t h o u g h the Canadian  Consumer  P r i c e Index rose d u r i n g the p e r i o d o f a n a l y s i s , house p r i c e s were r i s i n g a t a much f a s t e r r a t e , w i t h the e x c e p t i o n o f 1 9 7 5 , so t h a t r e a l d o l l a r house p r i c e index continued t o r i s e :  Except f o r 1975,  the Consumer P r i c e Index d i d not i n f l u e n c e the d i r e c t i o n o f the house p r i c e index.  The r e a l d o l l a r house p r i c e index w i l l be  used i n a l l subsequent  analysis.  C. " TURNOVER RATES The t u r n o v e r r a t e can be d e f i n e d as the r a t i o o f the number o f s a l e s o f houses i n a g i v e n y e a r t o the t o t a l s t o c k o f houses i n t h a t y e a r .  The t u r n o v e r r a t e demonstrates  the l e n g t h  of time t h a t a home i s h e l d b e f o r e i t changes ownership.  It i sa  good i n d i c a t o r o f the l e v e l o f housing market a c t i v i t y a t a g i v e n p o i n t i n time.  F o r example, a t u r n o v e r r a t e o f 9 . 6  on Table V  i n 197° i n d i c a t e s t h a t on average, a house changed hands a p p r o x i mately every t e n y e a r s .  I n the f o l l o w i n g y e a r when the t u r n o v e r  r a t e rose t o 13*71, the average p e r i o d o f ownership  f e l l to  approximately seven y e a r s . The average was 9 . 4 6  t u r n o v e r r a t e f o r the p e r i o d 1 9 4 9 to 1975  i m p l y i n g an average  ten years.  The average  ownership  ownership  p e r i o d o f approximately  p e r i o d ranged from  approximately  8| y e a r s f o r the M u n i c i p a l i t y o f D e l t a to 15 y e a r s f o r the D i s t r i c t of Surrey. The t u r n o v e r r a t e i s comprised  of three  determinants—  new and e x i s t i n g housing s a l e s and the housing s t o c k i n any one period.  I n a f a s t growth a r e a where t h e r e i s a r a p i d r a t e o f  new c o n s t r u c t i o n , a r e l a t i v e l y l a r g e r p o r t i o n o f t u r n o v e r i s  58. accounted  f o r by new houses than i n an a r e a e x p e r i e n c i n g s l u g -  g i s h growth.  As d e s c r i b e d i n the p r e v i o u s c h a p t e r , the t u r n o v e r  r a t e has i m p l i c a t i o n s as t o the q u a l i t y o f the index  particularly  to the extent t h a t the q u a l i t y o f the housing u n i t s exchanged and t h e i r v a l u e s d i f f e r each y e a r .  Thus, an unweighted average o f  the t u r n o v e r r a t e s o r p r i c e s i n d i f f e r e n t growth r a t e areas would not be a good indicator;: o f house p r i c e s o r t u r n o v e r r a t e s f o r e i t h e r area. I n f o r m a t i o n on t u r n o v e r r a t e s and the l e v e l o f market a c t i v i t y a r e important  f o r s e v e r a l reasons.  There i s a p o s i t i v e c o r r e l a t i o n between the r a t e o f house p r i c e i n c r e a s e s and the r a t e o f t u r n o v e r i n the r e a l e s t a t e market.  In a v e r y a c t i v e market, p r i c e s tend t o i n c r e a s e a t a  more r a p i d r a t e than when the market i s i n a slump. evidenced i n our data and i s i l l u s t r a t e d i n F i g u r e 2  This i s which com-  pares the r a t e o f t u r n o v e r o f housing and the movement o f the g e n e r a l constant d o l l a r p r i c e index.  The movement o f both graphs  c l o s e l y p a r a l l e l each o t h e r , with h i g h l e v e l s o f market  activity  c o r r e s p o n d i n g t o r a p i d p r i c e i n c r e a s e s i n housing. A knowledge o f t u r n o v e r r a t e s i s a l s o o f b e n e f i t t o the home vendor and the mortgage l e n d e r .  The t u r n o v e r r a t e i s a good  i n d i c a t o r t o the s e l l e r o f the m a r k e t a b i l i t y o f h i s home.  A  knowledge the average h o l d i n g p e r i o d o f a home a l s o b e n e f i t s the mortgage l e n d e r as i t i s evidence o f when he can expect t o have h i s mortgage r e p a i d .  (45) Seek, H. N., " F l u c t u a t i o n s i n the Turnover o f S i n g l e Family Dwellings In Vancouver", U.B.C. T h e s i s ( u n p u b l i s h e d ) ,  1975.  FIGURE 2 TURNOVER RATES FOR HOUSING, 1 9 4 9 - I 9 7 5 ( s a l e s as a p e r c e n t a g e o f s t o c k ) ~  10J  49  51  53  55  5 ? ?9  65  £5  5?  £9  71  73  15 Year  60. D * AGREEMENTS • FOR " SALE-Two  hundred and  f i f t y eight transactions during  the  study p e r i o d were f i n a n c e d througli agreements f o r s a l e . - - T h i s represented  approximately 10$ of a l l transactions..:  Figure  3  i l l u s t r a t e s the movement of an index based on the constant mean s a l e s v a l u e s  i n each year f o r these t r a n s a c t i o n s and  dollar compares  them t o the o v e r a l l index. The  index based on agreement f o r s a l e s data g e n e r a l l y  appears to p a r a l l e l the movement of the o v e r a l l index though i t is  s u b j e c t to g r e a t e r f l u c t u a t i o n s .  l a r g e l y due recorded  to the small number o f agreement f o r s a l e  d u r i n g those y e a r s .  The  periods  transactions  A simple overage, of the  thus w i l l be b i a s e d toward any year.  These f l u c t u a t i o n s are  sales  extreme v a l u e s , r e c o r d e d  i n that  d u r i n g which the agreements f o r s a l e index  d e v i a t e d most from the o v e r a l l index corresponded to the when v e r y few  values  periods  agreement f o r s a l e t r a n s a c t i o n s were r e c o r d e d .  For example, i n 1 9 7 ° o n l y f o u r r i g h t s to purchase agreements were recorded  and  i n 1 9 7 5 o n l y one  They are a l s o the p e r i o d s o v e r a l l index,  of these t r a n s a c t i o n s  of the  (see Table \VT).  occurred.  l a r g e s t d e v i a t i o n s from  the  However, i t can be s a i d t h a t  the  p r i c e s of homes s o l d through agreements f o r s a l e were lower than those t h a t i n v o l v e d a c l e a r t r a n s f e r of The  title.  behaviour o f agreements f o r s a l e data i s p a r t i c u -  l a r l y important i n the c r e a t i o n o f a housing p r i c e index.  The  number of agreements f o r s a l e i s expected t o f l u c t u a t e i n response to changing c r e d i t c o n d i t i o n s .  During p e r i o d s  t r a i n t , when mortgage funds are i n low  supply,  of c r e d i t r e s i t i s expected  that the number of agreements f o r s a l e t r a n s a c t e d would  increase  61.  FIGURE 3 A COMPARISON OF PRICE INDICIES USING TOTAL AND AGREEMENT FOR SALE DATA ONLY (constant d o l l a r s , 1971 = 1 0 0 )  10J  49  51  53  55  5?  5*9 o l 6 3  65  67  69  Ti  ?3  15 Year  TABLE VI AGREEMENTS FOR SALE YEAR  1949  1950 1951 1952 1953 1954 1955  1956 195? 1958 1959  i960 1961 1962 1963 1964  1965 1966 1967 1968 1969  1970 1971 1972 1973 1974  1975 1976  NUMBER OF AGREEMENTS FOR SALE  TOTAL SALES  AGREEMENTS FOR SALE/ TOTAL SALES  AGREEMENTS FOR SALE/ TOTAL STOCK  (#)  (#) 27 16 19 20 10 16 23  (*)  {%) 6  14  .4 7 6 3 6 3 9 il  9 16 11 11 7 9 6 12 12 12 17 12 5 16 14  8 10 2 6  41 24  35 47 42  33 44 29  58 82 92  124  145 127 119  183 282 408 245  251 117  52 25 39 30 30 38 14  22  46  25 34 26 33 16 31  11 17 13  10 13 10 4 9 5 2 4 0.8 5  1.6 2.2 2.2 1 1.8 .8 2.2 2.4 1.7 2.6 1.7 1.6 1 1.2 .7 1.5 1.4 1.2 1.6 1.1 .4 1.2 .9 .5 .6 .1 .3  63.  i n t h a t the vendors w i l l o f f e r e a s i e r terms i n order t o market t h e i r property.  Conversely, i n easy money p e r i o d s the r e l a t i v e  number o f agreements f o r s a l e e t o the t o t a l number o f s a l e s would be expected t o d e c l i n e .  I t was o r i g i n a l l y hoped t h a t the agree-  ment f o r s a l e data f o r t h i s sample c o u l d be a n a l y z e d w i t h r e s p e c t to p r i c e  and t u r n o v e r r a t e changes and c r e d i t c o n d i t i o n s i n the  economy.  However, due t o the p a u c i t y o f t h i s data i n our sample,  i t would be meaningless  t o draw any i n f e r e n c e s as to t h e i r  behaviour. A l l c u r r e n t i n d i c i e s exclude data p e r t a i n i n g t o these transactions.  However, the r e p e r c u s s i o n s on the index of. t h i s  o m i s s i o n a r e unknown.  A comparison was made o f an index t a b u l a -  ted without the r i g h t s  t o purchase  data and our f o r m e r l y  t a b u l a t e d index v/hich i n c o r p o r a t e d t h i s d a t a . shown i n F i g u r e  L  .  The r e s u l t s are  The movement o f the two i n d i c i e s i s i d e n t i c a l  i n a l l y e a r s , even i n the e a r l i e r p e r i o d when agreements f o r s a l e data formed a s i g n i f i c a n t p r o p o r t i o n o f t h e r t o t a l number o f transactions.  64 FIGURE 4 A. COMPARISON OF THE OVERALL PRICE INDEX TO INDEX EXCLUDING AGREEMENT FOR SALE DATA ( c o n s t a n t d o l l a r s , 1971 = 100) "  18017CL  160-J  10-J 49  51  5~3 5 5 Ft  5*9 6~1 6 3 -65 &7  &9 71  73  tT^ear  65. CHAPTER 5 THE PROBLEM OF QUALITY CHANGE IN A HOUSE PRICE INDEX The purpose of t h i s chapter i s to i n v e s t i g a t e , both a t the s t a t i s t i c a l and c o n c e p t u a l l e v e l , the q u a l i t y dimensions the house p r i c e  index.  The measurement o f q u a l i t y change r e q u i r e s the ment of a framework by which q u a l i t y may  be measured.  r e l a t i v e value  (or value range) and age.  develop-  The  a n a l y s i s here i s r e s t r i c t e d to the c o n s i d e r a t i o n of two —  of  variables  The r e l a t i v e value  method c o n s i s t s of i d e n t i f y i n g v a l u e c a t e g o r i e s i n each y e a r t h a t are a p p a r e n t l y q u a l i t a t i v e l y i d e n t i c a l and f o r m u l a t i n g a p r i c e t r e n d l i n e f o r these r e l a t i v e l y s i m i l a r e n t i t i e s . i m p l i e s t h a t t h e r e i s no unique  combination  T h i s concept  of c h a r a c t e r i s t i c s  that c o n s t i t u t e a g i v e n l e v e l of q u a l i t y . The a n a l y s i s u s i n g the age v a r i a b l e s i s c a r r i e d out i n a s i m i l a r manner.  However, i n t h i s approach,  age i s assumed to  d e f i n e a c e r t a i n number of c h a r a c t e r i s t i c s which are a s s o c i a t e d with each v i n t a g e c a t e g o r y . The a n a l y s i s of v a l u e ranges a l s o b r i n g s a second r e sult.  We  are a b l e t o examine the s t a t i s t i c a l impact  on the p r i c e  index t h a t a s h i f t i n the t u r n o v e r among d i f f e r e n t value w i l l have on the q u a l i t y o f our i n d e x .  ranges  This issue i s treated i n  the i n i t i a l s e c t i o n of t h i s c h a p t e r . A.PRICE CHANGES BY VALUE RANGE - STATISTICAL IMPLICATIONS FOR THE INDEX T h i s s e c t i o n w i l l determine i n our p r i c e index may  the extent to which changes  have been caused by s h i f t s i n the market  66. t u r n o v e r t o d i f f e r e n t v a l u e s o f homes d u r i n g the study p e r i o d . I f the index computed f o r each o f the broad v a l u e ranges d i f f e r s and i f the p r o p o r t i o n s a l e s i n each c a t e g o r y s h i f t s from y e a r t o year, then t h i s w i l l be the cause o f some o f the f l u c t u a t i o n s o f our p r i c e index and be q u i t e apart from a change i n the v a l u e o f the e n t i r e housing  stock.  In o r d e r t o observe  the r a t e s o f p r i c e change between  d i f f e r e n t value ranges, p r i c e s i n each year o f the study p e r i o d were a s s i g n e d i n t o three d i f f e r e n t v a l u e r a n g e ? c a t e g o r i e s  —  low, medium and h i g h v a l u e . The c r i t i c a l v a l u e s d e l i n e a t i n g the v a l u e ranges were computed i n the f o l l o w i n g manner.  Two c r i t i c a l p r i c e s f o r  a s s i g n i n g p r o p e r t i e s i n the base y e a r were s e l e c t e d — and $32,500.  $22,500  P r o p e r t i e s t r a n s a c t i n g w i t h p r i c e s i n 19?1 o f l e s s  than the former v a l u e were d e f i n e d a s low value homes.  Proper-  t i e s t r a n s a c t i n g a t p r i c e s between the two c r i t i c a l v a l u e s were d e f i n e d as medium p r i c e d and p r o p e r t i e s which t r a n s a c t e d a t p r i c e s g r e a t e r than the l a t t e r value were d e f i n e d as h i g h v a l u e on expensive  homes.  These c r i t i c a l v a l u e s were then a d j u s t e d by  the o v e r a l l house p r i c e index t o m a i n t a i n e q u i v a l e n t v a l u e ranges throughout  the study p e r i o d . These c r i t i c a l v a l u e ranges were chosen somewhat  trarily  arbi-  but when a d j u s t e d by the index were f e l t t o r e f l e c t a  g e n e r a l i n d i c a t i o n o f what were c o n s i d e r e d t o be upper and lower v a l u e homes d u r i n g our study p e r i o d . to  T e s t s were a l s o done  ensure t h a t a normal d i s t r i b u t i o n o f p r o p e r t i e s e x i s t e d among  the v a l u e ranges.  However, the a c t u a l d o l l a r v a l u e d e l i n e a t i n g  the v a l u e ranges i s f e l t t o be r e l a t i v e l y i n c o n s e q u e n t i a l as any  67. reasonable c l a s s i f i c a t i o n o f value ranges w i l l serve f o r our analysis. Table VII  i l l u s t r a t e s the c r i t i c a l value ranges  f o r each  year of the study p e r i o d . P r i c e / i n d i c i e s based on these c r i t i c a l v a l u e s were c a l c u l a t e d f o r each o f the v a l u e ranges f o r the years o f our study p e r i o d .  The p r i c e i n d i c i e s were t a b u l a t e d u s i n g the  average  p r i c e w i t h i n each value range i n each year taken as a r e l a t i v e (46) to the average  p r i c e i n t h a t value range i n the base y e a r .  The s i g n i f i c a n c e o f these d i s a g g r e g a t e d i n d i c i e s i s dependent upon the d i f f e r e n c e i n the behaviour among the and on the t u r n o v e r r a t e s of these d i f f e r e n t v a l u e ranges time.  indicies over  I f the r a t e s of p r i c e change o f d i f f e r e n t value c a t e g o r i e s  are h i g h l y c o r r e l a t e d through time and the t u r n o v e r r a t e f o r each o f the ranges i s f a i r l y c o n s t a n t , then the o v e r a l l index  satis-  f a c t o r i l y denotes the movements of house p r i c e s through time.  If  however, the v a l u e s of the i n d i c i e s move independently o f each o t h e r and the t u r n o v e r r a t e s h i f t s a c r o s s the c a t e g o r i e s , then our index i s of l i m i t e d  use.  F i r s t , as expected, t h e r e has been a continuous a p p r e c i a t i o n o f a l l the v a l u e ranges.  The average  r a t e of app-  r e c i a t i o n over the twenty-six y e a r p e r i o d (1949-1975) was p o i n t s i n the index f o r the low v a l u e range, 4.7 medium range and 4.5  index was  5.3  p o i n t s f o r the  p o i n t s i n the h i g h v a l u e range.  r a t e o f a p p r e c i a t i o n i n the aggregated  price  4.7  The  average  p o i n t s per  year. (46) F o r more meaningful r e s u l t s i n t a b l e s and f o r e a s i e r "viewing i n c h a r t s , the base.years used are 1971 and 1975 respectively.  68. TABLE V I I CRITICAL PRICES FOR ASSIGNMENT TO VALUE CLASSES  Year 1949  1950 1951 1952 1953 1954  1955 1956 195? 1958 1959 1960  1961 1962 1963 1964  1965 1966 196? 1968 1969  1970 1971 1972 1973 1974  1975 1976  Low Value C l a s s 2,400  3,900 3,700 4,200 4,900 3,700 6,100 6,700 9,400  9,200 9,000 10,700 9,200 10,900 8,900 10,600  12,100 13,100 15,900 19,000  21,200 20,500 22,500 26,800 31,500 43,900 45,100 5L700  Medium Value C l a s s 3,400 5,600 5,400  High Value 3,400 5,600 5,400  6,000 7,100  6,000 7,100  8,900 9,600  8,900  5,400  5,400  15,400  9,600 13,600 13,300 13,000 15,400  15,800  15,800  13,600  13,300 13,000 13,200 13,000 15,300 17,400 18,900 23,000 27,500 30,700 31,900 32,500 38,600  45,400 63,500 65,200 74,700  13,200 13,000 15,300 17,400  18,900 23,000 27,500 30,700 31,900 32,500  38,600 45,400 63,500  65,200 74,700  4 9 5 1  53  55  57  59  61  65  67  69  71  73  75  Y  e  a  r  70. From these r e s u l t s , we  can see t h a t the lowest v a l u e  range experienced the r a p i d e s t add g e n e r a l l y the s t e a d i e s t r a t e of a p p r e c i a t i o n .  The  index f o r the h i g h v a l u e homes experienced  the slowest and most e r r a c t i c growth r e l a t i v e t o the other indicies.  The growth of the two more modest housing  indicies  has been, to an e x t e n t , s t a b i l i z e d by the o f f e r i n g o f NHA c i n g which has l a r g e l y been geared to those p u r c h a s i n g v a l u e homes.  two  finan-  lower  F a l l s i n the house v a l u e s to a l a r g e degree c o r r e s -  ponded t o r e c e s s i o n a r y p e r i o d s i n the economy but the d e c l i n e s seemed most prolonged i n the lower v a l u e  range.  G e n e r a l l y , i n comparing the i n d i c i e s i t can be  said  that the p r i c e a p p r e c i a t i o n o f each i n d i v i d u a l index v a r i e s g r e a t l y p a r t i c u l a r l y i n the short r u n .  The p r i c e index f o r the  h i g h value range, while i n many cases p a r a l l e l i n g the movement of the o t h e r two p r i c e changes.  i n d i c i e s , has a tendency  t o exaggerate  most  T h e r e f o r e , the index must make allowances f o r  the d i f f e r e n t p r i c e movements i n each category, as w e l l as r e cognize the impact  t h a t a change i n t h e - t u r n o v e r r a t e s among  ranges has on the behaviour o f the i n d e x .  F o r example, i f s a l e s  i n one p e r i o d were c o n c e n t r a t e d i n the h i g h v a l u e category but p r i c e s i n t h a t c a t e g o r y were f a l l i n g r a p i d l y and r i s i n g i n the two  remaining c a t e g o r i e s , then the p r i c e r e c o r d e d by an  gate index may if  i n f a c t be downward b i a s e d .  aggre-  On the o t h e r hand,  s a l e s were to s h i f t t o the h i g h v a l u e range and the v a l u e of  these homes were r a p i d l y a p p r e c i a t i n g while homes i n the o t h e r two c a t e g o r i e s were d e c l i n i n g , then the i n c r e a s e experienced i n our aggregate  index would be even f u r t h e r b i a s e d upwards, than  expected from a s h i f t i n t u r n o v e r r a t e s .  71. Thus, an aggregated  index may  be b i a s e d by a s h i f t i n  s a l e s among v a l u e ranges and by d i f f e r i n g r a t e s of a p p r e c i a t i o n between value ranges.  I f the former problem o r the two  b i n a t i o n are encountered  i n com-  i n an index, then an aggregated  index  i s o f l i m i t e d r e l e v a n c e i n measuring house p r i c e t r e n d s . Table V I I I . i l l u s t r a t e s the percentage  of s a l e s t a k i n g  p l a c e i n each of the v a l u e range c a t e g o r i e s i n each y e a r . cumulative p r i c e s e r i e s was  A  t a b u l a t e d t o analyze the e f f e c t s  on  the behaviour of the index o f t h i s d i s t r i b u t i o n of t u r n o v e r r a t e s through time and are i l l u s t r a t e d i n F i g u r e s 6  and 7 .  The cumulative i n d i c i e s were c a l c u l a t e d by adding the p r i c e s i n the v a l u e ranges from the lowest value range up i n successive steps.  V(L) r e p r e s e n t s the lowest v a l u e range,  V(LM)  i s the i n d e x f o r the lowest and middle v a l u e range and V(LMH) r e p r e s e n t s a l l the value ranges. all  V(LMH), s i n c e i t r e p r e s e n t s  s a l e s , w i l l be i d e n t i c a l t o the o v e r a l l p r i c e index c a l c u -  lated formerly.  The p r i c e i n d i c i e s i n each range were formed by  c a l c u l a t i n g a simple average  o f a l l the s a l e s p r i c e s i n each  year i n each value c l a s s r e l a t i v e to the average c l a s s i n the base y e a r .  price f o r that  (See Appendix B f o r d e r i v a t i o n o f t h i s  The cumulative v a l u e range L(LM)  index.)  p r i c e s e r i e s exceeded  the V(L) s e r i e s f o r the p e r i o d s 1949-50. 1952-5^, 1956-71 and 1974-75.  These g e n e r a l l y corresponded  t o the p e r i o d s i n which  there had been a s h i f t from the p r e v i o u s y e a r i n s a l e s t o the medium v a l u e range category where, by d e f i n i t i o n , a r e l a t i v e l y h i g h e r a b s o l u t e l e v e l of p r i c e s are found.  F o r example, i n  1952,  f i f t y percent of a l l s a l e s were recorded i n the low value category and twenty percent i n the medium c a t e g o r y .  In the f o l l o w i n g y e a r  72 TABLE V I I I DISTRIBUTION OF SALES AMONG VALUE RANGES BY YEAR Year  Low  Medium  m  25.9259 37.5OOO 22.2222 20.0000 40.0000  1962 1963  29.6296 31.2500 50.0000 50.0000 40.0000 37.5000 40.9091 50.0000 • 41.6667 32.3529 40.0000 38.0952 39.3939 34.0909 41.3793  1965 1966 1967  43 * 5484  33.6956  35*8696  1949  1950 1951 1952 1953 1954  1955 1956 1957  1958 1959 I960 1961  1964  I8.75OO 18.1818  9*5238 37.5000 35-2941  28.8889 28.5714 30O030 34*0909 31.0345 41.3793 29.2683  36>2069 39.0244  33.8710 45.5172 48.0315 49.5798 50.8197 48.2269  ~rf7 31.2500 27.7778 30.0000 20.0000 43.7500 40.9091 40.4762 20.8333 32.3529 31.1111 33f3333 30.3030 31.8182  27.5862 22.4138 31.7073 30.4348 22.58O6  1970 1971 1972 1973  28.5714 28.9617 32.2695 24.7549  1975  23.1076  26.1224  49,3877 57*7689  24.8276 22.0472 21.8487 20.2186 19.5035 22.3039 24.4898 19.1235  36.00  35.57  28.42  1968 1969  1974  27-Year Average  29.6552  High  29.9212  52.9412  \  T o t a l Number o f S a l e s (#)  27 16 18,-20 10 16., 22  42 24.  34 45 42  33 4429  58 82 92  124 145  127 119  l83  r  282-  408 245  251  73,  120 H FIGURE 6  110-4  PRICE INDICIES BY CUMULATIVE VALUE RANGESLOW AND L Q W « D B L E ^ V J l L m RANGES (constant d o l l a r s ,  100  1975 = 100)  H  90 H  80 J  70 H  2 H  Z.60 — I w AC  0-50 -J  40 J  "50 H  20 - J  Low V a l u e Range • I n d e x M^-SMid'dl^uValue,; tSaiage. I n d e x  104  49  1  1  51  53  j  55  1  57  1—  59  Ti  653 *3  65  I7 67  S69  ~I  I  71 . 73  I  75  T o o -n e  a  r  H  120  74. FIGURE 7  110  P R I C E I N D I C I E S BY CUMULATIVE VALUE RANGESLOW-MIDDLE 1N.D010 f ABO VALUE RANGES ( c o n s t a n t d o l l a r s , 1975 = 100)  100  H  90  H  80  -J  70 -J  .60 J  ri  50  H  4o  4  "50 —  Tdt'al V a l u e  - -• L o w - M i d d l e V a l u e Range I n d e x  20 -J  104  1  49  Range  "I 51  1 53  1 55  1 57  1 59  ~J 61  T 63  1 65  T 67  T 69  1 71  1 73  1" 75  75. however, the s a l e s i n the low v a l u e category dropped t o f o r t y percent o f the t o t a l and s a l e s i n the medium range i n c r e a s e d t o f o r t y p e r c e n t , c a u s i n g the cumulative  index t o r i s e .  When the  p r o p o r t i o n o f s a l e s a g a i n d e c l i n e d i n the medium category i n 1954 to e i g h t e e n percent o f the t o t a l and the p r o p o r t i o n i n the low category remained c o n s t a n t , the cumulative  index as a r e s u l t ,  f e l l below V ( L ) . As mentioned e a r l i e r , any d i s t o r t i o n s i n the s e r i e s due  t o a s h i f t i n the t u r n o v e r r a t e s can be f u r t h e r aggravated i f  the r a t e o f a p p r e c i a t i o n among the v a l u e ranges i s u n c o r r e l a t e d . In 1956, f i f t y percent o f a l l s a l e s o c c u r r e d i n the low value range and nine and one h a l f percent i n the medium range. q u e n t l y on F i g u r e 6 , the V(L) index i s above V(LM). the p r o p o r t i o n o f s a l e s s h i f t e d t o an almost between the two ranges.  