Handbook on Residential Property Prices Indices (RPPIs)

Transcription

1 M e h o d o l o g i e s & W o r k i g p a p e r s Hadbook o Resideial Propery Prices Idices (RPPIs) 23 ediio

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3 M e h o d o l o g i e s & W o r k i g p a p e r s Hadbook o Resideial Propery Prices Idices (RPPIs) 23 ediio

4 Europe Direc is a service o help you fid aswers o your quesios abou he Europea Uio. Freephoe umber (*): (*) Cerai mobile elephoe operaors do o allow access o 8 umbers or hese calls may be billed. More iformaio o he Europea Uio is available o he Iere (hp://europa.eu). Caaloguig daa ca be foud a he ed of his publicaio. Luxembourg: Publicaios Office of he Europea Uio, 23 ISBN doi:.2785/347 Ca. No KS-RA-2-22-EN-N Theme: Ecoomy ad fiace Collecio: Mehodologies & Workig papers Europea Uio, Ieraioal Labour Orgaizaio, Ieraioal Moeary Fud, Orgaisaio for Ecoomic Co-operaio ad Developme, Uied Naios Ecoomic Commissio for Europe, The World Bak, 23 Reproducio is auhorised provided he source is ackowledged. Phoo credis: Phovoir Reproducio of phoos is allowed for o-commercial purposes ad wihi he sole coex of his publicaio. Pried i Belgium Pried o elemeal chlorie-free bleached paper (ECF) Also available uder he ile Hadbook o Resideial Propery Prices Idices (RPPIs), ILO ISBN (paperback) ISBN (PDF) OECD ISBN (PDF) The opiios expressed ad argumes employed herei do o ecessarily reflec he official views of he ILO, IMF, OECD, UNECE, he World Bak or of he govermes of heir member couries or hose of Eurosa or he Europea Commissio.

5 Table of coes Table of coes Foreword Rppi 7 Preface 9. Iroducio 2. Uses of Resideial Propery Price Idices 5 3. Elemes for a Cocepual Framework 2 4. Sraificaio or Mix Adjusme Mehods Hedoic Regressio Mehods Repea Sales Mehods Appraisal-Based Mehods Decomposig a RPPI io Lad ad Srucures Compoes 8 9. Daa Sources. Mehods Currely Used 3. Empirical Examples Recommedaios 55 Glossary 6 Bibliography 67 Idex 77 Hadbook o Resideial Propery Prices Idices (RPPIs) 3

