Measurement of Homeownership Costs in the Consumer Price Index Should Be Changed
PAD-81-12
Published: Apr 16, 1981. Publicly Released: Apr 16, 1981.
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Highlights
Many economists, members of Congress, and others have questioned whether the consumer price index (CPI) as presently constructed by the Department of Labor's Bureau of Labor Statistics (BLS) is an appropriate measure of the rate of price change for the uses to which it is put. In particular, they have charged that the present method of measuring homeownership costs does not accurately reflect the rate of price change experienced by homeowners in paying for their housing. GAO determined the validity of these concerns and evaluated alternative methods of measuring changes in homeownership costs in CPI.
Recommendations
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| If BLS revises CPI-U but not CPI-W, then Congress should rely on the revised CPI-U in forming economic policy and amend the legislation, if necessary, to use the revised CPI-U as the index by which social security payments, Civil Service and other Government retirement pensions, and other entitlement and transfer programs indexed in the CPI are adjusted. |
Closed – Implemented
|
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information. |
| The appropriations committees of Congress should consider favorably any BLS requests for additional funds for the purpose of modifying the homeownership components of the CPI as GAO has recommended. |
Closed – Not Implemented
|
BLS modified the CPI-U in a way consistent with the recommendation in January 1983. No additional funds were requested for this specific purpose. |
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Labor | The Secretary of Labor should direct BLS to continue publishing CPI-W in its current form for a specified period of time while modifying CPI-U as recommended if it is determined that the existence of long-term contracts incorporating CPI-W and a widespread desire among private sector groups to have available an index of consumer prices using the present approach provide sufficient reasons for maintaining such an index. |
Closed – Implemented
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
|
| Department of Labor | The Secretary of Labor should direct the Commissioner of BLS to amend indexes of consumer prices published by BLS by substituting a flow-of-services approach to measuring the cost of consuming owner-occupied services for the present method of measuring homeownership costs. |
Closed – Implemented
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
|
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Topics
Cost analysisCost of livingEconomic analysisHousingLabor statisticsMortgage marketInterest ratesExpenditure of fundsPrice indexesOpportunity cost