Quick overview of prices indices and cost indices

Quick overview of prices indices and cost indices in construction in France Cost index and price index in construction Gérard Vittek Head of section “index of the cost of construction and rent” 26 th May of 2015

Input : BT-TP Output : PRLN-ICC Sales OOH 2 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Cost of construction index and output price index for construction (OPC) 1. Producer cost index for construction index 2. Producer price index for construction 3. Maintenance and improvement of existing dwellings 3 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Producer cost index for construction: Economical theory of price Formally the price in a contract is final In order to prevent from an increase of the cost when prices by a high price it is more efficient to index the price on the cost of the inputs. This method allow sellers to contract with lower prices than when the prices are final. The margin is granted constant in the case of indexed process on prices input. A construction cost index measures the relationship between costs, at constant technology and constant input mix that are associated with the implementation of a fixed amount of construction work. 4 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Producer cost index for construction: Methodology of cost index : KLEMST Economist in the analysis of productivity use a decomposition of the cost of production in 4 factors KLEM: 1. 2. 3. 4. K for Capital L for Labour E for Energy M for Material In the case of cost of construction index we need to introduce S (Services) and T (Transport). The method of break down of the cost of production is named KLEMST 5 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Methodology of producer cost index : KLEMST 6 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Methodology of cost index : KLEMST 7 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Statistical sources The weights of each post K L M E S T are given by the annual structural survey and the tax on company. The decomposition in each post is actually produce by produces with the help of professional associations and validated with tax on company and annual structural survey. A survey will be tested in order to obtain the decomposition of each post. 8 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Cost of construction index : Example of index 9 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Cost of construction index These index are on INSEE database Producer cost indices for construction (macroeconomic indicators) http: //www. bdm. insee. fr/bdm 2/choix. Criteres? code. Groupe=1605 Producer cost indices for construction (contract escalation) - Building (BT) indices http: //www. bdm. insee. fr/bdm 2/choix. Criteres? code. Groupe=1606 Producer cost indices for construction (contract escalation) – Civil engineering (TP) indices http: //www. bdm. insee. fr/bdm 2/choix. Criteres? code. Groupe=1607 Producer cost indices for construction (contract escalation) - Various indices for Construction (EV, FD, FG, FV, ING, PMR, TRBT, TRTP, MABTGO, MABTSO and MATP) http: //www. bdm. insee. fr/bdm 2/choix. Criteres? code. Groupe=1608 Index for updating material assets in construction (IM) http: //www. bdm. insee. fr/bdm 2/choix. Criteres? code. Groupe=1609 http: //www. bdm. insee. fr/bdm 2/choix. Criteres. action? code. Groupe=1530 Cost index in civil engineering http: //www. bdm. insee. fr/bdm 2/choix. Criteres. action? code. Groupe=1531 other cost index http: //www. bdm. insee. fr/bdm 2/choix. Criteres. action? code. Groupe=2 for Cost index in Construction of buildings http: //www. bdm. insee. fr/bdm 2/choix. Criteres. action? code. Groupe=1530 Cost index in civil engineeering http: //www. bdm. insee. fr/bdm 2/choix. Criteres. action? code. Groupe=1531 other cost index 10 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Material of Masonry and pipes 11 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Building indices, Civil engineering indices and various indices for construction 12 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Producer costs index for construction are composite statistical indices, aggregating costs indices by expenses items. These indices are subject to revision. They are primarily used for national accounts and macroeconomics analyses. 13 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Producer cost index for construction 14 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Producer price index for construction The construction producer price index (CPI) (sometimes also referred to as “construction output price index”) is a European Union (EU) business cycle indicator showing the trend in the prices for new residential buildings. The current Short-term statistics Regulation (STR) 1165/98 calls for quarterly indices on construction costs for new residential buildings (excluding residences for communities). Countries that do not have data on construction costs may use construction producer prices (construction output prices) as an approximation. EU countries producing producer prices are: Belgium, Ireland, Croatia, Luxembourg, Poland, Slovakia and the United Kingdom. EU countries producing construction costs and construction producer prices : the Czech Republic, France, Germany, Greece, the Netherlands and Austria. In general both indicators (construction costs and construction producer prices) display almost the same developments. From 2017, the STR provides that Member States will provide only OPC. 15 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

