Final report 1(54) Department of Economic and Environmental Statistics 24.2.2014 Ville Haltia National Land Survey of Finland Risto Peltola Grant agreement number 20102.2011 .001-2011.181 Theme: 2.01 - National accounts methodological and technical improvements Final report: ”National balance sheets for non-financial assets in Finland” Final report 2(54) Department of Economic and Environmental Statistics 24.2.2014 Ville Haltia National Land Survey of Finland Risto Peltola CONTENTS Foreword…………………………………………………………………………………………………………...3 PART I: Evaluation of data sources, the present capital stock and inventories 1. Main data sources and possible need for new data sources…………………………………………………..…3 2. Evaluation of the present capital stock from the point of view of balance sheets 2.1 Description of the present capital stock ……………………………………………………….5 2.2 Improvement needs of the present capital stock from the point of view of balance sheets…....7 3. Changes to the IT-system……………………………………………………………………………………….9 4. Balance sheets by asset type and by sector……………………………………………………………………..10 PART II: Estimation of land value 1. Introduction…………………………………………………………………………………………………….12 2. Choice of the estimation method.........................................................................................................................12 3. Estimating the value of land by using the direct approach..................................................................................15 4. Estimation of land area by land types 4.1 In general...................................................................................................................................15 4.2 Practice in Finland.....................................................................................................................16 5. Estimation of changes in the land type areas 5.1 In general...................................................................................................................................21 5.2 Practice in Finland.....................................................................................................................22 6. Estimation of representative unit prices for each relevant land type 6.1 In general...................................................................................................................................23 6.2 Practice in Finland.....................................................................................................................24 7. Modelling price changes for each land type 7.1 In general...................................................................................................................................26 7.2 Practice in Finland.....................................................................................................................26 8. Calculation of land value 8.1 In general...................................................................................................................................30 8.2 Practice in Finland.....................................................................................................................30 9. Specifying volume changes and price changes 9.1 In general...................................................................................................................................32 9.2 Practice in Finland.....................................................................................................................33 10. Separation of timber value and land improvements from the relevant land values 10.1 Forestry land............................................................................................................................34 10.2 Land Improvements.................................................................................................................36 11. Concluding the preliminary results...................................................................................................................38 12. Land value by sectors........................................................................................................................................40 Appendices I SLICES Land use classification II SLICES Land cover classification III SLICES Soil classification IV Unit prices by local government and land use, year 2012 Final report 3(54) Department of Economic and Environmental Statistics 24.2.2014 Ville Haltia National Land Survey of Finland Risto Peltola Foreword The general objective of this project was the preparation for the implementation of the ESA 2010 in Finnish Na- tional Accounts. The objective of this particular action was to develop methods and make calculations for the regular production of balance sheets for non-financial assets (table 26). The main objective was calculations for new items in the transmission programme, particularly calculations for the asset AN.211 Land by sectors. In addition, the present capital stock was evaluated for the purposes of balance sheets. The project was part of the comprehensive ESA 2010 -project of Statistics Finland. The project can be divided into two parts from the practical point of view. First, the data sources and methodology for the present capital stock and inventories were analysed, and overall picture of the needs for high-quality non-financial balance sheets was created (part I). Secondly, the estimates and the calculation system for the land value were carried out in co-operation with the experts of the National Land Survey (part II). When reading this report one should bear in mind that all the numerical results are preliminary, and they should not be cited. PART I: Evaluation of data sources, the present capital stock and inventories 1. Main data sources and possible need for new data sources Total value of non-financial assets in Finland is estimated to rise up to 900-1000 billion euro (2012), if all the assets defined in ESA2010 could be calculated. Fixed assets (AN.11) cover approximately 50-60% of that, which means that they are the most important subgroup of non-financial assets affecting the total wealth. Balance sheet values for the fixed assets can be estimated by PIM (perpetual inventory model), which is currently used in na- tional accounts mainly to produce estimates on consumption of fixed capital. Description of the present capital stock is given in chapter 2. A weakness in utilising the PIM-data in balance sheets is the definition of price: in the balance sheets, year-end price should be applied, and for the PIM, year-average price is applied. In addition, the net capital stock calcu- lated by PIM is strongly depending on the underlying assumptions such as service lives and depreciation profiles of the different assets. In spite of these weaknesses, the PIM can be seen as the best available method for most of the fixed assets which do not have effective markets. However, for assets such as dwellings we can observe market prices, which gives as a chance to make comparative calculations. These calculations and the conclusions to improve the PIM are shown in chapter 2. Inventories (AN.12) cover approximately 10% of the total value of the real assets in Finland. Compiling the balance sheets, stock data of national accounts was used as a source. Most of the stocks consists of growing trees in forests (AN.1221). The value for growing trees is calculated by Finnish Forest Research Institute and based on national forest inventory and market stumpage prices. The same concerns the timber inventory prices as to fixed assets; year-average prices are applied. Final report 4(54) Department of Economic and Environmental Statistics 24.2.2014 Ville Haltia National Land Survey of Finland Risto Peltola For valuables (AN.13) the stock data can be used as well as for inventories, although there is very barely primary source data available. Non-produced assets (AN.2) are estimated to cover 30-40% of the total non-financial assets in value. Approxi- mately half of this amount is due to value of land (AN.211). For the land valuation, information from land use statistics (SLICES) and statistics on real estate transactions were used. The land estimates can be considered relatively reliable, taking into account that it is a very challenging task with all the exceptions and details. The procedure of land estimates is described in part II of this report in detail. The next-in-line development task for land valuation is the improvement of the sectorization method. In principle, the land estimates could be calcu- lated directly by sectors. However, at this stage sectorization is based on the owner distributions of the structures built on land for the built land. Besides land, mineral and energy reserves (AN.212) are a significant natural resource in Finland. They are es- timated to cover 10-20% of the total non-financial assets. Geological Survey of Finland (GSF) maintains data- bases on national mineral resources and reserves. Changes in volumes can be estimated based on new strikes (GSF) and mining statistics published by Ministry of Employment and the Economy. These data sources also cover the supply and use information of peat; the only economically significant energy reserve in Finland. The challenges in estimating balance sheet items for minerals and energy reserves are the defining of economically exploitable amounts of the articles as well as finding the relevant market prices (or net present value). However, the commodity statistics by industries publishes annual mining volumes and correspondent