6 Table of coes Lis of ables 3.. Esimaed Re o Value Raios as Perceages (Capializaio Raios) Sample Probabiliy of a Sale i Each Cell Mached Model Fisher Chaied ad Fixed Base Price Idices, Mea, Media ad Represeaive Model Price Idices Rollig Year Fixed Base Fisher, Fisher Chaied Movig Average ad Fisher Fixed Base Movig Average Price Idices Log-Liear Time Dummy Price Idices ad he Chaied Sraified Sample Mea Fisher Price Idex Liear Time Dummy Price Idices, he Log Log Time Dummy Price Idex ad he Chaied Sraified Sample Mea Fisher Price Idex Chaied Laspeyres, Paasche ad Fisher Hedoic Impuaio Price Idices Repea Sales Price Idex, Chaied Sraified Sample Mea Fisher Price Idex ad Hedoic Impuaio Fisher Price Idex SPAR Idex, Hedoic Impuaio Fisher Price Idex ad Repea Sales Idex The Price of Lad (P L ), he Price of Qualiy Adjused Srucures (P S ), he Overall Cos of Producio House Price Idex (P ) ad he Fisher Hedoic Impuaio House Price Idex The Price of Lad (P L2 ), he Price of Srucures (P S2 ), he Overall Price Idex Usig Splies o Lad (P 2 ) ad he Fisher Hedoic Impuaio Price Idex The Price of Lad (P L3 ), he Price of Qualiy Adjused Srucures (P S3 ), he Overall House Price Idex wih Moooiciy Resricios o Srucures (P 3 ) ad he Overall House Price Idex Usig Splies o Lad (P 2 ) The Price of Lad (P L4 ), he Price of Qualiy Adjused Srucures (P S4 ) ad he Overall House Price Idex usig Exogeous Iformaio o he Price of Srucures (P 4 ) House Price Idices Usig Exogeous Iformaio (P 4 ) ad Usig Moooiciy Resricios (P 3 ), he Chaied Fisher Hedoic Impuaio Idex ad he Chaied Fisher Sraified Sample Idex The Price of Lad (P L4 ), he Price of Qualiy Adjused Srucures (P S4 ), he Overall House Price Idex usig Exogeous Iformaio o he Price of Srucures (P 4 ) ad heir Rollig Widow Couerpars (P RWL ) ad (P RW ) Approximae Sock Price Idices ad Based o Hedoic Impuaio (P Sock ) ad Sraificaio (P Sock2 ) ad he Fisher Hedoic Impuaio Sales Price Idex Approximae Price Idices for he Sock of Houses (P Sock ), he Sock of Lad (P LSock ), he Sock of Srucures (P SSock ) ad he Correspodig Sales Idices (P L4 ad P 4 ) Idices of Propery Prices Published i Japa Idices of Resideial Propery Prices Published i he UK Teure Saus All Housig i Souh Africa (Accordig o Cesus 2) Disribuio of Number of Rooms i Iformal Dwelligs Price Deermias Perceage of Maerials Used i he Cosrucio of Iformal ad Tradiioal Dwelligs i Souh Africa Evaluaio of Barriers Meas, Medias, Perce Chages, Sadard Deviaios, ad Skewess Regioal Expediures, Prices ad Volumes (Implici Quaiies) Usig Media Prices as he Regioal Prices Overall House Price Idices usig Media Prices ad Aleraive Formulae o Aggregae over Regios A, B ad C Hadbook o Resideial Propery Prices Idices (RPPIs)

7 Table of coes.4. Regioal Expediures, Prices ad Volumes (Implici Quaiies) Usig Mea Prices as he Regioal Prices Overall House Price Idices usig Mea Prices ad Aleraive Formulae o Aggregae over Regios A, B ad C Log-liear Regressio Resuls for a Simple Example Resuls from a Pooled Regressio for Years 26 ad Resuls from a Pooled Regressio for Years 26 o Resuls from a Pooled Regressio for Years 27 ad Resuls from a Regressio for Resuls from a Regressio for Mea Values of he Characerisics for he Base Period (26) Repea Sales Daa Dummy Variables for Repea Sales Uweighed Repea Sales Regressio Weighed Repea Sales Regressio Repea Sales Price Idices (22 = ) Growh Raes i Perce for he Various House Price Idices (27)...54 Hadbook o Resideial Propery Prices Idices (RPPIs) 5