Consequently,  u l a t i v e index t o s h i f t up.  equal  Conse-  I n 1957,  distribution  one would expect the cum-  T h i s s h i f t however, was f u r t h e r mag-  n i f i e d by a r a p i d a p p r e c i a t i o n i n the p r i c e s o f homes i n the medium value range r e l a t i v e to t h a t i n lower range.  (Prices i n  the medium range i n between 1956-57 i n c r e a s e d by 14.35 p o i n t s i n the index w h i l e p r i c e s i n the lower range i n c r e a s e d by o n l y 3.21 p o i n t s (1971=100) ) . Thus the cumulative  index shows an even  more r a p i d i n c r e a s e than i s s o l e l y a t t r i b u t a b l e t o a s h i f t i n s a l e s between the two ranges. Figure 7 V(LMH).  compares the two cumulative  s e r i e s V(LM) and  The V(LMH) s e r i e s remained above the V(LM) index  throughout  the study p e r i o d though not a t a constant l e v e l .  For  example from 1954 t o 1955, the d i s t r i b u t i o n o f s a l e s s h i f t e d from twenty percent i n the h i g h v a l u e category t o f o r t y - t h r e e  76. percent.  T h e r e f o r e the o v e r a l l index c o r r e s p o n d i n g l y r e f l e c t e d  the change i n the d i s t r i b u t i o n of s a l e s . was to  However, t h i s i n c r e a s e  f u r t h e r m a g n i f i e d by the f a c t t h a t expensive housing the o t h e r two  relative  c a t e g o r i e s , experienced the l a r g e s t i n c r e a s e i n  prices i n that year.  Our cumulative index V(LMH) would a c c o r -  d i n g l y r e f l e c t t h i s e f f e c t as w e l l . In  o r d e r t o f i n d out the e f f e c t on _the. index i f t u r n -  over r a t e s had remained constant throughout the twenty-sevenyearraVerage  the study p e r i o d ,  o f the d i s t r i b u t i o n of s a l e s was  mulated and the v a l u e range i n d i c i e s weighted The twenty-seven year average l a t e d i n the f o l l o w i n g manner.  by t h i s  for-  factor.  t u r n o v e r r a t e s were c a l c u -  A l l the p r o p e r t i e s i n the sample  are a l l o c a t e d t o a v a l u e range, e i t h e r a c c o r d i n g to t h e i r s a l e s p r i c e i n a g i v e n year, o r i f the p r o p e r t y d i d not s e l l  in a  g i v e n year, the n e a r e s t r e l e v a n t s a l e s p r i c e i s a d j u s t e d by the o v e r a l l p r i c e index f o r t h a t y e a r .  Those p r o p e r t i e s which d i d  not t r a n s a c t d u r i n g the study p e r i o d were randomly a s s i g n e d to a c a t e g o r y i n each y e a r ^ " ^ rates.  The twenty-seven year average  value ranges was index.  t o permit the d e t e r m i n a t i o n o f t u r n o v e r t u r n o v e r r a t e f o r each o f the  c a l c u l a t e d and used to weigh t h e i r r e s p e c t i v e  The r e s u l t s are presented and compared to the raw  i n Figure 8  A  index  (see Appendix B f o r d e r i v a t i o n o f t h i s i n d e x ) .  As expected,  the f l u c t u a t i o n s i n weighted  index are  s u b s t a n t i a l l y s m a l l e r than f o r the raw index because the  variation  (4-7) An examination was f i r s t c a r r i e d out on a sample of these p r o p e r t i e s t h a t d i d not t r a n s a c t to see i f they tended to be c o n c e n t r a t e d i n one p a r t i c u l a r v a l u e c a t e g o r y . Assuming a s t r o n g c o r r e l a t i o n between assessed v a l u e and market v a l u e , the assessed v a l u e s o f these p r o p e r t i e s were examined and the v a l u e s of the p r o p e r t i e s were a s c e r t a i n e d as b e i n g randomly d i s t r i b u t e d .  TABLE IX PERCENTAGE OF HOMES TRANSACTING EACH YEAR BY VALUE RANGE * YEAR  LOW  WJ  4.624 3.371 5.291  1949  1950 1951 1952 1953 1954 1955 1956 1957  5.882  ,  1958 1959  2.985 2.913 4.651 9.607 5.350 4.669 7.143  1960  5*594 4*377 5.405 4.333  1961 1962 1963 1964  7.591 IO.510 9.440  1965 1966  1967 1968 1969  1973 1974  1975  27-Year Average  *  W  9.420  4.828 4.167  HIGH  ki)  IO.345  3.636  4.167 3.704 4.225  3.?84  5? 618 8.081 11,927  I.258 3.067 2.857  3,865 7.759 7,755 9.328 4.895 5.903 3; 729 8.563 10.983  2,410  2.804  4,167 5*926 0.?69  4.615 7.857 3.521 4.395 6.748  14.706  15.042 13.043  9.476 8.7O6 12.984 19.106 22.306 13.704 11.797  21,364 14.243 15.740  3.409 6.630 6.829 5.612 6.220 6.393 9.524 15 •769 10 .294 6.738  8.445  9.649  6.267  11.488  1970 1971 19?2  MEDIUM  17.611 13.904 11.022 16.157  26,603  Done on the b a s i s o f a s s i g n e d stock  120  78,  H FIGURE 8  110 — I  A COMPARISON OP THE WEIGHTED VALUE RANGE INDEX TO THE OVERALL PRICE INDEX ( c o n s t a n t d o l l a r s , 1975 = 100)  100 H  90 H  80 J  70 H  .60 J Ui  o 2  H  50 H  40  J  30 H  Overall  20-^  Index  • V a l u e Range W e i g h t e d Index 10 -J  49  "51 1  ' 53  " 55  ' 57  ' 59  Ji  63  6*5  67  5  71  73  75  Y  e  a  r  79. i n the s h i f t s between v a l u e ranges have been minimized. The  a n a l y s i s i n t h i s s e c t i o n c l e a r l y i n d i c a t e s the  need f o r adjustments i n the c a l c u l a t i o n o f i n d i c i e s t o c o n t r o l f o r the s t a t i s t i c a l e f f i c i e n c y o f the index w i t h r e g a r d t o d i f f e r i n g rates of appreciation  and changes i n the d i s t r i b u t i o n  of s a l e s f o r each o f the value ranges.  The r e s u l t s obtained  here a r e s u f f i c i e n t t o r a i s e doubts as t o the v a l i d i t y o f housing p r i c e i n d i c i e s weighted by the a c t u a l number o f s a l e s . B. VALUE RANGE - CONCEPTUAL CONSIDERATIONS To t h i s p o i n t , we have d e a l t w i t h the concept o f v a l u e ranges t o measure the s t a t i s t i c a l e f f i c i e n c y o f the index. N e v e r t h e l e s s , value range c a t e g o r i e s  can a l s o be used as a mea-  sure o f q u a l i t y . One way t o measure q u a l i t y d i f f e r e n c e s between v a r i e t i e s o f a good i s t o compare t h e i r s e l l i n g p r i c e a t the same p o i n t i n time.  I f the p r i c e s n e g o t i a t e d  armslength c o n d i t i o n s ,  a r e c a r r i e d out under  we tend t o view the p r i c e  differential  as the markets o v e r a l l estimate o f the q u a l i t y d i f f e r e n c e between the p r o d u c t s .  T h i s p h i l o s o p h y i s even more a p p l i c a b l e i n  the housing market.  Unlike  the case o f most consumer goods  where p r i c e s and outputs a r e s e t by the producer, housing p r i c e s , s i n c e they a r e determined j o i n t l y by the purchaser and vendor, r e p r e s e n t the true market v a l u a t i o n o f q u a l i t y .  T h e r e f o r e the  r e a s o n i n g i s t h a t i f d i f f e r e n t q u a l i t i e s o f homes a r e s o l d conc u r r e n t l y and i f one home s e l l s f o r more than another u n i t , the d i f f e r e n c e would r e f l e c t a b e t t e r q u a l i t y home. assumed t h a t  In short, i t i s  d i f f e r e n c e s i n the c h a r a c t e r i s t i c s o f homes t h a t  would l e a d the buyer t o pay more f o r one over the o t h e r a r e  80.  r e c o r d e d as a d i f f e r e n c e i n q u a l i t y . T h i s approach encorporates a l l the c h a r a c t e r i s t i c s t h a t made up q u a l i t y .  I t c a p t u r e s the l o c a t i o n , s i z e o f the d w e l l i n g ,  s t y l e and workmanship as w e l l as o t h e r f e a t u r e s o f a home c o l l e c t i v e l y i n t o one comprehensive v a r i a b l e —  v a l u e c a t e g o r y which  i n t u r n i n each year r e f l e c t s the r e l a t i v e q u a l i t y o f the u n i t to the e x i s t i n g stock o f u n i t s i n t h a t y e a r . The i n d i c i e s t h a t were formulated i n the p r e v i o u s  sec-  t i o n f o r the t h r e e v a l u e range c a t e g o r i e s a r e u t i l i z e d here  also.  Homes i n the low value range a r e d e f i n e d as b e i n g o f r e l a t i v e l y i n f e r i o r q u a l i t y i n r e l a t i o n t o the r e s t o f the housing e x i s t i n g i n that year.  stock  Homes i n the h i g h v a l u e range a r e now  c o n s i d e r e d as s u p e r i o r q u a l i t y homes, a g a i n r e l a t i v e t o the e x i s t i n g stock i n t h a t y e a r .  The homes found i n the middle  v a l u e category a r e c o n s i d e r e d as your " t y p i c a l " home b e i n g o f average . q u a l i t y i n r e l a t i o n to the e x i s t i n g s t o c k . The  index numbers generated  f o r each category a r e con-  s i d e r e d t o be based upon the p r i c e s o f groups o f houses, the houses i n each group b e i n g s i m i l a r w i t h r e s p e c t t o t h e i r q u a l i t y r e l a t i v e t o t h e other u n i t s i n t h a t p e r i o d .  Thus, i n s h o r t ,  the indicies r e f l e c t the change over time i n the p r i c e s o f houses t h a t a r e homogeneous i n r e l a t i v e q u a l i t y .  The movements o f the  i n d i v i d u a l i n d i c i e s were analyzed i n the p r e v i o u s s e c t i o n and i l l u s t r a t e d i n Figure 5  and w i l l not be repeated  here.  D i s a g g r e g a t i o n i n t o value ranges i s p a r t i c u l a r l y  desir-  a b l e f o r m o n i t o r i n g the g e n e r a l house p r i c e l e v e l f o r income group.  Assuming a c o r r e l a t i o n between income and the p r i c e o f  the u n i t sought, i n v e s t i g a t i o n s c a n be made o f the economic  . s t a t u s of i n d i v i d u a l s with r e s p e c t to housing. ment p o l i c i e s today seem to be d i r e c t e d toward  Since most  81. govern-  lower c o s t housing,  t h i s d i s a g g r e g a t i o n c o u l d a l s o serve i n the e v a l u a t i o n o f the impact  o f government p o l i c y on these housing sub-markets. Another advantage of t h i s approach  i s t h a t the v a r i a b l e —  value r a n g e — r e q u i r e s no a d d i t i o n a l data i n t h a t i t i s i n h e r e n t i n the process of g e n e r a t i n g the index i t s e l f .  However, t h i s advan-  tage i s to an extent outweighed by the l o s s of d e t a i l as r e l a t i v e q u a l i t y i n a somewhat i n t a n g i b l e concept t h a t doesn't components of housing q u a l i t y . approach  However, i t i s f e l t  i s p r e f e r r a b l e to a complete Another  d e f i n e the  that  this  disregard f o r quality.  l i m i t a t i o n o f u s i n g v a l u e ranges as a surrogate  f o r q u a l i t y i s the f a c t t h a t homes w i l l s h i f t among value through time as t a s t e s change.  Consumers may  ranges  view d i f f e r e n t  a t t r i b u t e s of the home d i f f e r e n t l y from p e r i o d t o p e r i o d , so t h a t this shift  i n t a s t e s w i l l a l t e r demand and reduce the  of c e r t a i n homes and reduce t h e i r measure of q u a l i t y . same way,  desirability In the  the p r e f e r r e d houses w i l l show an i n c r e a s e d measure of  q u a l i t y q u i t e a p a r t from any i n h e r e n t change i n c h a r a c t e r i s t i c s . Another  shortcoming of t h i s approach  wished to aggregate  the index, t h i s method would a l l o w us  means of w e i g h t i n g the sample. reasons.  i s t h a t i f we no  Weighting i s d e s i r a b l e f o r two  F i r s t , w e i g h t i n g the sample by some f a c t o r t h a t  actually  r e p r e s e n t s the composition o f the sample w i t h r e s p e c t to t h a t f a c t o r , changes the meaning of the index i n t h a t i t i s r e p r e s e n t a t i v e o f the p r i c e changes o f the sample (and hence the e n t i r e stock) and not merely r e p r e s e n t a t i v e o f the stock changing hands. Secondly, w e i g h t i n g e l i m i n a t e s some of the s t a t i s t i c a l  distortions  82. o f the index i n t h a t i t c o n t r o l s f o r the s h i f t s i n s a l e s among d i f f e r e n t value  classes.  Without w e i g h t i n g , we have to.*/.make  the r a t h e r s t r o n g assumption t h a t the p r i c e obtained f o r a p a r t i c u l a r category represents category.  