Frances Krsinich

Statistics New Zealand

Using hedonic regression to assess the housing rentals component of the New Zealand Consumers Price Index

The housing rentals index is the highest weighted component of the Consumers Price Index, contributing nearly 8 percent as at the June 2008 quarter. The estimation of non-Housing New Zealand rents is based on data from an area-based sample survey, updated with new bonds lodged with the Department of Building and Housing data. A 'matched sample' approach is used to remove the effect of changing sample composition, and therefore changing quality characteristics, from the measurement of price change. Although matched sample approaches for price change measurement are common across official statistics agencies, there is a potential risk that some pure price change implied by the changing population is removed.

As part of a more general review of the housing rentals index estimation, we used hedonic regression models to examine whether there is any residual pure price change being smoothed out of the index due to the matched sample approach. The longitudinal nature of the data enabled us to use fixed effects regression to control for all characteristics (observed and unobserved) fixed across time at the rental dwelling level.