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Expensive housing, low inflation



April 21, 2008 – Comments (0)

I just came across this news article about Vancouver having the lowest inflation.

If you read my post "What Can a Housing Bubble Teach" on page 2 are two graphs for housing costs for major cities.  In 2001 the price index is reset.  It ends up showing Vancouver doesn't have as fast growth in home price, and in terms of a percent that would be true, however, in actual dollars Vancouver's home prices were going up faster.  I redid the two graphs without resetting the price index and by doing that you can see Vancouver's home prices were rapidly increasing compared to 1985, when all cities were affordable.

This resetting or price indexes after a hugh increase means that forever the increases look smaller, as in inflation.  As I stated in the "Housing Bubble" post:

"And this kind of nonsense data is used against workers in bargaining for wage increases.  The Statcan data actually shows the cost of living going up slower in Vancouver than many other places.  Any resetting of the price index loses the exceptionally high cost of living increases in the region that occurred in the late 80s, early 90s.  Indeed, reset these indexes at the top of a bubble and they can be used to show the cost of living is declining."

Heck, that news article is saying some of the same things I've been saying.

Understanding the math here is probably going to be useful for trying to justify why you need more than a 1.3% increase.

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