8 Table of coes Lis of figures 4.. Mached Model Fisher Chaied ad Fixed Base Price Idices, Mea, Media ad Represeaive Model Price Idices Rollig Year Fixed Base Fisher, Fisher Chaied Movig Average ad Fisher Fixed Base Movig Average Price Idices Log-Liear Time Dummy Price Idices ad he Chaied Sraified Sample Mea Fisher Price Idex Liear Time Dummy Price Idices, he Log Log Time Dummy Price Idex ad he Chaied Sraified Sample Mea Fisher Price Idex Chaied Laspeyres, Paasche ad Fisher Hedoic Impuaio Price Idices The Fisher Impuaio Price Idex, he Chaied Sraified Sample Mea Fisher Price Idex, he Liear Time Dummy Price Idex ad he Log Log Time Dummy Price Idex Repea Sales Price Idex, Chaied Sraified Sample Fisher Price Idex ad Hedoic Impuaio Fisher Price Idex SPAR Idex, Hedoic Impuaio Fisher Price Idex ad Repea Sales Idex The Price of Lad (P L ), he Price of Qualiy Adjused Srucures (P S ), he Overall Cos of Producio House Price Idex (P ) ad he Fisher Hedoic Impuaio House Price Idex The Price of Lad (P L2 ), he Price of Srucures (P S2 ), he Overall Price Idex Usig Splies o Lad (P 2 ) ad he Fisher Hedoic Impuaio Price Idex The Price of Lad (P L3 ), he Price of Qualiy Adjused Srucures (P S3 ), he Overall House Price Idex wih Moooiciy Resricios o Srucures (P 3 ) ad he Overall House Price Idex Usig Splies o Lad (P 2 ) The Price of Lad (P L4 ), he Price of Qualiy Adjused Srucures (P S4 ) ad he Overall House Price Idex usig Exogeous Iformaio o he Price of Srucures (P 4 ) House Price Idices Usig Exogeous Iformaio (P 4 ) ad Usig Moooiciy Resricios (P 3 ), he Chaied Fisher Hedoic Impuaio Idex ad he Chaied Fisher Sraified Sample Idex Approximae Sock Price Idices ad Based o Hedoic Impuaio (P Sock ) ad Sraificaio (P Sock2 ) ad he Fisher Hedoic Impuaio Sales Price Idex Approximae Price Idices for he Sock of Houses (P Sock ), he Sock of Lad (P LSock ), he Sock of Srucures (P SSock ) ad he Correspodig Sales Idices (P L4 ad P 4 ) Diagram: House purchase imelie ad house price idices Four Resideial Propery Price Idices for Caada Propery Iformaio Flow Four Resideial Price Idices for Japa (Jauary 999=) House Purchase Time-lie NHB RESIDEX Idices Idia Ciywise idex Quarerly Naioal House Price Idex for Exisig Uis Nomial ad Real Quarerly Naioal Real House Price Idex for Exisig Uis Aual Perceage Chages Aual Naioal House Price Idex for Exisig Uis ( ) Aual Real House Price Idex for Exisig Uis Pricipal meropolia areas Aual Real House Price Idex for Exisig uis: Houses wih Subsidies (VIS) ad Houses wihou (NOVIS)...33.: Disribuio of House Prices i Hadbook o Resideial Propery Prices Idices (RPPIs)

9 Foreword - RPPI Foreword RPPI This Hadbook o Resideial Propery Prices Idices (RPPIs) represes he firs comprehesive overview of cocepual ad pracical issues relaed o he compilaio of price idexes for resideial properies. The developme of he RPPI Hadbook has bee co-ordiaed by he Saisical Office of he Europea Uio (Eurosa), uder he joi resposibiliy of six orgaizaios - Ieraioal Labour Orgaizaio (ILO), Ieraioal Moeary Fud (IMF), Orgaisaio for Ecoomic Co-operaio ad Developme (OECD), Saisical Office of he Europea Uio (Eurosa), Uied Naios Ecoomic Commissio for Europe (UNECE) ad World Bak - hrough he mechaism of a Ier-Secrearia Workig Group o Price Saisics (IWGPS). The Hadbook is published joily by hese orgaizaios. The aim of he RPPI Hadbook is o give pracical guidace o he compilaio of house price idexes ad o icrease ieraioal comparabiliy of resideial propery price idexes. The Hadbook oulies he differe user eeds, gives deails o daa eeds ad mehods, ad provides recommedaios. The primary purpose of he Hadbook is o assis producers of resideial propery price idexes, paricularly i couries ha are revisig or seig up heir RPPIs. The Hadbook draws o a wide rage of experiece ad experise i a aemp o describe pracical ad suiable measureme mehods. I should also help couries o produce heir RPPIs i a more comparable maer. As i brigs ogeher a large body of kowledge o he subjec, he Hadbook may be used for self-learig, or as a eachig ool for raiig courses o resideial propery price idexes. Oher RPPI users, such as busiesses, policy-makers or researchers may also fid he Hadbook useful as a source of iformaio, o oly abou he differe mehods ha are employed i collecig daa ad compilig such idexes, bu also abou heir limiaios. I his respec, i may faciliae he ierpreaio of he resuls. The drafig ad revisio have eailed may meeigs over a hree-year period, i which RPPI expers from aioal saisical offices, ieraioal ad regioal orgaisaios, uiversiies ad research isiues have paricipaed. Their collecive advice ad wisdom were idispesable for he compilaio of his Hadbook. A elecroic versio of he Hadbook is available o he Iere a hp://epp.eurosa.ec.europa.eu. The IWGPS views he Hadbook as a livig docume ha will be ameded ad updaed o address paricular pois i more deail. Commes o he Hadbook are welcomed by he IWGPS, ad should be se o Eurosa ( ESTAT-hicp-mehods@ ec.europa.eu). They will be ake io accou i ay fuure revisios. Waler Radermacher Chief Saisicia of he Europea Uio Direcor Geeral Eurosa - Saisical Office of he Europea Uio Alfredo M. Leoe Acig Direcor Saisics Deparme Ieraioal Moeary Fud Lidia Braaova Direcor of Saisical Divisio Uied Naios Ecoomic Commissio for Europe Rafael Diez de Media Chief Saisicia Direcor of he Deparme of Saisics Ieraioal Labour Orgaisaio Marie Durad Chief Saisicia Direcor of Saisics Direcorae Orgaisaio for Ecoomic Co-operaio ad Developme Shaida Badiee Direcor, Developme Daa Group World Bak Hadbook o Resideial Propery Prices Idices (RPPIs) 7