i n any p e r i o d  the t o t a l market i n t h a t  These p r i c e s a r e unavoidably weighted by d i f f e r e n t  s e t s o f weights i n each y e a r which are produced as a r e s u l t o f market c o n d i t i o n s  ( i . e . , the p r o p o r t i o n  o f s a l e s i n each c a t e g o r y )  r a t h e r than based on some concept o f the c o m p o s i t i o n o f the t o t a l stock any  ( i . e . , the p r o p o r t i o n o f t o t a l stock i n each c a t e g o r y i n  year).  G. AGE CATEGORIES - CONCEPTUAL CONSIDERATIONS Another c h a r a c t e r i s t i c which i s r e l a t e d t o q u a l i t y i s the age o f the s t r u c t u r e .  Age combines the i n f l u e n c e o f d e t e r i o -  r a t i o n (state of r e p a i r ) , b u i l d i n g s t y l e , layout  efficiency,  l o c a t i o n and other v a r i a b l e s and these v a r i a b l e s a r e a l l a f u n c t i o n of q u a l i t y .  Other s t u d i e s d e a l i n g w i t h hedonic p r i c e  i n d i c i e s have confirmed that the c h a r a c t e r i s t i c s a s s o c i a t e d here w i t h age a r e important i n d e f i n i n g q u a l i t y .  Thus, s i n c e i n  housing the p h y s i c a l u n i t , l o c a t i o n and type o f neighbourhood a l l d i f f e r w i d e l y , d e f i n i n g the market i n t o age groups make the housing i n each o f the age groups more homogeneous w i t h  respect  to c e r t a i n c h a r a c t e r i s t i c s . Generally,  i t was assumed t h a t t h e o l d e r the s t r u c t u r e ,  the more maintenance was r e q u i r e d f o r the s t r u c t u r e , the l e s s f u n c t i o n a l the l a y o u t and u t i l i t i e s o f f e r e d and a c l o s e r p r o x i (48) m i t y t o the downtown core e x i s t e d . (48)  Thus, assuming a  I t i s conceeded however t h a t a l t e r a t i o n s and r e p a i r s o f t e n take p l a c e i n o l d e r homes which would change the c h a r a c t e r i s t i c s a s s o c i a t e d w i t h these d w e l l i n g s . However, t h i s f a c t o r cannot be captured i n t h i s approach.  83. f u n c t i o n a l r e l a t i o n s h i p e x i s t s between the age and a s e t o f c h a r a c t e r i s t i c s of the b u i l d i n g , we can estimate an index f o r the different  qualities. The  sample was  c l a s s i f i e d i n t o t h r e e age groups t o  make the d i s t i n c t i o n between t h r e e g e n e r a l q u a l i t y l e v e l s . y e a r s 0 t o 10,  l l to 25,  The  and g r e a t e r than 25 years were s e l e c t e d  as the three c a t e g o r i e s as i t was  f e l t t h a t these v i n t a g e s were  the most r e p r e s e n t a t i v e o f c o n s t r u c t i o n p a t t e r n s and methods, l o c a t i o n and housing workmanship a t the time of c o n s t r u c t i o n . The i n d i c i e s f o r each o f the age groups are i n Figure 9  •  The u n d e r l y i n g process here i s s i m i l a r to t h a t  used i n the v a l u e range c a t e g o r y . for  presented  each c a t e g o r y may  The index numbers generated  be c o n s i d e r e d to be based upon p r i c e s o f  groups of houses, the houses i n each group b e i n g s i m i l a r w i t h r e s p e c t t o v a r i o u s c h a r a c t e r i s t i c s as d e f i n e d by the age at  variable  the time of each i n d i v i d u a l t r a n s a c t i o n . Thus the i n d i c i e s  r e f l e c t the change over time i n the p r i c e s t h a t have a c o n s t a n t mix  of the c h a r a c t e r i s t i c s a s s o c i a t e d w i t h t h e i r age.  The  dif-  f e r e n c e of t h i s approach as opposed t o the one used by value range i s t h a t here t h e r e i s an emphasis ing  the  p h y s i c a l hous-  u n i t i t s e l f and i t s b a s i c f e a t u r e s such as s t y l e  location.  and  The age v a r i a b l e c o n f i r m s c e r t a i n c h a r a c t e r i s t i c s while  the value range d e f i n i t i o n was An examination no correspondence v i n t a g e appears of  on  more a b s t r a c t . >  of the i n d i c i e s i n F i g u r e 9  i n t h e i r movements.  reveals  Judging from t h i s , each  to be governed by separate market f o r c e s .  Some  the f l u c t u a t i o n s i n the movement o f the o l d e s t v i n t a g e c a t e g o r y ,  p a r t i c u l a r l y i n the e a r l i e r p e r i o d , can be i n p a r t a t t r i b u t e d to  120  84.  H FIGURE©  110—1  100  H  90  H  PRICE INDICIES BY AGE CATEGORY (constant- d o l l a r s , 1975 =  80 - \  70  H  •a  1^60-1 iu o  a  P- 50 H  40 -J  30 4  20 4  Index f o r .5Young"--.'.Hou'singc Index for"Middle-Age"Housing Index f o r "Old" Housing (age d e f i n e d at time of transaction)  104  49 • 51  53  55  57  59  61  6*3  65  67  69  71  73  75  Y  e  a  r  85.  the s m a l l number of o b s e r v a t i o n s recorded i n that p e r i o d . C o n v e r s e l y , the young age c a t e g o r y index, which has the most steady r a t e o f a p p r e c i a t i o n i s made up of the l a r g e s t number o f transactions.  T h i s i s a p r a c t i c a l d i f f i c u l t y encountered  in dis-  a g g r e g a t i o n e x e r c i s e s i n t h a t i t i s necessary t o get a l a r g e number o f o b s e r v a t i o n s i n o r d e r t o get a v a l i d estimate f o r an index and i t g i v e s a b e t t e r a p p r e c i a t i o n o f the problems t h a t are encountered i n the c o n s t r u c t i o n of hedonic p r i c e  indicies.  These separate i n d i c i e s were then weighted by the p r o p o r t i o n o f t o t a l s a l e s i n each y e a r t a k i n g p l a c e i n each v i n t a g e c a t e g o r y and aggregated i n t o one  index.  However, t h i s index  r e f l e c t s the p r i c e of the stock Changing hands i n each y e a r o n l y and not the e n t i r e s t o c k and may  be s u b j e c t t o the e a r l i e r  dis-  cussed s t a t i s t i c a l d i s t o r t i o n s as t u r n o v e r r a t e s a c r o s s d i f f e r e n t v i n t a g e s are not c o n s t a n t throughout A second index was  the study p e r i o d .  thus c o n s t r u c t e d u s i n g the p r i c e s  generated f o r each o f the i n d i c i e s but weighted by the stock i n each o f the v i n t a g e c a t e g o r i e s .  The weights i n t h i s l a t t e r index  are not c o n s t a n t from p e r i o d to p e r i o d e i t h e r as p a r t of the stock i n each year becomes o l d e r and s h i f t s t o an o l d e r c a t e g o r y and new youngest  houses are b u i l t and e n t e r i n t o the w e i g h t i n g f o r the age  category.  However, t h i s aggregated p r i c e index r e -  f l e c t s the p r i c e of e n t i r e housing stock and not o n l y one changing hands i n any y e a r . i n Figure 10.  i n d i c i e s have been presented  (See Appendix B f o r the d e r i v a t i o n o f these  A comparison weighted  These two  stock  of the s a l e s weighted  indicies),  index t o the s t o c k  index should i l l u s t r a t e the d i s t o r t i o n s t h a t occur i n  the movement o f the former index caused by s h i f t s i n the t u r n o v e r  49  51  53  55  57  59  Jl  6*3 6*5 67  5  71  73 75  87. r a t e s between v i n t a g e c a t e g o r i e s .  However, the two i n d i c i e s show  a remarkable correspondence i n movement. The w e i g h t i n g f a c t o r s used f o r each index a r e p r e s e n t e d i n Table X  .  The percentage o f t o t a l s a l e s i n each p e r i o d occu-  r i n g i n a v i n t a g e c a t e g o r y was  found t o be c l o s e l y  w i t h the percentage o f t o t a l s t o c k i n each v i n t a g e .  correlated Thus,  this  e x p l a i n s the c l o s e correspondence i n the movement o f the i n d i c i e s . The stock weighted index i s compared t o the raw index generated f o r m e r l y .  The correspondence between the two  indicies  i s q u i t e s t a r t l i n g p a r t i c u l a r l y i n t r a c i n g t h e i r movements s i n c e 1962.  The raw index i s s l i g h t l y more i n f l a t i o n a r y i n the e a r l i e r  p e r i o d but the d i r e c t i o n o f the p r i c e ; changes are i d e n t i c a l except d u r i n g 1952-54.  The d e v i a t i o n i n t h i s p e r i o d i s caused  by the f a c t t h a t no s a l e s were r e c o r d e d i n the o l d v i n t a g e category, c a u s i n g the q u a l i t y a d j u s t e d index t o d i p below the raw index. The r e s u l t s from t h i s comparison are s u f f i c i e n t l y  en-  c o u r a g i n g t o suggest t h a t d i s s a g g r e g a t i o n f o r q u a l i t y c o n t r o l purposes i s unnecessary to a c c u r a t e l y r e f l e c t p r i c e measurement changes i n h o u s i n g .  We have however assumed t h a t q u a l i t y can be  to a l a r g e degree, i n f e r r e d from t h e i r ages a t the time o f their transaction. The problem i n h e r e n t i n t h i s approach, as i n the v a l u e range approach, i s t h a t the q u a l i t i e s o f the t r a n s a c t i n g u n i t s w i l l v a r y i n the l o n g run.  Many e n g i n e e r i n g improvements and  a l t e r a t i o n s i n d e s i g n have o c c u r r e d and m a t e r i a l s and the q u a l i t y o f workmanship has changed over the study p e r i o d .  Therefore, a  comparison o f the c h a r a c t e r i s t i c s of a new^house i n 1975  may  49  51  53  55  57  59  Ji  5  65  67  5  71  73  75  Y  e  89. TABLE X WEIGHTING FACTORS FOR AGE AGGREGATED INDICES Year 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975  % o f Sales i n Each Age Category "~0Td Middle New 77.78 31.25 77.78 65.00 90.00 56.25 63.64 64.29 79.17 70.59 77.78 83.33 66.67 75.00 51.72 62.07 64.63 76.09 67.74 74.48 66.14 66.39 67.76 63.48 76.96 75.10 70.12  14.81 25.00 22.22 30.00 10.00 43.75 27.27 26.19 16.67 23.53 13.33 x4.76 18.18 20.45 34.48 18.97 30.49 15.22 25.00 20.00 28.35 25.21 25.14 29.08 17.40 18.37 20.72  7.41 43.75 0.0 5.0 0.0 0.0 9.09 9.52 4.17 5.88 8.89 11.90 15.15 4.55 13.79 18.97 4.88 8.?0 7.26 5.52  2-51  8.40 7.10 7.45 5.64 6.53 9.16  % o f Sample i n Each Age Category Old New Middle 60.68 62.05 58.80 57.91 59.86 60.67 59.24 57.93 58.92 63.05 65.97 64.65 63.54 62.70 62.48 6O.77 60.19 57.17 57.80 56.54 52.23 49.75 50.41 53.17 57.65 58.46 58.79  27.35 25.29 28.46 29.85 27.30 27.43 29.49 30.04 30.32 25.55 23.59 23.26 24.92 25.83 25.91 27.35 28.15 30.19 30.32 32.05 36.43 37.98 36.47 33.94 30.45 29.65 28.76  11.95 12.64 12.73 12.23 12.82 11.89 11.26 12.01 10.75 11.39 10.43 12.08 11.52 11.45 11.60 II.87 11.65 12.62 11.86 11.40 11.32 12.25 13.10 12.88 11.88 11.88 12.44  90.  i n v o l v e a d i f f e r e n t s e t of components to t h a t o f a new 1949.  In t h i s way,  house i n  the q u a l i t y o f our index w i l l have been  influenced., T h i s problem  can be r e s o l v e d i n the f o l l o w i n g manner.  T h i s methodology compares the p r i c e s of a l l s a l e s of houses a t the same p o i n t i n time so t h a t the r e l a t i v e q u a l i t i e s and  char-  a c t e r i s t i c s of each v i n t a g e are determined by consumers a t t h a t time.  However, i t i s h y p o t h e s i z e d t h a t t h e r e l a t i v e q u a l i t y  c h a r a c t e r i s t i c s of each v i n t a g e i s constant throughout period.  That i s t o say, new  houses i n 1949  and 1975  and  the study  will  be  s i m i l a r w i t h r e s p e c t to t h e i r s t a t e of r e p a i r , d e s i r a b i l i t y of s t y l e and l a y o u t , l o c a t i o n w i t h r e s p e c t to the CBD,  etc. relative  to the other v i n t a g e s i n the stock i n t h e i r r e s p e c t i v e y e a r s . Thus, t h i s r e l a t i o n s h i p i s kept constant throughout  the  study  p e r i o d and not the a c t u a l p h y s i c a l ' u n i t denoting a p a r t i c u l a r vintage. An index h o l d i n g the a c t u a l p h y s i c a l u n i t constant throughout  the study p e r i o d was  of housing i n our sample was  a l s o attempted.  