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6419.0 - Producer and International Trade Price Indexes, 1995  
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Contents >> Chapter 4. Price Index of Materials Used in Building Other Than House Building (6407.0)

Introduction

4.1. The Price Index of Materials used in building other than house building, Six Capital Cities and Canberra was first published in January 1969 on a reference base of 1966-67 = 100.0 and using a weighting pattern derived from estimated materials usage in 1966-67. A description of the first series, including its composition and weighting pattern, is given in the January 1969 issue of Catalogue Number 6407.0 and in Labour Report No. 54, 1969.

4.2. Rebased indexes were introduced in February 1981 on a reference base of 1979-80 = 100.0 and were linked to the previous series. An index for Darwin was published for the first time in September 1982 on a reference base of 1981-82 = 100.0 and an index for Canberra was introduced in November 1987 on a reference base of 1986-87 = 100.0.

4.3. The current indexes were introduced in December 1993 on a reference base of 1989-90 = 100.0 and linked to the previous series. The Darwin and the Canberra indexes have been discontinued. From September quarter 1997 the indexes are compiled and released quarterly.


Nature and purpose

4.4. This index measures changes in prices of selected materials used in the construction of buildings other than houses in capital city statistical divisions. It is used by both the government and private sectors primarily for adjusting business contracts. It is used also for economic analysis.

4.5. The building types directly represented in the index are:

      • flats and other dwellings (excluding detached houses);
      • hotels, motels and hostels;
      • shops;
      • factories;
      • offices;
      • other business premises;
      • education buildings;
      • health buildings; and
      • other non-residential buildings.

4.6. The index relates to all materials, fittings and fixtures which form an integral part of the structures of buildings other than houses and which are customarily installed before the buildings are occupied. Materials used in constructing electrical, water and gas mains to buildings from public mains are included, as are materials used in constructing sewerage and drainage services from the buildings to public sewerage and drainage systems. Materials used in the construction of external works associated with buildings (e.g. paths and surface parking areas) are also included if they are integral parts of the building's construction.

4.7 Although many of the selected materials are also used in house building, in building repair, maintenance and alteration work, as well as in civil engineering work (e.g. roads, drains, bridges), the weighting pattern of the index is not applicable to those other activities of the construction industry.

4.8. Since the weights used are based on an average materials usage for a range of different building types, the index movements are not necessarily representative of price movements of materials used in any particular building or any other type of building.


Composition and weighting

4.9 The index includes 63 items which are combined into 10 industry of origin groupings, 15 special combinations and an 'All Groups' index.

4.10 Table 4.1 sets out a complete list of the items and the industry of origin groups. Table 4.2a, Table 4.2b and Table 4.2c set out the special combinations included for the six State capital cities. The tables also show the relative importance of each item in terms of its percentage contribution to the All Groups, industry of origin, or special combination in the reference base year 1989-90.

4.11. The items were selected and allocated weights in accordance with the estimated average values of materials used in the construction of buildings (other than houses) commenced in the five years ended June 1992. The same weighting pattern is used for each of the capital cities and is applied to local price measures when calculating index numbers for each capital city.

4.12. The index for the six State capital cities combined is a weighted average of the individual city indexes. The relative weighting of each State capital city is in proportion to the average value of work done on building (other than house building) in each State capital city in the five years ended June 1992. The combining weights used for the six capital cities index are:

    Sydney
    0.427
    Melbourne
    0.285
    Brisbane
    0.091
    Adelaide
    0.089
    Perth
    0.096
    Hobart
    0.012
    Total
    1.000
4.13. The estimated values used to determine the item weights were derived from data reported for a sample of buildings drawn from ABS building completion statistics. In general, all buildings valued at less than $500,000 at completion were excluded from the sample.

4.14. The materials included in the rebased index and the relative weights assigned to them are based on the estimated average usage of building materials, in buildings other than houses. The estimates were based on material usage in a sample of representative buildings. In deriving these estimates, the ABS employed the services of a consultant firm of quantity surveyors who derived the data from bills of quantities which were priced for materials only. Labour and other costs were not included.

4.15. Some of the items carry not only their own weight but also the weight of similar items not directly priced.


Classification

4.16. As noted earlier, the items that comprise the index have been combined into 10 groups on an industry of origin basis. The groups are defined in terms of the Groups (three digit level) of the 1993 edition of the Australian and New Zealand Standard Industrial Classification (ANZSIC).