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11 Preface Preface Iroducio The aim of his Hadbook is o faciliae he seig-up of resideial propery price idices i couries where hese are sill missig ad he improveme of exisig price idices where his is deemed ecessary. I is desiged o give pracical guidace o he compilaio of house price idices, boh i developed ad less developed couries, ad o icrease ieraioal comparabiliy of resideial propery price idices. I explais he differe user eeds, gives deails o daa ad mehods ha ca be used o compile resideial propery price idices ad provides recommedaios. The producio of he Hadbook was fuded ad suppored by Eurosa. Backgroud The eed for propery price idices ha are fi-for-purpose was recogised a a coferece orgaised joily by he Ieraioal Moeary Fud (IMF) ad he Bak for Ieraioal Selemes (BIS) i Washigo DC, Ocober 23. As a resul, a chaper o resideial propery price idices was added o he IMF s Compilaio Guide of Fiacial Soudess Idicaors. The idea of a more deailed Hadbook daes back o a workshop orgaised by he Orgaisaio for Ecoomic Co-operaio ad Developme (OECD) ad he IMF o Real Esae Price Idices i Paris, November 26. The Hadbook would compleme he exisig ieraioal mauals o cosumer price idices, producer price idices ad impor-expor price idices ha were produced uder he auspices of he Ier-Secrearia Workig Group o Price Saisics. Eurosa agreed o ake his iiiaive forward by supporig ad fudig he preparaio of he Hadbook, give he srog liks o is ogoig work o he iclusio of ower-occupied housig i he Harmoized Idex of Cosumer Prices (HICP) ad he role ha house price idices have i he se of Pricipal Europea Ecoomic Idicaors. A he Eurosa-IAOS-IFC coferece o resideial propery price idices, held i Basel, -2 November 29, he Hadbook pla was discussed. Prelimiary versios of he Hadbook were preseed ad discussed a several occasios, i paricular a he UNECE-ILO Meeig o Cosumer Price Idices i Geeva, -2 May 2, a workshop held i The Hague, - February 2, ad he welfh Oawa Group meeig i Welligo, 4-6 May 2. A Guide o Readers Alhough o all of he chapers are self-coaied, he Hadbook is o desiged o be read from cover o cover. For example, some of he chapers ca easily be skipped by compilers who are paricularly ieresed i mehodological issues. Furher deails o he coes of he Hadbook are give i Chaper. The Hadbook cao be oo prescripive for wo reasos. Firsly, i is o always possible o give pracical guidace as some of he soluios o cocepual problems are o always clear-cu ad here are choices o be made abou precisely how a pracical soluio is implemeed. Secodly, wha is applicable ad wha ca be achieved will deped o he daa ad resources available o he idividual aioal saisical isiue (or oher compilig isiue). Ackowledgemes The wriig of he Hadbook was led by Saisics Neherlads; Ber M. Balk co-ordiaed he projec aciviies. Ja de Haa ad W. Erwi Diewer aced as mai ediors. The auhors of he idividual chapers are as follows: Preface Ber Balk, Ja de Haa ad David Fewick. Iroducio Ber Balk 2. Uses of Resideial Propery Price Idices David Fewick 3. Elemes for a Cocepual Framework Erwi Diewer 4. Sraificaio or Mix Adjusme Mehods Ja de Haa ad Erwi Diewer Hadbook o Resideial Propery Prices Idices (RPPIs) 9