The e n t i r e stock  c l a s i f i e d i n t o one of the t h r e e age  groups a c c o r d i n g t o each u n i t ' s age i n 1975*  Index numbers  were computed f o r these groups and are c o n s i d e r e d to be based the p r i c e s of groups o f houses,  on  the houses i n each of the groups  b e i n g s i m i l a r w i t h r e s p e c t t o c h a r a c t e r i s t i c s such as s t a t e of r e p a i r , s t y l e , l o c a t i o n , e t c . i n 1975* The i n d i c e s are presented i n F i g u r e 1 2 . i n h e r e n t i n t h i s approach c o n s t a n t throughout  The  problem  i s that w h i l e the p h y s i c a l u n i t i s h e l d  the study p e r i o d , i t s c o n d i t i o n  steadily  d e t e r i o r a t e s r e l a t i v e t o the e x i s t i n g stock as we approach  the  li  120  91.  FIGURE 12 110  I  APPRECIATION OF THE HOUSING STOCK,1975 ( c o n s t a n t d o l l a r s , 1975 = 100) 100  90  80 J  f 7 0 H  0-60 J  40 J  30 A  20-J  I n d e x f o r B*4ttfigHf!u-.H©using •Index %— — •  Index f o r "Middle-Age" Housing (age  10  49  51  53  55  57  59  fi  fe  6*5  f o r " O l d " Housong  67  defined  69  71  as o f 1 9 7 5 )  73  75  Year  92. present p e r i o d .  Thus the consumer v a l u a t i o n of each of these  u n i t s , r e l a t i v e to the e x i s t i n g stock, changes through time the u n i t s q u a l i t y changes even though the p h y s i c a l u n i t does not change.  as  itself  As a r e s u l t , the former v i n t a g e approach i s  favoured as a l l t h i s approach i l l u s t r a t e s i s the a p p r e c i a t i o n o f the housing  stock  today.  The advantage of u s i n g the age a t t r i b u t e i s t h a t  we  are a b l e t o summarize an a s s o c i a t e d number of c h a r a c t e r i s t i c s i n t o one v a r i a b l e t h a t i s r e l a t i v e l y easy to o b t a i n .  The  index  computation i s r e l a t i v e l y s t r a i g h t f o r w a r d and i t s meaning i s i n t u i t i v e l y obvious.  I t appears to g i v e a b e t t e r o r more t a n g i b l e  d e f i n i t i o n of what i s c o n s i d e r e d as q u a l i t y and a l l o w s a stock composition w e i g h t i n g .  T h i s v a r i a b l e , w h i l e i t i s not  entirely  comprehensive i n i t s c o n c e p t u a l i z a t i o n of q u a l i t y , i s viewed as b e i n g b e t t e r than a complete d i s r e g a r d f o r q u a l i t y i n the D. VALUE RANGE AND  index.  VINTAGE CATEGORY  I t may  be d e s i r a b l e to f u r t h e r r e f i n e the measure of  q u a l i t y by s e g r e g a t i n g the housing stock i n t o c a t e g o r i e s t h a t combine i t s age and v a l u e range. t h a t t h e r e may  be  s e v e r a l f e a t u r e s i n a house t h a t may  t o be more o r l e s s expensive same p e r i o d .  The r e a s o n i n g behind t h i s , i s cause i t  than another house b u i l t d u r i n g the  Thus t h e r e e x i s t d i f f e r e n t q u a l i t i e s o f homes  among the v i n t a g e c a t e g o r i e s —  e.g. h i g h q u a l i t y , new  and o l d  (4-9) houses, average q u a l i t y o l d and new The  stock was  houses, e t c .  segregated i n t o combinations  v a r i a b l e s and indexes were t a b u l a t e d . (49)  The  of the  statistical  two  difficulty  This, i s the d e l i n e a t i o n used i n the Mieszkowski, Saper study.  93. t h a t arose i s t h a t w i t h t h i s approach i t i s necessary t o g e t a l a r g e number o f o b s e r v a t i o n s i n order t o g e t a v a l i d number.  index  I t r e q u i r e s an e x t e n s i v e amount o f data t o d e s c r i b e  house q u a l i t y a t t h i s more d i s a g g r e g a t e d l e v e l and our data was found t o be l i m i t e d f o r t h i s a n a l y s i s . E. BAILEY. MUTH & NOURSE MODEL The B a i l e y , Muth and Nourse model o u t l i n e d e a r l i e r i n Chapter  2 was used w i t h LRO data i n the development o f a p r i c e  index f o r the  sample.  The model which i s based on the. repeated  s a l e s o f i n d i v i d u a l p r o p e r t i e s , i s s p e c i f i e d below.  R  i t f  = V B  r  Where B B  t,' J  U. .i +  U  itt*  , or  t  = ~ t "* V b  +  u  i t f  = the r a t i o o f the f i n a l s a l e s p r i c e i n p e r i o d t ' to the i n i t i a l s a l e s p r i c e i n p e r i o d t f o r the i t h p a i r o f t r a n s a c t i o n s w i t h i n i t i a l and f i n a l s a l e s o c c u r i n g i n these two p e r i o d s ;  ^  •  itt'  x  - the t r u e b u t unknown i n d i c i e s f o r p e r i o d t and t '  •!/,  '  = the r e s i d u a l s which a r e assumed t o have zero means and u n c o r r e l a t e d v a r i a n c e s i n the l o g form.  Where the lower case l e t t e r s r e p r e s e n t the logarithms f o r t h e v a l u e s i n d i c a t e d by the upper case l e t t e r s above. The comparison o f t h i s index and the average p r i c e i n dex formulated e a r l i e r are presented i n F i g u r e 13. Two apparent.  d i s t u r b i n g f e a t u r e s o f t h i s index a r e immediately  First,  some o f the p r i c e movements a r e s u p r i s i n g l y  l a r g e , e s p e c i a l l y i n the l a t t e r y e a r s . Second, there i s complete disagreement between the movement o f the two i n d i c i e s i n some p e r i o d s . of  F o r example, one  the l a r g e s t p r i c e i n c r e a s e s recorded by the B-M-N model  94.  120 H FIGURE 1 3 ' 1 10  A COMPARISON OF THE B-M-N MODEL INDEX TO -LRQ INDEX (constant d o l l a r s ,  1975 = 100)  100 H  90 H  80  -A  70  H  UJ 41  ,Z.6o  h  1  50  40 J  30 H  20-^  ERO Index, -* B-M-N Index  • 10  4 9  51  53  55  57  59  ?i  ?3  6*5  67  5  71  73  75  95. o c c u r r e d i n 1974-1975•  However, our index a c t u a l l y recorded  p r i c e d e c l i n e i n t h a t year,  a  ( a l l a n a l y s i s i s done i n constant  d o l l a r s ) . T h e i n d i c i e s moved i n opposite d i r e c t i o n s f o r f i v e periods i n a l l . The B-M-N  model r e q u i r e s the use o f o n l y those  pro-  p e r t i e s which have s o l d more than once d u r i n g the study p e r i o d . Thus, the B-M-N  r e s u l t s i n the l o s s of i n f o r m a t i o n by  excluding  the p r i c e data f o r p r o p e r t i e s which s o l d o n l y once d u r i n g the study p e r i o d .  Por the data base i n the B-M-N, o n l y 1143  v a t i o n s were used, versus 2,641  o b s e r v a t i o n s f o r our own  r e p r e s e n t i n g a l o s s o f f i f t y - s e v e n percent  of the  I n t e r p r e t e d i n terms o f p r o p e r t i e s , o n l y 576 The  sample o f 1504  obserindex,  data.  p r o p e r t i e s out  of  t r a n s a c t e d more than once, r e s u l t i n g i n a  l o s s of approximately  sixty-two percent  Another l i m i t a t i o n of the B-M-N  of the p o p u l a t i o n . model i s t h a t while  the p h y s i c a l u n i t exchanged i s kept c o n s t a n t , i t makes no ances f o r the p h y s i c a l d e t e r i o r a t i o n of the u n i t through Thus, a p r i c e r e l a t i v e based on the e a r l i e r p r i c e w i l l  allowtime.  overstate  the pure p r i c e change as the p h y s i c a l u n i t w i l l have undergone some d e t e r i o r a t i o n i n q u a l i t y . allowance t h a t may  I n a d d i t i o n , the model makes no  f o r changes i n the q u a l i t y or "tone" of neighborhood have o c c u r r e d between t r a n s a c t i o n s . There i s a l s o a b i a s imparted  towards the o l d e r housing  stock.  i n the B-M-N  sample data  Since a p r o p e r t y must have  t r a n s a c t e d a t l e a s t twice d u r i n g the study p e r i o d , o l d e r w i l l have a g r e a t e r l i k e l i h o o d of t h i s o c c u r r i n g . requirement  stock.  Therefore,  the  t h a t housing must t r a n s a c t a t l e a s t twice d u r i n g the  study p e r i o d , w i l l not make the B-M-N the  housing  index r e p r e s e n t a t i v e o f  96. CHAPTER 6 CONCLUSION The r e s u l t s o f the p r e v i o u s c h a p t e r s have i n v e s t i g a t e d p o s s i b l e means o f c o n t r o l l i n g f o r q u a l i t y i n a housing p r i c e index.  Two q u a l i t y v a r i a b l e s have been demonstrated  examination made o f the s t a t i s t i c a l  and an  d i s t o r t i o n s that occur i n  an index where o n l y a f r a c t i o n o f the sample exchanges hands each year and where the sample e x i s t s o f v a r i o u s q u a l i t y t y p e s . I t was found t h a t the q u a l i t y a d j u s t e d index f o r age, weighted by the stock composition, can a l s o be c a l c u l a t e d as the average p r i c e o f a l l u n i t s s o l d i n each y e a r . I t has, however, been assumed throughout the a n a l y s i s t h a t the q u a l i t i e s o f d i f f e r e n t p r o p e r t i e s can be i n f e r r e d from t h e i r r e l a t i v e p r i c e s i n the case o f value a n a l y s i s , and t h a t t h e r e i s a unique s e t o f c h a r a c t e r i s t i c s a s s o c i a t e d w i t h each vintage category.  While these q u a l i t y v a r i a b l e s a r e not based on  an adequately s t r o n g assumption  t o be accepted as f i n a l  indicators  i n any sense, one broad recommendation can be suggested. the broad nature o f housing q u a l i t y , g r e a t e r advantages  Given may be  r e a l i z e d from i n d i c i e s based on one o r two comprehensive  descrip-  t i v e housing c h a r a c t e r i s t i c s than i n d i c i e s based on the hedonic approach were the data requirements a r e q u i t e e x t e n s i v e . T h i s approach  i s a l s o advocated by M a s l o v e ^ ^ 0  ina  study which was p u b l i s h e d a f t e r the b u l k o f t h i s a n a l y s i s was c a r r i e d out.  He s t a t e s t h a t a s i n g l e summary i n d i c a t o r o f  (50) Maslove, A., "Towards The Measurement o f Housing Q u a l i t y " , Economic C o u n c i l o f Canada, D i s c u s s i o n Paper, No. 75, February 1 9 7 7 .  97.  housing q u a l i t y would be advantageous i n terms o f convenience and ease o f m a n i p u l a t i o n o f the i n d e x .  He f a v o u r s the use o f t h e  v a r i a b l e r e l a t i v e v a l u e as one does not have t o make allowances for  p a r t i c u l a r c h a r a c t e r i s t i c s as t h e y a r e c a p i t a l i z e d i n t o  rela-  t i v e v a l u e and thus the d i f f i c u l t i e s o f measuring some o f t h e more a b s t r a c t o r i n t a n g i b l e a t t r i b u t e s a r e bypassed. In  s p i t e o f the f a c t t h a t i n d i c i e s c o n c e n t r a t i n g on  one o r two e x p l a n a t o r y v a r i a b l e s may n o t be the most e x p l i c i t , t h e y a r e e f f i c i e n t and a r e s u p e r i o r t o an index c o n s t r u c t e d w i t h a complete d i s r e g a r d t o housing q u a l i t y . forward approach employing for  Thus, a simple  straight-  o n l y one o r two v a r i a b l e s i s f a v o u r e d  future research. I t was hoped t h a t by overcoming some o f the problems  i n h e r e n t i n the e x i s t i n g i n d i c i e s , t h a t t h i s index c o u l d p r o v i d e an a c c u r a t e bench-mark a g a i n s t which other i n d i c i e s c o u l d be t e s t e d t o determine was i n i t i a l l y  i f a more a c c e s s i b l e s u r r o g a t e e x i s t e d .  hoped t h a t the i n d i c i e s d e s c r i b e d i n a former  t i o n c o u l d be analyzed and compared as t o t h e i r behaviour vis  the" i n d e x .  It sec-  vis-a-  However, many o f the i n d i c i e s have o n l y been i n  e x i s t e n c e f o r a short p e r i o d o f time o r a r e n o t d i s a g g r e g a t e d s u f f i c i e n t l y as t o t h e i r component p a r t s o r geographic areas t o make the comparison The  meaningful.  o n l y r e l e v a n t index e x i s t i n g i s the one p u b l i s h e d  by the Vancouver R e a l E s t a t e Board.  