Analytically, a greater weight on housing in the overall price index would elevate the importance of domestic sources of inflation, since construction and housing-related services have a significant non-tradables component. Since the HICP is largely constructed by tracking actual monetary transactions, the Governing Council prefers the “net acquisition” method for calculating owner-occupied housing costs by directly drawing on purchase prices.
This approach is already used by Australia and New Zealand in calculating quarterly consumer price indices. An alternative approach to quantifying owner-occupied housing costs is the rental equivalence method, which captures the opportunity cost of owner occupancy by imputing the rental income forgone by not letting the dwelling to a tenant.