12 Preface 5. Hedoic Regressio Mehods Ja de Haa ad Erwi Diewer 6. Repea Sales Mehods Ja de Haa 7. Appraisal-Based Mehods Ja de Haa 8. Decomposig a RPPI io Lad ad Srucures Compoes Erwi Diewer 9. Daa Sources David Fewick. Mehods Currely Used David Fewick. Empirical Examples Marc Prud homme ad Erwi Diewer 2. Recommedaios David Fewick, Erwi Diewer ad Ja de Haa Glossary Ja de Haa The qualiy of he Hadbook was icreased by he valuable coribuios of may idividuals ad orgaisaios, icludig ipu from boh compilers ad users of resideial propery price idices i differe pars of he world. The umber of coribuors is, of course, oo grea o meio hem all by ame. The BIS (ad i paricular Paul Va de Bergh) have bee excelle hoss for he Basel workshop i 29. May haks go o UNECE (ad i paricular Carse Boldse) who were also heavily ivolved i he orgaisaio of he Basel workshop, ad of he special sessio o he RPPI Hadbook durig he joi UNECE/ILO CPI meeig i 2. Special haks are due o Irmraud Beuerlei, Simo Coé, Lee Evers, Gregory Klump, Jose Vicee Romero, Parick Sabouri, A.P. Saxea, ad Chihiro Shimizu for coribuig o he coury-based case sudies ad o Emily Carless, Preechaya Chavaliumroy, Ali Hepşe, Marissa Gozalez Guzma ad Hecor Zarae, who provided oher backgroud iformaio o published idices. Useful commes o prelimiary drafs of he Hadbook were received from Carlos Brás, Morris Davis, Mari Eiglsperger, Timohy Erickso, Rui Evagelisa, Deis Fixler, Joh Greelees, Bria Graf, Vada Guerreiro, Roald Johso, Marcel va Kis, Adrew Leveis, Bogda Marola, Daiel Saos, Mick Silver, Leo Sveidkauskas, Radall Verbrugge, David Wasshause, ad paricipas a he workshop i The Hague, i paricular Marc Fracke ad Ja Walschos. Eurosa, he BIS, he IMF ad he ECB also provided helpful commes. Thaks are also due o Res Hedriks ad Nig Huag for commes ad compuaioal assisace. Hadbook o Resideial Propery Prices Idices (RPPIs)