T h i s index was d e f l a t e d by  the Consumer P r i c e Index f o r Canada and i s presented i n F i g u r e 14. The r a t e s o f change i n the p r i c e s f o r each index a r e a l s o p r e sented i n Table X I . The index i s r e l a t i v e l y more i n f l a t i o n a r y d u r i n g the i n i t i a l p e r i o d b u t t h i s t r e n d r e v e r s e s a f t e r  1971  98.  FIGURE 14 (constant d o l l a r s ,  1961 = 100)  A COMPARISON OF THE TWO  A COMPARISON OF THE MLS  MOVING-AVERAGE MLS  INDEX TO THE OVERALL  YEAR  INDEX TO  THE OVERALL PRICE INDEX  PRICE INDEX  300 A 280  61  63  6*5  67  k  7*1  73  7*5  6*3cV  67 ' 6-9  71 " 75  75 "xdar  TABLE XI RATES OF CHANGE IN PRICES FOR MLS INDEX AND LRO INDEX (CONSTANT DOLLARS. 1961=100) YEAR  1961 1962 1963 1964  1965 1966  1967 1968 1969  1970 1971 1972  1973 1974 1975  MLS INDEX  .41  -  .68 2.68 3.28 5.23  OUR INDEX  20.14  -30.11 18.37 15.63  13.80 15.65 - 3.14  2.6l 20.16 26.23 9.93 2.98 .34  41.45 57.67  22.36 59.57  14.73  9.46 21.59  3.93  24.61.  -23.50  ,100. with the MLS  index showing a g r e a t e r r a t e o f p r i c e i n c r e a s e .  It  must be notes however, that t h e l a r g e s t r a t e ^ o f i n c r e a s e i n p r i c e s f o r both i n d i c i e s was  experienced  i n the same p e r i o d  —  1973-1974. There i s some disagreement between the d i r e c t i o n of the movement of the two ference  i n 1975  value obtained  i n d i c i e s i n 1970  and  being quite s u b s t a n t i a l . f o r the MLS  l i s t i n g may  1975  The  with the  relatively  higher  i n p a r t be e x p l a i n e d  the c o n t i n u i n g growth i n other s e c t o r s of the r e a l e s t a t e Since the MLS  f i g u r e i n c l u d e s commercial and  industrial  o c c u r r i n g i n the r e s i d e n t i a l s e c t o r .  by  industry.  property  s a l e s , growth i n these s e c t o r s would push the index up, l e s s of what was  dif-  regardThis  was  a l s o the p e r i o d d u r i n g which s a l e s o f condominiums were g a i n i n g momentum and may  s i n c e these are a l s o i n c l u d e d i n the MLS  have been a c o n t r i b u t i n g f a c t o r to the i n c r e a s e  by the MLS  index, they experienced  index. Different proportions  t o use the MLS  over time.  p o r t i o n s t h a t may  of the r e a l e s t a t e market tend  To smooth out  have occurred  some of changing  through the y e a r s , a two  moving average o f the p r i c e s d u r i n g the study p e r i o d tabulated.  The  r e s u l t s are presented  i n F i g u r e ,14.  proyear  was While t h i s  procedure d i d minimize some of the f l u c t u a t i o n s i n p r i c e s i n the MLS  index, the d i f f e r e n c e s between the two  c i e n t l y l a r g e that they cannot be  i n d i c i e s are  ignored.  More e x p l o r a t o r y work should be done i n the concerning  the p o t e n t i a l of the MLS  suffi-  future  index as a p o s s i b l e house  p r i c e i n d i c a t o r and r e s e a r c h undertaken to e x p l a i n the d i f f e r e n c e s between the two  indicies.  Attempts are now  being made to upgrade  101.  the MLS  data.  The  Greater  Vancouver Real E s t a t e Board i s c u r -  r e n t l y i n i t i a t i n g a computer system to r e c o r d the  s a l e s data as  w e l l as separate the r e s i d e n t i a l s a l e s from the commercial i n d u s t r i a l transactions.  A number of c h a r a c t e r i s t i c s concerning  the p r o p e r t i e s themselves w i l l a l s o be p r o v i d e d . s t i l l be current  r e s t r i c t e d to MLS  l i s t i n g s but w i l l be  The  data w i l l  s u p e r i o r to  the  process. Since C e n t r a l Mortgage and  S t a t i s t i c s Canada and  Housing  an index was  Corporation,  other agencies support the use o f  house p r i c e s as i n d i c a t o r s of l e v e l s and  o f new  and  formulated  new  changes o f house p r i c e s ,  on the b a s i s of average s e l l i n g p r i c e s  homes i n our sample t o see what r e l a t i o n s h i p t h i s index  bore t o our index f o r the e n t i r e sample. ^ p i l e d from the f i r s t  T h i s index i s com-  t r a n s a c t i o n s to occur on p r o p e r t i e s which  had been s o l d i n t h e i r year of c o n s t r u c t i o n o r i n the  following  year.  properties.  The  T h i s index i s based on the t r a n s a c t i o n s o f 933  r e s u l t s are presented i n F i g u r e The  l a r g e numbers of f l u c t u a t i o n s i n the index i n the  e a r l y p e r i o d s , can be observations  15•  i n p a r t a t t r i b u t e d to the s m a l l number of  p r i o r to 1965.  However, i t i s i n t e r e s t i n g to note  the l a r g e i n c r e a s e i n p r i c e s experienced i n 1 9 5 5 f o l l o w i n g  the  establishment  ex-  of the N a t i o n a l Housing Act which was  c l u s i v e l y to new  houses at t h a t p e r i o d .  w i t h the o v e r a l l index i n the  The  geared  index converges  l a t e r y e a r s o f the study p e r i o d  a very l a r g e p r o p o r t i o n of t o t a l s a l e s i n each year i n v o l v e d (51)  I t must be noted that the new house p r i c e index was not designed to be s t a t i s t i c a l l y r e p r e s e n t a t i v e of new homes b u i l t d u r i n g the study p e r i o d but was c o n s t r u c t e d s o l e l y to a l l o w a b r i e f a n a l y s i s .  as new  ' 49  1 51  1 53  1 55  I 57  I 59  T 61  j 1 63 65  T 67  1 69  I 71  1 .73  I 75  Ypnr l  e  a  r  103. houses.  Given the s t a t i s t i c a l l i m i t a t i o n s o f the index, i t can  be s a i d t h a t there does not appear t o be any s t r o n g  correspon-  dence i n g e n e r a l , i n the movement o f the two i n d i c i e s and thus any  index based on new house p r i c e s would be o f l i m i t e d use i n  d e s c r i b i n g p r i c e changes o f the e n t i r e housing The  stock.  l a c k o f an e x i s t i n g p r i c e s e r i e s which i s a r e -  l i a b l e i n d i c a t o r o f house p r i c e - t r e n d s c l e a r l y emphasizes the need f o r the f o r m u l a t i o n o f such an index.  An important  issue  t h a t should be addressed i n f u t u r e r e s e a r c h i s whether there e x i s t s a more e a s i l y a c c e s s i b l e source as a reasonably  o f data t h a t c o u l d  serve  accurate i n d i c a t o r of p r i c e a p p r e c i a t i o n .  P o s s i b l e sources may be p r i c e s obtained f o r i n d i v i d u a l p r o p e r t i e s from the R e a l E s t a t e Boards o r a s k i n g p r i c e s i n the r e a l e s t a t e c l a s s i f i e d s o f the newspaper. to  Although one can be s k e p t i c a l due  the p o s s i b l e b i a s e s i n h e r e n t i n t h i s data as d i s c u s s e d  pre-  v i o u s l y , i t was not the i n t e n t i o n o f t h i s paper t o argue a g a i n s t the p o s s i b l e u s e f u l n e s s o f t h i s procedure.  There would be s i g n i -  f i c a n t p r a c t i c a l i m p l i c a t i o n s i f the r e s u l t s o f t h i s data were r e p r e s e n t a t i v e o r bore some s o r t o f p r e d i c t a b l e r e l a t i o n s h i p t o the movement o f house p r i c e s as confirmed  by our data.  an i n v e s t i g a t i o n o f the more e a s i l y a c c e s s i b l e sources  Therefore, o f data  would be one o f the most p r o d u c t i v e f u t u r e steps i n f o r m u l a t i n g an index f o r house p r i c e s . Another p o s s i b l e f u t u r e area o f a n a l y s i s brought out d u r i n g the course  of the study i s an i n v e s t i g a t i o n o f the v a r y i n g  p r o p o r t i o n s o f agreements f o r s a l e t r a n s a c t e d i n each y e a r the c r e d i t c o n d i t i o n s e x i s t i n g i n t h a t y e a r . fic  given  Other more s p e c i -  r e s e a r c h t o e x p l a i n the movements o f house p r i c e s c o u l d be  104. undertaken as w e l l as ah a n a l y s i s o f the l e v e l o f market vity  acti-  (as measured by t u r n o v e r r a t e s ) and t h e i r r e l a t i o n to p r i c e  levels.  105. BIBLIOGRAPHY Adelman, I . , G r i l i c h e s , Z. "On an Index o f Q u a l i t y Change", J o u r n a l o f The American S t a t i s t i c a l A s s o c i a t i o n . September 1961,  PP. 535-555.  B a i l e y , M., Muth, R., Nourse, H., "A R e g r e s s i o n Method f o r R e a l E s t a t e P r i c e Index C o n s t r u c t i o n " , J o u r n a l o f The American S t a t i s t i c a l A s s o c i a t i o n , December 1963. pp. 933-942. Baxter, D., "Published Housing Data: Trends and E v a l u a t i o n " , Housing: I t ' s Your Move, U n i v e r s i t y o f B r i t i s h Columbia, Vancouver,  1976, pp. 4 1 9 - 4 4 8 .  B u r n s t i e n , M., "Measurement o f Q u a l i t y Change and Consumer Durables", The Manchester School o f Economics and S o c i a l S t u d i e s . September 1961, pp. 269-279. Brown, S. L., P r i c e V a r i a t i o n s i n New FHA Houses 1959-1961: A Report o f Research i n Methods o f C o n s t r u c t i n g P r i c e Indexes, Bureau o f the Census, Working Paper No. 31. Cagan, P., "Measuring Q u a l i t y Changes and the P u r c h a s i n g Power o f Money: An E x p l o r a t o r y Study o f Automobiles", i n P r i c e Indexes and Q u a l i t y Change, ed. Z u i G r i l i c h e s , Cambridge, Massachusetts, 1971 pp. 215-241. C e n t r a l Mortgage and Housing C o r p o r a t i o n , Canadian Housing Statistics C h i n l a y , P., Hedonic P r i c e s and D e p r e c i a t i o n Indexes f o r R e s i d e n t i a l Housing: A L o n g t i t u d i n a l Approach, Department o f Economics, U n i v e r s i t y o f Western O n t a r i o , mimeo, 1975* Dale Johnson, D. , Housing Market Data; B r i t i s h Columbia. Urban Land Economics D i v i s i o n , F a c u l t y o f Commerce and B u s i n e s s A d m i n i s t r a t i o n , U.B.C. prepared f o r the Department of Housing, Government o f the Province o f B r i t i s h Columbia, mimeo, 1976. DeLeeuw, F., "The Measurement of Q u a l i t y Changes", Proceedings o f the B u s i n e s s and Economics S e c t i o n o f the American S t a t i s t i c a l A s s o c i a t i o n , 1959. Dennis, S., "Current Changes i n C o n s t r u c t i o n and T h e i r E f f e c t s on S t a t i s t i c a l Measurement" Bureau o f the Census, Proceedings o f the Business and S t a t i s t i c a l S e c t i o n of the American S t a t i s t i c a l A s s o c i a t i o n , 1971, PP. 30-39. Dominion Bureau o f S t a t i s t i c s , The Consumer P r i c e Index f o r Canada (1949*100) Catalogue 62-518, O c c a s i o n a l , March 1961. Gavett, T., " Q u a l i t y and a Pure P r i c e Index", Monthly Labour Review, March 1967, pp. 16-20.  106. G r e b l e r , L., Blank, D., Winnick, L., C a p i t a l Formation i n R e s i d e n t i a l R e a l E s t a t e . N a t i o n a l Bureau o f Economic Research, G r i l i c h e s , Z., "Hedonie P r i c e Indexes f o r Automobiles: An Econometric A n a l y s i s o f Q u a l i t y Change", The P r i c e S t a t i s t i c s of the F e d e r a l Government. General S e r i e s , No. 73, 1961, pp. 37-196. G r i l i c h e s , Z., ed., P r i c e Indexes and Q u a l i t y Massachusetts, 1971.  Change.  