Property rates and related services in the consumers price index

The property rates and related services subgroup had a combined expenditure weight of 2.68 percent in the consumers price index (CPI) at the June 2008 quarter. The sources and methods used to compile the property rates and related services subgroup are explained in this article.

Position in CPI structure

The property rates and related services subgroup is part of the housing and household utilities group. Within the subgroup, there are classes for water supply, refuse disposal and recycling, and local authority rates and payments.

Expenditure estimation

The primary source of information used to determine the relative importance of the property rates and related services subgroup was the 2006/07 Household Economic Survey.

Item and sample selection

Water supply covers explicit charges for providing metered water supply in regions where water is supplied this way. In regions where water supply is included in general rates, water rates are included in the local authority rates and payments class.

Refuse disposal and recycling includes landfill and transfer station services, refuse bin hire, and council refuse bags.

Local authority rates (for owner-occupiers) are collected from 38 local authorities and six regional councils, which together cover about 80 percent of the population. Of the 38 local authorities, 27 are in the North Island and 11 are in the South Island. The six regional councils correspond to the surveyed local authorities.

Local authorities were selected using statistical sampling methods. Stratified random sampling was used to ensure that the largest local authorities (based on number of dwellings) in each of the 15 CPI pricing regions (Whangarei, Auckland, Hamilton, Tauranga, Rotorua, Napier-Hastings, New Plymouth, Wanganui, Palmerston North, Wellington, Nelson, Christchurch, Timaru, Dunedin, and Invercargill) were selected as full coverage. Smaller local authorities were selected to represent themselves and other smaller local authorities. This resulted in a selection of 38 local authorities, comprising 18 from the full-coverage stratum and 20 from the non-full-coverage stratum.

Price collection

Water rates are collected annually alongside local authority rates. The price paid for water is calculated from metered quantity charges and flat supply charges (a charge per cubic metre of water used, and a fixed annual rate to stay connected). The total fixed rate is divided by the number of cubic metres used to find the average fixed charge per cubic metre in a region. Also, the total water-metered quantity charge is divided by the number of cubic metres used to find the average charge per cubic metre. Adding these together gives a price per cubic metre for water.

For refuse disposal and recycling, prices are collected from about 20 local landfill or refuse transfer stations, about 50 supermarkets, and 12 refuse-bin hire companies throughout the country. The price for disposal of a given amount (often a 'car load') of general household refuse at landfills and transfer stations is generally collected via the Internet. The price of council rubbish bags is collected in 12 of the 15 CPI regions directly from supermarkets by Statistics New Zealand price collectors.

The CPI local authority rates survey is conducted annually in the September quarter, for a sample of territorial authorities and regional councils. Rates are surveyed once a year because local authorities usually strike their rates annually. While rate changes normally come into effect from 1 July, not all territorial authorities and regional councils set rates during the September quarter. As a small number of rates surveys are returned after September, changes in local authority rates are shown in both the September and December quarter CPIs. For the past five years, between 80 percent and 90 percent of the weight in the sample of local authority rates has been included in the September quarter CPI.

The information collected from local authorities through a postal survey includes:

• the local authority’s levied total rate take (including any regional rate take) on residential assessments for the rating year
• the number of separately rateable residential assessments
• the different assessment groups included in residential assessments
• uniform annual general charges
• separate uniform annual charges, and fixed charges for residential assessments
• whether the local authority collects rates for one or more regional councils
• variable charges based on property value
• charges and associated information for metered water, if any (used for the water supply class).

For surveyed local authorities that do not collect regional rates, the information collected from the corresponding regional authorities via a postal questionnaire includes:

• the region’s levied total rate on residential assessments for the rating year, for the whole region and for each of the local authorities
• the number of separately rateable residential assessments for the whole region and for each of the local authorities
• the different assessment groups included in residential assessments
• uniform annual general charges, separate uniform annual charges and fixed charges for residential assessments, for the whole region and for each of the local authorities
• variable charges based on property value.

Auckland 'Supercity'

Auckland has recently undergone a restructure in local government. On 1 November 2010, the Auckland Regional Council and seven former territorial authorities (Rodney district, North Shore city, Waitakere city, Auckland city, Manukau city, Papakura district, and Franklin district) were replaced by a unitary authority, Auckland Council. The new Auckland Council has 13 wards, 21 local boards, and 18 subdivisions. Additional information on the new structure can be found on the Auckland Council website.

The eight former Auckland territorial authorities are well represented in the CPI collection of local authority rates. During the transition, local authority rates will be monitored closely to ensure that change in rates in 2011 is measured accurately in the CPI.

Estimation

The prices for water supply are used to directly calculate a New Zealand item-level index.

For refuse disposal and recycling, elementary aggregate indexes for the 15 regions (or 12 in the case of council rubbish bags) are combined to calculate New Zealand item-level indexes, using regional price movements weighted by regional population-weighted shares of the national expenditure weight. Average prices for refuse-bin hire are calculated for the five CPI broad regions (Auckland, Wellington, the rest of North Island, Canterbury, and the rest of South Island).

The information collected from each surveyed local authority (and, where applicable, regional council) is used to calculate an average residential rate for that authority. The average residential rates for the 38 surveyed local authorities are then used to calculate weighted average rates for the 15 CPI regions. When aggregating to the 15 CPI regions, the local authority average rates are weighted by the numbers of owner-occupied dwellings in all local authorities within that region.

Movements in the regional average rates are then combined using expenditure weights based on regional population shares to derive the national index for local authority rates and payments.

Quality adjustment

The aim of the CPI is to measure the price change of the same goods or service at each sampled outlet or business over time. In practice, sampled products may become unavailable, may change, or may become unrepresentative. There may be changes in legislative requirements or industry standards that result in pricing specifications becoming out-of-date. When this occurs, there may be a change in quality and an adjustment should be made so that only the estimated 'pure' price change is shown in the CPI. For example, a ticket price increase (decrease) that is deemed to be purely the result of better (poorer) quality materials or service should be adjusted for and the price change not shown.

Maintaining a constant level of quality and quantity of services is problematic. When changes in the quality of a service are identified, and a value can be placed on the quality change, then this is taken into account when calculating the CPI. However, local authority rates are an exception in that they cover a bundle of services, with the range, quantity, and quality of those services subject to change from year to year. In addition, the rates that individual households pay are not directly related to the quantity and quality of the services they use. For example, a household may choose to make greater use of library services without facing a change in the level of rates they pay. Another way of viewing local authority rates is as an inescapable cost of home ownership.

The approach taken in the CPI is to show change in the average rates for residential assessments, regardless of whether there is any change in the range, quantity, and quality of services provided by local authorities. However, when services that had previously been included within local authority rates become explicitly charged for (such as water supply) this is shown as a fall in local authority rates and a rise in the other 'property rates and related services' class (in this case, water supply), and vice versa (such as local authorities raising rates to include recycling and no longer explicitly charging for council refuse bags).

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