Pieper, P J (1984) The measurement of real investment in structures and the construction productivity decline (deflation). PhD thesis, Northwestern University, USA.
Abstract
The level of construction productivity has fallen sharply since 1963. After rising by two percent per year between 1948 and 1963, construction productivity fell at an annual rate of two percent between 1963 and 1981. This decline cannot be explained by conventional factors such as changes in labor quality or in the capital-labor ratio. We hypothesize that a major portion of the decline in construction productivity is due to an underestimate of real structures investment by the Bureau of Economic Analysis. The underestimate of real investment is due to both an underestimate of nominal investment and an overstatement of structures prices. The former conclusion is based on the trend of the value of nominal construction inputs. The main body of the thesis is devoted to the problem of structures deflation. A close examination of the official price indexes reveals several biases. In particular, an analysis of housing permit values and sales prices shows that the major construction deflator, the Census single family homes index, is biased upward by an underestimate of land costs and by its use of fixed geographic weights. Using both Census and FHA data, we develop alternative residential price indexes which correct for the Census bias. A component of the nonresidential deflator, the FHA structures index, is found to be biased upward by the changing distribution of highway construction. We estimate an alternative method of structures deflation based on a constant elasticity of substitution production function and real materials usage. The large increase in the production of construction materials relative to real construction output since 1963 provides strong support for our hypothesis. We conclude that construction productivity has remained roughly constant between 1967 and 1981. The official decline in productivity is due to a 20% understatement of the growth of nominal investment and a 15% overstatement of the increase in structures prices by the BEA between 1963 and 1981. The growth of real structures investment has been understated by a total of 35% between 1963 and 1981.
| Item Type: | Thesis (Doctoral) |
|---|---|
| Uncontrolled Keywords: | bias; measurement; residential; highway; homes; investment; productivity; economic analysis |
| Index terms: | construction productivity, estimate, highway construction, construction material, productivity, economic analysis, housing, construction output, bias, land cost |
| Subjects: | construction type, financial and cost management, design analysis, real estate economics, operations management, building materials, probability and distributions, civil engineering, management |
| Topics: | Research Practice, Project Management, Engineering Principles, Cost Management, Business Strategy, Construction Technology, Design Practice, Urban Studies |
| Descriptive scope: | 3 PCA |
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