Cambridge,  H a l l , R. C , "The Measurement o f Q u a l i t y Change from Vintage P r i c e Data", i n P r i c e Indexes and Q u a l i t y Change. Z. G r i l i c h e s , ed., Cambridge, 1971. PP. 240-271. Hamilton, S. W., "House P r i c e I n d i c i e s : Theory & P r a c t i c e " , Housing: I t ' s Your Move, U n i v e r s i t y o f B r i t i s h Columbia, Vancouver, 1976, pp. 383-418. J a s z i , G., "An Improved Way o f Measuring Q u a l i t y Change", Review of Economics and S t a t i s t i c s . August 1962, pp. 332-335. Kaplan, N., "Some M e t h o d o l o g i c a l Notes on The D e f l a t i o n o f C o n s t r u c t i o n " , J o u r n a l o f The American S t a t i s t i c a l A s s o c i a t i o n , September 1959, pp. 535-555. Laube, J . , Hedonie P r i c e and Q u a l i t y Indexes: A T h e o r e t i c a l Review. C e n t r a l Mortgage and Housing C o r p o r a t i o n , mimeo, March 1975. M a i s e l , S. J . , "Housing Data Obtained By Sampling P u b l i c Records", Land Economics 1954-1955, pp. 257-268. Maslove, A., Towards the Measurement o f Housing Q u a l i t y , Economic© C o u n c i l o f Canada, D i s c u s s i o n Paper No. 75, February 1977. McCarthy, P., Some Observations on Sampling i n the C o n s t r u c t i o n of P r i c e Indexes, 1961 Proceedings o f The American S t a t i s t i c a l A s s o c i a t i o n , pp. 264-270. McFayden, S., Hobart, R., The Impact o f I n f l a t i o n on The Canadian Housing Market, Urban Growth and Land D i r e c t o r a t e , M i n i s t r y o f State f o r Urban A f f a i r s , 1975, Chapter 1, mimeo, pp. 1-17. Mieszkowski, P., Soper, A., Trends i n the Value o f Toronto Housing, 1965-1973.' C e n t r a l Mortgage and Housing C o r p o r a t i o n , Working Paper ?6-2. 1 Musgrave, J . , "New Bureau o f the Census C o n s t r u c t i o n P r i c e Indexes, C o n s t r u c t i o n S t a t i s t i c s D i v i s i o n , Bureau o f t h e Census presented a t Annual Meeting o f The American S t a t i s t i c a l A s s o c i a t i o n , August 1968, mimeo. '  \  P r i e s t , B a i l e y , A l f o r d , E v a l u a t i o n o f 1971 Census R e p o r t i n g o f S e l l i n g Value o f Owner-Occupied D w e l l i n g U n i t s : Micro-Match w i t h Comparison S a l e s Catalogues P r o v i d e d By Members o f the C a n a d i a n " R e a l E s t a t e A s s o c i a t i o n , S t a t i s t i c s Canada. May 1973. mimeo. Q u i g l e y , J . , Kain, J . , " E v a l u a t i n g the Q u a l i t y of the R e s i d e n t i a l Environment",,-Environment P l a n n i n g . V o l . 2, 1969. Rapkin, C , Winnick, L., Blank, D., Housing Market A n a l y s i s , I n s t i t u t e f o r Urban Land Use and Housing S t u d i e s , Columbia U n i v e r s i t y , C i t y of New York, 1953.  The  Seek, N. H., F l u c t u a t i o n s i n the Turnover o f S i n g l e F a m i l y Dwellings I n Vancouver, U n i v e r s i t y of B r i t i s h Columbia, T h e s i s (unpublished) 1975. S t e i n e r , P., Consumer Durables i n an Index o f Consumer P r i c e s " , The P r i c e S t a t i s t i c s o f the F e d e r a l Government, S t a f f Paper No. N a t i o n a l Bureau of Economic Research, 1961.  6,  T r i p l e t t , J . , " Q u a l i t y B i a s i n P r i c e Indexes and New Methods o f Q u a l i t y Measurement", i n P r i c e Indexes and Q u a l i t y Change. Z. G r i l i c h e s , ed., Cambridge, 1971, pp. 180-212. T r i p l e t t , J . , Theory o f Hedonic P r i c e Indexes, Bureau o f Labor S t a t i s t i c s , S t a f f Paper No. 31, 1971. *"*" U.S. Congress, J o i n t Economic S t a t i s t i c s , January 1961.  Committee,. Government P r i c e  Wales, T., Wiens, E., " C a p i t a l i z a t i o n o f R e s i d e n t i a l P r o p e r t y Taxes: An E m p i r i c a l Study', Review o f Economics and S t a t i s t i c s ,  August 1 9 7 4 , pp. 320-334.  Wallace, W. H., Measuring P r i c e Change: A Study o f the P r i c e Indexes, F e d e r a l Reserve Board o f Richmond, 1972. W i l k i n s o n , R. K., "House P r i c e s : the Measurement o f E x t e r n a l i t i e s " , Economic J o u r n a l , March 1 9 7 3 , pp. 72-86. Wyngarden, H., "An Index o f L o c a l R e a l E s t a t e P r i c e s " , Michigan B u s i n e s s S t u d i e s . January 1927. In a d d i t i o n , i n f o r m a t i o n was a l s o o b t a i n e d through m a i l / telephone and p e r s o n a l correspondence from the f o l l o w i n g persons: Mrs. Hazel B a x t e r , C e n t r a l Mortgage and Housing C o r p o r a t i o n , Regional O f f i c e , 2609 G r a n v i l l e S t r e e t , Vancouver, B. C.  108. Mrs. B e t t y B a x t r e s s e r , A c t i n g C h i e f , L i b r a r y Branch, Bureau of the Census, Washington, D. C. Ms. Karen Calderbank, S t a t i s t i c s Canada - Vancouver O f f i c e , 16 E. Hastings S t r e e t , Vancouver, B. C. Mr. Garlow & S t a f f , Land R e g i s t r y O f f i c e , 653 C l a r k s o n Avenue, New Westminster, B. C. Mr. J e f f e r y Crawford, Department o f Commerce, Bureau of Economic A n a l y s i s , 1401 K S t r e e t N. W., Washington, D. C. 20230. Mr. P. G. F u l l e r , Manager, C e n t r a l Mortgage and Housing C o r p o r a t i o n , S t a t i s t i c s Services Division, Ottawa, O n t a r i o , K1A OP?. Mr. W i l l i a m E . H a v i l a n d , S e c r e t a r y , Economic C o u n c i l o f Canada, P.O. Box 527, Ottawa, O n t a r i o , KIP 5 V 6 . Mr. Bob Hobart, Urban Economic D i r e c t o r a t e , M i n i s t r y of State f o r Urban A f f a i r s , Ottawa. Mr. Frank Hodges, V i c e P r e s i d e n t , Manager Corporate R e l a t i o n s , A. E . LePage L t d . , 50 H o l l y S t r e e t , Toronto, O n t a r i o , M4S 26l. Mrs. C e l i n a Hague, Real Estate Administration, Royal T r u s t Co., 630 D o r c h e s t e r B l v d . , W., Montreal, P.Q., H3B 1S6. Mr. R. J . Lowe, S t a t i s t i c s Canada, Prices Division, Ottawa, O n t a r i o , K1A 0 T 6 .  Mr. Ted M i t c h e l , C e n t r a l Mortgage and Housing C o r p o r a t i o n Regional O f f i c e , 2609 G r a n v i l l e S t r e e t , Vancouver, B. C, Mr. Nunn and S t a f f , Land R e g i s t r y O f f i c e , 777 Hornby S t r e e t , Vancouver, B. C. Mr. T. Thomas, C e n t r a l Mortgage and Housing C o r p o r a t i o n Program and Market Requirements-;©ivision Ottawa, O n t a r i o , K 1 A 0P7. (  110. APPENDIX A  SAMPLING PROCEDURE 1.  Data For The I t was  Studydecided  on the b a s i s o f p r e v i o u s work done on  t h i s t o p i c t h a t the data would be of the Land R e g i s t r y O f f i c e s . the c o o p e r a t i o n  New  records  obtain  Westminster Land  On the b a s i s o f e s t i m a t e s of the number  t h a t would be r e q u i r e d , 3 t o 4 r e s e a r c h a s s i s -  t a n t s were a s s i g n e d  t o work i n the LRO  weeks, commencing June 2.  Steps were taken to  of the Vancouver and  Registry Offices. of r e s e a r c h e r s  c o l l e c t e d f r o m the  S e l e c t i o n Of The  f o r a period of 8  22.  Universe  For the purposes of t h i s study, the u n i v e r s e  was  to  i n c l u d e a l l s i n g l e f a m i l y detached u n i t s s i t u a t e d i n the e i g h t r a p i d l y growing m u n i c i p a l i t i e s o f M e t r o p o l i t a n  Vancouver.  These i n c l u d e d Coquitlam, Port Coquitlam, Surrey, Port Moody, Richmond, D e l t a , White Rock, and Vancouver.  The  the D i s t r i c t o f North  c r i t e r i a used to s e l e c t these m u n i c i p a l i t i e s  were the d e c e n t e n i a l growth r a t e s from 1940 o f the m u n i c i p a l i t i e s and 3.  Estimation The  t o 19?0  f o r each  f u t u r e p r o j e c t e d growth r a t e s .  Of Sample S i z e sample s i z e , w i t h a p r e s c r i b e d a c c u r a c y o f 90$  f i d e n c e i n t e r v a l s , was  obtained  f o r the u n i v e r s e  con-  as a whole  111. r a t h e r than f o r each m u n i c i p a l i t y . that a sample o f 1785  p r o p e r t i e s waved be s t a t i s t i c a l l y r e -  p r e s e n t a t i v e of the u n i v e r s e . was  The  sample s i z e o f the u n i v e r s e  d i s t r i b u t e d p r o p o r t i o n a t e l y among the m u n i c i p a l i t i e s .  (See Table I I I ) .  The number of s i n g l e f a m i l y detached  i n each m u n i c i p a l i t y was correspondence 4-.  Calculations indicated  P r e p a r i n g The The  o b t a i n e d through telephone  homes  and  mail  w i t h the f o u r area assessment o f f i c e s . Sample  sample was  s e l e c t e d randomly from d i f f e r e n t  sources  f o r the m u n i c i p a l i t i e s as c o o p e r a t i o n from a l l the assessment o f f i c e s c o u l d not be o b t a i n e d  ( I t was  i n i t i a l l y hoped t h a t  the sample f o r a l l e i g h t m u n i c i p a l i t i e s c o u l d be drawn from the r e c o r d s of the assessment o f f i c e s ) .  The  different  sources  i n c l u d e d the m u n i c i p a l r e c o r d s o f b u i l d i n g p e r m i t s , the a s s e s s ment race  (CMV  file,  f i e l d cards) and i n the case of  m u n i c i p a l i t y , the r e c o r d s o f water c o n n e c t i o n s . III).  (See  one Table  From these sources, the l e g a l d e s c r i p t i o n and the  age  of the d w e l l i n g s were r e c o r d e d , the former to be used i n t i t l e searches a t the Land R e g i s t r y O f f i c e , the l a t t e r t o be used i n the subsequent a n a l y s i s of the p r i c e The  index.  d i f f i c u l t y of s e l e c t i n g a sample from these  sources  depended l a r g e l y upon the number of i n d i v i d u a l r e c o r d s t h a t had to be c o n s u l t e d i n o r d e r to determine the l e g a l d e s c r i p t i o n of a sample p r o p e r t y and the type o f p r o p e r t y  (i.e.,  r e s i d e n t i a l , commercial, e t c . ) to determine whether t h a t p a r cel  should be i n c l u d e d or excluded from the  sample.  112. The  p r o p e r t i e s i n a l l m u n i c i p a l i t i e s were s e l e c t e d  randomly from t h e i r source.  I t was  necessary to  "gross-up"  the c a l c u l a t e d sample s i z e f o r each m u n i c i p a l i t y i n t h a t the  sampling procedure would r e s u l t i n the  order  required  number of s i n g l e f a m i l y u n i t s f o r each m u n i c i p a l i t y . 5.  F i e l d Work S a l e s data c o l l e c t i o n began a t the Vancouver LRO June 22 and was New  completed on J u l y 9.  Westminster LRO  were k e p t .  The  where 80$  and  the l a s t two  Work then began a t  o f the r e q u i r e d p r o p e r t y  data c o l l e c t i o n was  ending on August 13.  on the  records  completed i n 5 weeks,  With the e x c e p t i o n  o f the f i r s t week  weeks of data c o l l e c t i o n when o n l y 3 students  were employed, the u s u a l number of s t u d e n t s working i n the LRO  was  4.  was  i n p a r t due  there and  The g r e a t e r e f f i c i e n c y i n the New to the more organized  i n p a r t due  Westminster  c o n d i t i o n o f the  to the i n c r e a s e d competence of  LRO  records  the  workers. Each worker was  r e s p o n s i b l e f o r s e c u r i n g the  Certificate  of T i t l e numbers f o r each of the l e g a l d e s c r i p t i o n s and ding the s a l e s p r i c e i n f o r m a t i o n and  the date o f the  recor-  trans-  a c t i o n s f o r the p r o p e r t y up t o the date of i t s c o n s t r u c t i o n or  back u n t i l 1964,  t o 1964.  i f the home had been c o n s t r u c t e d  P r o p e r t i e s t h a t had been c o n s t r u c t e d  composed about 40$  o f the sample and  prior  p r i o r to  sales information  them was  a v a i l a b l e from a p r e v i o u s  t h a t was  r e q u i r e d f o r these " o l d e r " p r o p e r t i e s was  *64 on  study done a t U.B.C.  date of the s a l e s on the p r o p e r t y up to the p r e s e n t  an  All  upday.  113 The month of December was f o r S a l e s data.  spent c o l l e c t i n g Agreement  The procedure used here was  an  examination  o f a l l the C e r t i f i c a t e s o f T i t l e i s s u e d f o r a g i v e n p r o p e r t y , t o see i f any r i g h t s t o purchase charges had been r e g i s t e r e d a g a i n s t the t i t l e o f the p r o p e r t y .  R e g i s t r a t i o n numbers of  these charges were r e c o r d e d and the documents examined t o o b t a i n the s a l e s p r i c e data and the date o f the t r a n s a c t i o n . Approximately  2,300 p r o p e r t i e s were searched.  