Quality change and implications for productivity development: Housing construction in Sweden 1990-2010

Current estimation procedures for computing building price indexes do not in an adequate way account for changes in the quality of new residential construction which results in upward biases of price changes, and consequently causes published productivity changes to be too low due to overdeflation. The aim of this study is to estimate productivity figures that take quality changes into account. Knowledge about the size of quality changes is important to quantify the "true" level of cost increases in the residential construction sector in order to obtain more reliable productivity development figures. This paper shows that measured productivity in the residential construction sector has been underestimated since 1990s. The findings imply that data collection for productivity calculations should be more detailed and rigorous in order to measure quality changes. It highlights the potential improvement that can be done in the calculations of productivity changes.