16 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Produce price index for construction An producer price index measures movements in prices charged to clients of construction works. Producer price index include both change in productivity and in contractor's margin. (B on the previous graph). There “Selling price index” (C on the previous graph) measures changes in prices paid by the final owner of the output to the client. It includes the price of the land, architect's fees and client’s margins. Attention: the items are hard to value because their purchase may take place at a time considerably separated from time of construction. 17 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Producer price index for construction Main specificities to take in account 1. A database of Building permits is useful for sampling of buildings in order to collect prices. 2. The buildings are heterogeneous. It is not possible to make a direct comparison with a reference price as is done in usually price index production 3. The distribution of buildings by type of construction and region change over time 4. The prices collected for a quarter are spread over a large period of time 18 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Producer price index for construction Data collection The Ministry of Ecology realizes a sample of new building permits (delivered from 1 to 10 month before the quarter) in order to collect prices of new construction of new buildings to the main residential use in France. The survey has two steps: the first step is to separate buildings permits corresponding to OPC definition from other (renovation, etc. ) and the second step is to collect prices and characteristics of the building. Using the database of building permit numbers are calculated for the construction of the new construction of new buildings for residential use by type of construction of the quarter. 19 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Producer price index for construction: Data Market prices collected for any quarter may be spread over ten months. Using the index of construction costs, the market prices are reduced in the second month of the quarter by applying the price changes in the index BT 01 between these two dates. The data of the survey are defined in order to satisfy the model. But in some case we use administrative data on which it is not easy to obtain a change or an additional question. Sometimes we combine several databases: market prices, number of construction (for the weights), cost of construction index and Median income by consumption unit. 20 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Producer price index for construction 21 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Maintenance and improvement of existing dwellings The “Observation of Industry and Services Prices” (OPISE) survey is the dwellings maintenance and improvement work price index's source, alongside with industry and services producer prices. The dwellings maintenance and improvement work price index (IPEA) is a quarterly index that measures the changes in prices without VAT- invoiced by firms for their maintenance and improvement works in existing dwellings during the quarter under review. The “Specialised construction works for old buildings index” (43 BTR) reflects the changes in costs borne by these same firms (mainly gross wages and materials). INSEE conducts a survey of a sample of firms selected among those that declared carrying out renovation works in dwellings in the annual sectoral survey (ESA) for the construction sector. 22 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Maintenance and improvement of existing dwellings The activity of dwellings maintenance and improvement has been broken down into nine families of works, which cover most of it: 1. 2. 3. 4. 5. 6. 7. 8. 9. 23 masonry works and building structural works; painting and floor and wall covering; wood and PVC joinery works; heat and air-conditioning installation; plumbing; roofing activities; electrical installation; metal joinery works and ironwork; plastering. Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Maintenance and improvement of existing dwellings Some families of works are added in 2015 : 1. 43. 29 Other construction installation 2. 43. 33 Floor and wall covering 3. 43. 91 Roofing activities The survey will be extended to maintenance and improvement of non-residential buildings 24 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Maintenance and improvement of existing dwellings The following works are excluded in the publication: 1. new construction works; 2. large-scale renovation or rehabilitation works (i. e. works which are conducted after an almost total demolition); 3. works in non-residential buildings (offices, factories, shops, etc. ); 4. works to convert non-residential buildings into dwellings; 5. works that do not lead to a market price agreement between the firm and the final client, in particular subcontracting works to an other firm; 6. works that do not include both the supplying and the laying of materials: the supplying only of materials is a commercial activity. 25 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Nine categories The categories of works whose prices change in a similar way are grouped into families, and a “model service” is selected for each category of works. This “model service” is a service that is regularly provided and that represents the larger part of the turnover of the family. Generally, this leads to establishing a cost estimate with all the technical and commercial characteristics of the project. The nine families of works and total Index are fixed-base Laspeyres indices, whose base is revised every five years. 26 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Laspeyres index The indices are expressed in reference 100 in 2010. More precisely, “elementary” Laspeyres indices are calculated from price series of “model services”. If, for a given quarter, the price of a service cannot be observed, its development is estimated by the weighted average of price developments of services belonging to the same stratum (“categories of works”). By the use of arithmetic means, these elementary indices are then aggregated in order to obtain successively indices by categories of works, then by families, and at last the total IPEA. The individual weight of a model service corresponds to the turnover achieved by the enterprise in the category of works to which the service belongs. The weights by categories of works within the families of works, and of families of works within the total IPEA are provided by the amounts of turnover observed in the structural business survey (ESA) in the construction activity. 27 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Maintenance and improvement of existing dwellings 28 Quick overview of prices indices and cost indices in construction in France 26 th May of 2015

Output price index for construction Thank you for your attention! Insee 18 bd Adolphe-Pinard 75675 Paris Cedex 14 www. insee. fr Contact M. Gérard Vittek Tél. : 01 41 17 51 15 email : gerard. vittek@insee. fr Informations statistiques : www. insee. fr / Contacter l’Insee 09 72 72 4000 (coût d’un appel local) du lundi au vendredi de 9 h 00 à 17 h 00