Gross fixed capital formation in residential structures

[Reyed Mia (Apprentice, DIU)]

Gross fixed capital formation in residential structures

New residential construction

New residential construction is the largest element of gross fixed capital formation in residential structures, encompassing single-family dwellings, semi-detached dwellings, row houses, apartments, condominiums, cottages, mobile homes as well as dwelling conversions and other costs (e.g., the value of acquisition costs).

In the IEA, productive activity is recorded at the time it takes place, commonly known as work in progress. Therefore, new residential construction is recorded on the basis of work put in place (WPIP), that is, the value of construction that took place during the reference period (quarter or year). It does not represent the value at the time of acquisition, but rather the volume of work completed during a given period, regardless of whether the final product is purchased or not. This is important, as the construction of a residential structure may extend over several months.

In the SNA 1993 it is recommended that newly constructed dwellings for sale be recorded as capital only when ownership is transferred, and prior to this point should be recorded as a work in progress inventory change. In the IEA the newly constructed dwellings for sale are classified to gross fixed capital formation in residential structures, under the sub-category change in work in progress inventory. In fact, the value of new housing construction item is categorized into three components: Change in work in progress inventory, change in inventory of completed dwellings and sales of new dwellings excluding land. On this point IEA differs only in presentation from the SNA 1993. This treatment was deemed to be both more useful to the user community and more consistent with associated financing activity.

Renovations

Renovations to existing residential structures are the second largest element of gross fixed capital formation in residential structures. Renovations, also known as alterations and improvements, are made up of spending on additions, renovations and alterations, new installations and replacement of equipment.

Additions are structural extensions to property (such as rooms, decks, garages, car ports, garden sheds) and swimming pools, fences, patios, driveways and major landscaping;

Renovations and alterations involve work intended to upgrade the property to acceptable building standards, rearrange the interior space and modernize existing facilities without changing the type of occupancy such as remodelling rooms, adding or replacing doors and windows, renovating exterior walls, upgrading insulation and adding eaves trough;

New installations involve the installation of equipment not previously in existence, for example, the installation of fixed electrical home appliances;

Replacement of equipment is the installation of equipment that replaces an existing unit. It includes upgrading to a superior quality and conversion from one type to another (for example, the replacement of a roof, carpet, heating system or air conditioning system).

Ownership transfer costs

The category ownership transfer costs is the third element of gross fixed capital formation in residential structures. It includes all costs associated with the transfer of a residential asset from one owner to another. These costs are as follows:

real estate commissions;

land transfer taxes;

legal costs (fees paid to notaries, surveyors, experts, etc.); and

file review costs (inspection and surveying).

http://www.statcan.gc.ca/pub/13-017-x/2008001/themes/ch09/5213372-eng.htm