A Refined Basket of Goods Approach for Comparing Construction Costs between Countries

Rick Best


Abstract

Most comparisons of construction industry performance requirethat construction costs be converted to a common base. Existingmechanisms for such conversions produce unreliable results.A proposed method for producing industry-specifi c conversionfactors was tested using a single building type. A basket ofmaterials and labour was identifi ed and weighted to refl ect the costshare of each item in a completed project. Prices for the basketwere gathered in three cities and simple construction specifi cconversion indices were calculated based on the constructionpurchasing power of each currency. The construction purchasingpower parities (CPPPs) showed marked differences from otheravailable conversion mechanisms such as exchange rates andgeneral purchasing power parities (PPPs) that have been used inprevious international comparison studies. While the study waslimited in scope, and is only the fi rst stage of a longer process, thesubstantial differences in comparative costs based on purchasingpower illustrate the problems inherent in international costcomparisons. For example, comparing Singapore and Sydney,Singapore costs appear to be only 40% of those in Sydney (basedon exchange rates) about two-thirds the cost of Sydney (usinggeneral PPPs) or almost the same (using the preliminary CPPPs).These results illustrate the problems of converting costs fromlocal currencies to a single base currency and suggest that furtherdevelopment is needed to improve the reliability of outcomes.

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