Cohousing-L Mailing List: Re: Reserves [was Rate of increase in HOA Dues?

[R Philip Dowds (rphilipdowds]

Yes, but construction statistics are tricky.  First, construction is not a 
commodity, it’s a service package.  It’s relatively easy to measure and track 
over time what a refrigerator costs; but not so easy to say what a kitchen 
remodeling costs.  Second, most construction indices are built on data 
retrieved, not from household behavior, but rather from major and usually 
unionized public, commercial and institutional projects; this data set is not 
well correlated to the small (microscopic, in fact) residential renovation 
projects typical for cohousing.  Note that I’m leaving out regional variation, 
which can be substantial.

At Cornerstone, I believe that the easily findable and well-known CPI is a 
valid indicator of financial stress, but is too low for planning capital 
replacements.  Until the pandemic, our Boston CPI (and our Cornerstone dues) 
have averaged a compounded annual rate right around 3%.  I’ve been arguing 
(with limited success) that this is too low for projecting today’s roofing job 
estimate a decade into the future.  I’d be interested to hear what other 
communities use for an inflation factor in their own financial forecasting.

———————————
Thanks,
Philip Dowds
Cornerstone Cohousing
Cambridge, MA

> On Apr 8, 2025, at 8:07 PM, Sharon Villines via Cohousing-L <cohousing-l [at] 
> cohousing.org> wrote:
> 
> But the relevant index would be the construction index, not the CPI.
> 
> Sharon
> 
>> On Apr 8, 2025, at 7:14 PM, R Philip Dowds via Cohousing-L <cohousing-l [at] 
>> cohousing.org <mailto:cohousing-l [at] cohousing.org>> wrote:
>> 
>> Brian —
>> 
>> I’ve never heard of the Chapwood Index, but I took a look at the referenced 
>> website.  While it asserts it’s based on what people *really* buy, there’s 
>> no findable-by-me explanation of the methodology used.
>> 
>> The CPI (Consumer Price Index) is calculated by BLS (Bureau of Labor 
>> Statistics) on a hypothetical basket of goods important to most consumers in 
>> a given base year; products in the basket are “weighted” to reflect how much 
>> of the product is actually purchased.  The cost of filling that basket with 
>> the same goods is then researched for subsequent years.  More arithmetic 
>> converts the CPIs to the inflation rate.  The contents of the basket may not 
>> change for years.
>>     The three big complaints about the CPI are (1) selection of products for 
>> the basket may be arbitrary; (2) identical products may not be available in 
>> subsequent years; and (3) marginal rates of substitution may push consumers 
>> to re-weight their purchases:  If the price of chicken goes up, people 
>> switch to fish.  Some experts think the CPI tends to run high side; other 
>> experts (more paranoid?) think the government jiggers the CPI to run low, to 
>> minimize burdens on inflation-indexed public programs like Social Security.
>> 
>> Meanwhile, the Federal Reserve relies on the PCE (Personal Consumption 
>> Expenditure) “deflator”.  This method relies on a basket filled with the 
>> actual products (in weighted proportion) that people are actually buying at 
>> the present time.  Then research retrieves what people were paying for the 
>> same basket in a prior year, and inflation is calculated from there.  This 
>> involves considerably more effort than the CPI, but many think it’s more 
>> accurate.
>> 
>> I’m just guessing now, but it sounds to me like the Chapwood Index is a 
>> variant on the Fed's PCE method.  What Mr Chapwood uses for product 
>> selection and weighting is of critical importance.
>> 
>> ———————————
>> Thanks,
>> Philip Dowds
>> Cornerstone Cohousing
>> Cambridge, MA