Within the CPI, the costs of housing are included. But as a recent article from the UK’s Office for national statistics shows, this is not straight forward.
Owner occupiers’ housing costs (OOH) are the costs of housing services associated with owning, maintaining and living in one’s own home. There is not a single defined measure of OOH because they can be calculated differently depending on what the target is.
In particular, should OOH be measured at the point of acquisition of the housing service (for example, the net acquisitions approach – NA), the point of use (for example, the rental equivalence approach – RE), or the point at which it is paid for (for example, the payments approach)? Each of these 3 approaches has its own specific methodological strengths and weaknesses, and is measured using different methods.
Although each of the methods measure different aspects of OOH and are therefore not comparable, it is still useful to look at the 3 measures together to see how they differ over time.
The fact that OOH(RE) does not directly follow house prices is not a disadvantage to using the rental equivalence approach in the calculation of the owner occupier’s housing costs component. This is because the rental equivalence approach aims to measure the housing services that are consumed each period, and therefore there is no reason why it should follow the trend of house prices.