4.17. The 'industry of origin' is not necessarily the industry which supplies the materials to the builder. Rather it is the industry in which the material is primarily produced, determined in accordance with the classification rules of the ANZSIC. For instance, many of the materials are sold to builders by wholesalers, but the materials are classified to the appropriate producing industries, rather than the wholesale trading industries. Some materials used in constructing buildings in Australia are imported. These are allocated to the same industry of origin as similar Australian produced materials.

4.18. The special combinations of materials, referred to earlier, group together materials used for particular purposes. The groupings used have been identified as being of particular interest to users of the index. The broad groupings are:

      • All groups, excluding electrical materials and mechanical services components;
      • Electrical materials;
      • Mechanical services components; and
      • Plumbing materials.

Data sources

Prices

4.19. Price collection is spread over the three months of the quarter. The prices relate to specified standards of each material and are obtained from representative suppliers of the materials used in buildings (other than houses). These suppliers include manufacturers, wholesalers, building supply merchants, hardware stores and importers.

4.20. In general the point of pricing is delivered on site but in some cases it has been necessary to use the nearest realistic price available (e.g. delivered to electrical contractors store). Local prices are used in the indexes for each capital city.

4.21. As far as possible, actual transaction prices are used in the index - that is prices actually paid by building contractors or subcontractors to suppliers for materials delivered onto the building sites in the metropolitan area of each capital city.

4.22. Sales taxes levied on building materials are included in the prices used to compile the index. Materials used in the construction of Commonwealth, State and Local Government owned buildings are exempt from sales tax; materials used in most non-government health and education buildings, and buildings used for religious and charitable purposes are also exempt. At any particular time when there is a change in the rate of sales tax on building materials, the movement in the index takes into account the proportion of materials sold subject to sales tax and the proportion of materials exempt.

4.23. At the time that such changes take place the ABS publishes conversion factors to enable users to either include the full effects of sales tax changes or exclude entirely those effects, depending upon the use they wish to make of the index.

Weights

4.24. There are two broad levels at which weights are used in the compilation of index numbers. At one level are the item weights, which were mentioned earlier, and are provided in Table 4.1, Table 4.2a, Table 4.2b and Table 4.2c. These weights are commonly called regimen item weights and are fixed between the periodic reviews of the whole index. For the current index regimen a sample of buildings in each building type was selected from ABS building completion statistics. Details of the materials used in these buildings were obtained from consultant quantity surveyors.

4.25. At the other level are the sample weights. These are the weights given to each of the precise specifications from within the sample of specifications selected to represent a regimen item. Over time, a particular sample of specifications may become unrepresentative of its regimen item. (For example, the relative importance of the specifications in the sample may change, or a specification may no longer be sold.) Under these circumstances, the sample and/or its weights will need to be changed, otherwise the accuracy of the price movements being measured may be adversely affected. The sample weights are kept under continual review in accordance with the program of sample review and maintenance discussed in Chapter 12.

4.26. Sample weights are determined using information obtained by personal interviews with suppliers of materials to builders.


Special pricing considerations

Materials supplied to individual order

4.27. Some materials which are supplied to individual order, such as structural steel, present special problems in the measurement of price change over time because the same item is not being sold in consecutive price periods. The method used to measure price change for these types of materials is referred to as model pricing. A particular design which has recently been made and which is representative of a supplier's output is specified in detail and becomes the model. Respondents recost the model and provide prices each quarter for the fixed detailed specifications of the model. Although the 'models' priced may not be regularly sold, they do provide a consistent measure of price change where the items actually sold vary over time in terms of design and quality.

Discounts

4.28. For the purpose of measuring price change the aim is to determine actual prices being paid. It is therefore necessary to seek measures of 'special' discounts, when they occur, in addition to normal 'trade' discounts. The measurement of special discounts poses a problem because of the many and varied forms they take and the manner in which they may be applied. Continual attention is given to this problem and changes in special discounts are incorporated in the index, to the extent that they are determined.



This section contains the following subsection :
      Table 4.1: Price Index of Materials Used in Building Other Than House Building
      Table 4.2: Price indexes - special combinations

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