300 of  these homes were e l i m i n a t e d due to mistakes i n r e c o r d i n g the data or the l e g a l d e s c r i p t i o n s .  P r o p e r t i e s which had been  s u b d i v i d e d were a l s o e l i m i n a t e d from the sample. procedure may  While  this  have a tendency to b i a s the o l d e r sample toward  s m a l l e r p r o p e r t i e s ( i s e . l a r g e e s t a t e s would have a g r e a t e r p r o b a b i l i t y of b e i n g s u b d i v i d e d ) , t h e r e appeared to be no  way  to cope w i t h the problem o f t r a c i n g a p r o p e r t y through time which a t some p o i n t had been s u b d i v i d e d and p a r c e l s s o l d o f f . I f a p r o p e r t y was  v e r y o l d and had been  demolished p r i o r t o 1976,  the data on i t was  to the estimated date o f the d e m o l i t i o n . d e m o l i t i o n , the p r o p e r t y was Approximately  100  subsequently r e c o r d e d only up  A f t e r the date of  d e l e t e d from the  sample.  p r o p e r t i e s were l o s t i n attempting  to  merge t h i s data w i t h the data t h a t had been c o l l e c t e d i n the p r e v i o u s study.  T h i s was  l a r g e l y the r e s u l t of c o n f l i c t i n g  i n f o r m a t i o n f o r a p r o p e r t y between the data c o l l e c t i o n p e r i o d s , ( l a r g e l y the r e s u l t o f coding o r keypunching e r r o r s ) or incomp l e t e i n f o r m a t i o n about a p r o p e r t y ( f o r example, no age date of s a l e g i v e n ) . The  f i n a l sample s i z e was  1916  properties.  or  114. APPENDIX B  DERIVATION OF SAMPLE SIZE AND 1.  INDICIES  The formula used f o r the d e r i v a t i o n o f sample s i z e  was:  n « z NY ~ 2  2  N E +z Y 2  where:  2  2  2  n = e s t i m a t e d sample s i z e z = confidence i n t e r v a l  statistic  N = s i z e of the u n i v e r s e V - £Z T  standard d e v i a t i o n and mean o f the t u r n o v e r r a t e s f o r the f a s t growth m u n i c i p a l i t i e s  3  E = estimated..sampling 2.  error  P r i c e s f o r the o v e r a l l index and f o r the unaggregated i n d i c i e s i n the v a r i o u s c a t e g o r i e s were c a l c u l a t e d as the: d o l l a r value o f a l l s a l e s i n c a t e g o r y t o t a l number of s a l e s i n c a t e g o r y X  X  Where X r e f e r s t o the t o t a l data, data e x c l u d i n g  agreementrfor  s a l e data, age c a t e g o r i e s , v a l u e range category, e t c . as  de-  f i n e d f o r each i n d e x . 3.  The cumulative p r i c e i n d i c i e s  ( F i g u r e 6 and 7) were d e r i v e d  as: P (L)  =  P  P (LM)  = P  P (LMH)  = P  n L  n L n  L  ^L +P  .t  n  n  n L  +  P  n m  m  .C  .t  n m  +P  n H  .t  n H  -  where: P (L) = p r i c e index f o r the low v a l u e range category  115 where: P (LM) and P (LMH) = p r i c e i n d i c i e s f o r the cumulative v a l u e range c a t e g o r i e s , low-medium and low-medium-high, r e s p e c t i v e l y . P  L  t  L  n  »  P  ,  t  n  n m  » Pj/  n f f l  , t„  n  The weighted-value  p r i c e i n d i c i e s f o r the v a l u e range c a t e g o r i e s , low, medium and h i g h r e s p e c t i v e l y , i n p e r i o d n.  1=  = t u r n o v e r r a t e s f o r each o f the v a l u e ranges w i t h s u b s c r i p t s as d e f i n e d above i n p e r i o d n. range index ( F i g u r e 8) i s d e r i v e d a s :  P (T) - i C t ^ J A t ^ . where: t ^ • 2 ? y e a r average range i . p.  t u r n o v e r r a t e i n value  = non-cumulative p r i c e index f o r v a l u e range i f o r p e r i o d n.  n  The sales-weighted age index ( F i g u r e 10) i s d e r i v e d a s : p  (s)  =ip  where: p . d  n  a  -d  = p r i c e index f o r age c a t e g o r y a i n p e r i o d n.  n  = the t u r n o v e r r a t e i n age c a t e g o r y a i n p e r i o d n ( i . e . t o t a l s a l e s i n a) t o t a l stock i n a  n a  The stock-weighted P (W)  =*P  where: p  n  a  The t u r n o v e r .  n a  index ( F i g u r e 10 and 11) i s d e r i v e d a s :  .s  n a  * p r i c e index f o r age c a t e g o r y a i n p e r i d d n.  n Q  s  n  a  s  the percentage o f the stock t h a t i s i n age c a t e g o r y a i n p e r i o d n. throughout  the study i s d e r i v e d a s :  T ' t o t a l number o f s a l e s i n A s  t o t a l stock i n A  n  n  where: A i s the c a t e g o r y b e i n g measured, n = a given year.  A P P E N D I X  C  s  COMPARISON OF CURRENT AND CONSTANT DOLLAR INDICES  (l971 100) a  P r i c e Index Year 1949  1950 1951 1952. 1953 1954  1955 1956 1957 1958 1959 1960  1961 1962 1963 1964  1965 1966  1967 1968 1969 1970 1971 1972 1973 1974  1975 1976  Current  Dollars  11.98 17.94 16.41 16.96 19.94 17.44 28.23 28.90 35.90 40.27 41.11 44.58 40.24 48.92  37.31 45.71 53.60 5£-77 68.16 83.63 92.41  97.06 100.00 118.65 141.17 196.42 200.06 231.66  Constant  Dollars  20.65 30.06 24.8? 25.08 29.76 25.88 41.79 42.18 50.79 55.49 56.02 60.01 53.68 64.49 48.33 58.19 66.58 67.98 78.79 92.90 98.23 99.83 100.00 113.22 125.22 157.19 144.57 156.79  PRICE INDEX BASED ON CLEAR TITLE TRANSACTIONS (CONSTANT DOLLARS. 1971=100) YEAR  PRICE INDEX  1949  18.17 28.74 25.13 27.43 32.69 24.47 42.44 43.33 59.26 58.83 58.40 63.76 54.25 63.88 51.45 59.73 66.65 69.78  1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967  1968 1969 1970 1971 1972 1973 1974 1975 ' 19?6  81.81.;  93.87 100.32 100.81 100.00 113.46 124.00 156.29 144.93 155.46  COMPARISON OF PRICE.INDEX BASED ON AGREEMENTS FOR SALE TRANSACTIONS AND OUR INDEX (CONSTANT DOLLARS. 1971=100) AGREEMENTS FOR SALE YEAR  1949 1950 1951 1952 1953 1954 1955 1956 195? 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 19?1 1972 1973 19?4 1975 1976  PRICE INDEX  OUR INDEX  23.12 34.23 '22.75 19.64 23.04 28.41 37.80 38.15 36.?8 42.36 52.03 49.72 52.85 67.99 41.62 42.38 66.37 56.05 50.45 85.74 75.80 76.22 100.00 IO7.79 182.57 176.87 87.28 181.84  20.65 30.06 24.87 25.08 29.?6 25.88 41.79 42.18 50.79 5:5.49 56.02 60.01 53.68 64.49 48.33 58.19 66.58 6?.98 78.79 92.90 98.23 99.83 100.00 113.22 125.22 157.19 144.57 156.79  119.  PRICE INDEXES BY VALUE RANGE (CONSTANT DOLLARS. 1971=100) YEAR  LOW  MEDIUM  HIGH  1949 1950 1951 1952 1953 1954 1955 1956 195? 1958 1959 I960 1961 1962 1963 1964 1965 1966 196? 1968 1969 1970 1971 1972 1973 1974 1975 1976  13.09 21.08 24.8? 20.02 21.28 18.19 26.66 34.50 37.71 43.42 45.16 57.59 46.89 40.62 34.98 49.06 59.64 64.73 71.54 83.13 90.65 95.56 100.00 112.73 124.22 151.33 151.23 157.25  19.42 29.88 27.03 25.57 28.76 23.16 38.67 41.93 56.28 59.82 57-36 64.37 54.21 62.46 50.13 59.11 65.8? 69.32 83.38 94.06 .99.67 99.68 100.00 110.59 119.66 148.45 141.82 148.15  20.12 31.64 25.82 30.23 42.86 26.63 46.10 45.12 62.68 52.79 60.14 55.17 56.ll 73.09 57.22 66.38 68.37 63.93 89.48 92.17 99.31 99.97 100.00 123.6? 125.96 159.81 139.13 163.17  120.  PRICE. INDEXES BY CUMULATIVE VALUE RANGES (CONSTANT DOLLARS. 1 9 7 1 l 0 0 ) a  YEAR  LOW  1949  13.09 21.08 24.87 20.02 21.28 18.19 26.66 34.50 37.71 43.42 45.16 57.59 46.89 40.62 34.98 49.06 59.64 64.73^ 71.54 83.13 90.65 95.56 100.00 112.73 124.22 151.33 151.23 157.25  1950 1951 1952 1953 1954 1955  1956 1957 1958 1959  I960 1961 1962 1963  1964 1965 1966  1967 1968 1969  1970 1971 1972 1973 1974 1975 1976  LOW & MEDIUM :  15.62  LOW & MEDIUM & HIGH (TOTAL) 20.65  25.81  30.06  19.23  25.07  18.04 27.62  25.87 41.79  22.61  24.44  29.79 45.42 51.28 47.34 6.47  7.01 50.95 39.66 53.27 58.10 64.53 72.16 89.67 96.26 98.43 100.00 109.71 122.72 150.14  147.91 150.43  24.8?  29.75  42.18 50.79 55.49 56.02  60.01 53.67 64.48  48.32 58.18 66.57 67.97 78.79 92.89 98.22 99.82 100.00 113.21 125.21 157.18 144.57 156.79  PRICE INDEXES BY AGE CATEGORY* (CONSTANT DOLLARS. 1971=100) Year  1-10 Years O l d  11-25 Years O l d  : >25 Years O l d  1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 i960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976  19.26 21.54 22.68 28.13 30.22 28.26 41.22 46.38 51.25 57.73 57.74 60.41 59.23 69.71 56.20 59.45 72.32 68.48 81.49 94.01 IOO.52 97.89 100.00 110.78 117.94 150.62 142.69 150.05  21.49 39.64 32.59 19.08 19.26 24.34 46.69 36.06 47.91 47.19 35.35 41.97 43.31 45.66 46.95 74.05 59.22 64.70 77-64 79.70 99.48 109.47 100.00 116.61 146.60 185.16 155.58 190.47  28.92 35.06 _ *# 16.92 - ** _ #* 36.?0 27.69 22.66 49.93 50.53 42.20 35.00 28.65 28.77 39.45 35.52 51.49 48.74 94.88 71.57 93.43 100.00 139.49 133.83 132.25 126.21 140.41  * **  Age a t date o f t r a n s a c t i o n No t r a n s a c t i o n s  122.  PRICE APPRECIATION OF THE STOCK BY AGE CATEGORY (CONSTANT DOLLARS. 1971*100. AGE AS OF 1975)  Year 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 i960 . 1961 1962 1963 1964 1965 1966 196? 1968 1969 1970 1971 1972 1973 1974 1975 19?6  PRICE INDEX FOR HOUSES 1-10 11-25 >25 ..Years Old Years Old Years Old  -  -  79.71 85.92 99.49 103.64 101.01 100.00 110.59 118.85 151.65 143.90 151.32  56.57 32.38' 34.52 60.79 56.27 60.87 71.31 64.97 68.60 67.73 79.66 62.10 66.94 80.41 75.09 80.80 88.56 96.63 91.54 100.00 115.60 134.21 173.92 141.33 172.89  l  22.62 32.92 27.24 25.89 32.29 25.29 32.47 34.16 40.61 41.98 48.65 49.02 35.80 39.85 33.68 .54.. 68 50.49 49.70 67.83 82.44 85.6? 116.68 100.00 121.30 137.43 134.39 131.45 145.98  123  COMPARISON OF OUR INDEX & THE SALES WEIGHTED & STOCK WEIGHTED INDICES (CONSTANT DOLLARS. 1971=100), YEAR  OUR INDEX  SALES WEIGHTED  STOCK WEIGHTED  1949 1950 1951 1952 1953 1954 1955 1956 195? 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 19?2 1973 1974 1975  20.65 30.06  20.53 33.51 24.54 25.25 28.37 25.94 42.15 41.90 49.51 54.87 54.91 58.51 53.28 62.83 53.51 58.90 66.02 66.12 78.25 91.61 97.93 100.33 100.00 114.49 124.01 149.83 144.40  21.25 27.95 22.87  24.87  25.O8 29.76 25.88 41.79 42.18 5°.79 55.49 56.02 60.01 53.68 64.49 48.33 58.19 66,5^ 67.98 ?8.79 92.90 98.23 99.83 100.00 113.22125.22 157.19 144.57  24.63  20.76 23.58 42.25 41.07 46.87 54.60 52.37 54.48 52.77 58.81 50.69 6O.79 64.35 65.27 76.53 90.00 96.19 101.12 100.00 117.08 128.63  158.30 144.67  A COMPARISON OF THE BAILEY-MUTH-NOURSE MODEL AND OUR INDEX (CONSTANT DOLLARS. 1971 100) S  YEAR  BMN PRICE INDEX  OUR INDEX  1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976  17.59 25.44 34.11 27.03 32.03 24.52 33.31 41.85 42.54 48.86 48.03 51.49 50.60 45.87 40.88 51.10 50.08 56.26 68.84 76.52 88.55 95.78 100.00 114.80 137.80 176.66 205.51 224.88  20.65 30.06 24.87 25.08 29.76  25.88 41.79 42.18 50.79 55.49 56.02 60.01 53.68 64.49 48.33 58.19 66.58 67.98 78.79 92.90 98.23 99.83 100.00 113.22 125.22 157.19 144.57 156.79  A COMPARISON OF OUR INDEX AND THE MLS INDEX (CONSTANT DOLLARS. 1961=100) .J  YEAR  MLS INDEX  OUR INDEX  1961  100.00  100.00  1962  100.41  120.14  1963  99.73  90.03  1964  102.41  108.40  1965 1966 1967 1968 1969 1970 1971 1972  105.69 110.92 125.65 139.42 155.07 151.93 161.39 182.98  124.03 126.64 146.80 173.07 183.00 185.98 186.32 210.93  1974 1975  282.10 286.03  292.86 269.36  1973  224.43  233.29  APPENDIX TABLE INDEXES BASED ON A TWO YEAR MOVING AVERAGE OF MLS /PRICES (CONSTANT DOLLARS. 1961=100) YEAR  MLS INDEX  1961 1962 1963 1964  100.00 100.20 100.07 101.07  1967  118.29  1965 1966  1968 1969 1970 1971 1972  OUR INDEX  100.00 120.14 90.03 108.40  104.05 108.30  124.03 126.64  132.54 147.25 153.50  173.07 183.00 I85.98 186.32 210.93  156.66  172.19 203.71  1973 1974  253.27  1975  284.06  146.80  233.29  292.86 269.32  COMPARISON OF OUR INDEX AND INDEX BASED ON NEW HOUSE SALES (CONSTANT DOLLARS. 1971=100) YEAR  1949. 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972  1973 1974 1975 1976  OUR PRICE INDEX  NEW HOUSE PRICE INDEX  20.65 30.06 24.87 25.07 29.75 25.87 41.79  21.38  42.18  50.79 55.49 56.02 60.01 53.67 64.48  48.32 58.18 66.57 67.97 78.79 92.89 98.22 99.82 100.00 113.21 125.21 157.18 144.57 156.79  30.27 52.62 28.17 32.05 58.05 60.12 66.00 67.23 61.26 63.15 68.02 79.26 71.94 76.79 93.40 84.23 .92.25 104.36 106.44 106.09 100.00 113.96  126.82 158.98 148.32 150.79  

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