A refined basket of goods approach for comparing construction costs between countries

Research output: Contribution to journalArticleResearchpeer-review

Abstract

Most comparisons of construction industry performance require that construction costs be converted to a common base. Existing mechanisms for such conversions produce unreliable results. A proposed method for producing industry-specific conversion factors was tested using a single building type. A basket of materials and labour was identified and weighted to reflect the cost share of each item in a completed project. Prices for the basket were gathered in three cities and simple construction specific conversion indices were calculated based on the construction purchasing power of each currency. The construction purchasing power parities (CPPPs) showed marked differences from other available conversion mechanisms such as exchange rates and general purchasing power parities (PPPs) that have been used in previous international comparison studies. While the study was limited in scope, and is only the first stage of a longer process, the substantial differences in comparative costs based on purchasing power illustrate the problems inherent in international cost comparisons. For example, comparing Singapore and Sydney, Singapore costs appear to be only 40% of those in Sydney (based on exchange rates) about two-thirds the cost of Sydney (using general PPPs) or almost the same (using the preliminary CPPPs). These results illustrate the problems of converting costs from local currencies to a single base currency and suggest that further development is needed to improve the reliability of outcomes.
Original languageEnglish
Pages (from-to)29-37
Number of pages9
JournalAustralasian Journal of Construction Economics and Building
Volume9
Issue number2
DOIs
Publication statusPublished - 2009

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Purchasing
Costs
Construction industry
Construction costs
Purchasing power parity
Personnel
Currency
Industry
Purchasing power
Exchange rates
Singapore

Cite this

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title = "A refined basket of goods approach for comparing construction costs between countries",
abstract = "Most comparisons of construction industry performance require that construction costs be converted to a common base. Existing mechanisms for such conversions produce unreliable results. A proposed method for producing industry-specific conversion factors was tested using a single building type. A basket of materials and labour was identified and weighted to reflect the cost share of each item in a completed project. Prices for the basket were gathered in three cities and simple construction specific conversion indices were calculated based on the construction purchasing power of each currency. The construction purchasing power parities (CPPPs) showed marked differences from other available conversion mechanisms such as exchange rates and general purchasing power parities (PPPs) that have been used in previous international comparison studies. While the study was limited in scope, and is only the first stage of a longer process, the substantial differences in comparative costs based on purchasing power illustrate the problems inherent in international cost comparisons. For example, comparing Singapore and Sydney, Singapore costs appear to be only 40{\%} of those in Sydney (based on exchange rates) about two-thirds the cost of Sydney (using general PPPs) or almost the same (using the preliminary CPPPs). These results illustrate the problems of converting costs from local currencies to a single base currency and suggest that further development is needed to improve the reliability of outcomes.",
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A refined basket of goods approach for comparing construction costs between countries. / Best, Rick.

In: Australasian Journal of Construction Economics and Building, Vol. 9, No. 2, 2009, p. 29-37.

Research output: Contribution to journalArticleResearchpeer-review

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