13 Iroducio

14 Iroducio. Resideial propery is boh a source of wealh ad, isofar as propery owers live i or o heir propery, a impora deermiig facor i heir cos of livig. The price of a house is somehig differe from he cos of dwellig services i provides, hough he wo coceps are obviously ierliked..2 Moiorig he developme of house prices is cosidered impora, especially i imes of ecoomic urbulece. Ye he way house price developme is measured varies per coury, ad eve wihi a coury here are someimes wo or more compeig mehods i use. This siuaio is of course o favourable for he desig of cosise policy measures based o solid ieraioal comparisos..3 Agais his backgroud i is udersadable ha i was proposed ha a hadbook be prepared o housig, or broader resideial propery, price idices. ( ) The primary goals of he hadbook are o provide guidace for hose wishig o se up resideial propery price idices or modify exisig idices i view of ieraioal harmoisaio; o provide a discussio ad compariso of he various arges ad heir correspodig cocepual frameworks; o provide a iveory of exisig pracices. The coes of he hadbook are briefly oulied below..4 Chaper 2 reviews a umber of areas where resideial propery price idices (RPPIs) play a role. The followig applicaios are cosidered: as a macro-ecoomic idicaor of ecoomic aciviy; for use i moeary policy ad iflaio argeig; as a ool for esimaig he value of a compoe of real wealh; as a fiacial sabiliy or soudess idicaor o measure risk exposure; as a deflaor i he Naioal Accous; as a ipu io ciizes decisio makig o wheher o buy or sell resideial propery; as a ipu io he Cosumer Price Idex; ad for use i makig ier-area ad ieraioal comparisos..5 I Chaper 3 o he uses of a RPPI, he focus will be o fill i gaps i he Sysem of Naioal Accous ad i he compilaio of a Cosumer Price Idex. I is likely ha if appropriae RPPIs ca be cosruced o fill i hese gaps, he he resulig family of RPPIs will mee he eeds of mos users. ( ) Acually, his was oe of he coclusios of he OECD-IMF Workshop o Real Esae Price Idices (Paris, 6-7 November 26)..6 Broadly speakig, wo separae ypes of RPPI ca be disiguished: a cosa qualiy price idex for he sock of resideial housig a a paricular mome i ime ad a cosa qualiy price idex for resideial propery sales ha ook place durig a paricular period of ime. The cosrucio of hese wo ypes of idex will be differe; mos paricularly, he weighig associaed wih he wo ypes will differ..7 Chaper 3 coiues by summarizig he four mai approaches o cosrucig a RPPI. I he fial secios a umber of miscellaeous opics are addressed, such as he frequecy of a RPPI, he cosisecy of mohly wih quarerly esimaes ad he cosisecy of quarerly wih aual esimaes, revisio policies, ad seasoal adjusme..8 Chapers 4-7 review i deph he mai mehods for compilig RPPIs. The simples mehods are based o some measure of ceral edecy of he disribuio of rasacio prices i a period, i paricular he mea or he media. Sice house price disribuios are geerally posiively skewed (predomialy reflecig he heerogeeous aure of housig, he posiive skew i icome disribuios, ad he zero lower boud o rasacio prices), he media raher ha he mea is ofe used. As o daa o housig characerisics are required o calculae he media, a price idex ha racks chages i he price of he media house sold from oe period o he ex ca be easily cosruced. Aoher aracio of media idices is ha hey are easy o udersad..9 Oe major drawback of simple media based idices is ha hey provide very oisy esimaes of price chage. The se of houses acually raded i a period, or a sample hereof, is ypically small ad o ecessarily represeaive of he oal sock of houses. Chages i he mix of properies sold will herefore affec he sample media price more ha he media price of he housig sock. A perhaps bigger problem ha shor-erm oise is sysemaic error, or bias. A media idex will be subjec o bias whe he qualiy of he housig sock chages over ime. Bias ca also arise if cerai ypes of houses are sold more frequely ha oher ypes of houses ad a he same ime exhibi differe price chages.. A geeral echique for reducig sample selecio bias is (pos-) sraificaio. This echique, which is also kow as mix adjusme, is discussed i Chaper 4.. Chaper 5 reviews he hedoic regressio approach. This approach recogizes ha heerogeeous goods ca be described by heir aribues or characerisics. Tha is, each good is esseially a budle of performace characerisics. I he housig coex, his budle may coai aribues of boh he srucure ad he locaio of he properies. Alhough here is o marke for 2 Hadbook o Resideial Propery Prices Idices (RPPIs)

15 Iroducio characerisics, sice hey cao be sold separaely, he demad ad supply for he properies implicily deermie he characerisics margial coribuios o he prices of he properies. Regressio echiques ca be used o esimae hose margial coribuios or implici prices..2 This chaper discusses, i a o-echical way, he mai models used as well as he mehods o form RPPIs from esimaio of such models. The overall evaluaio of he hedoic regressio mehod is ha i is probably he bes mehod ha could be used i order o cosruc cosa qualiy RPPIs for various ypes of resideial propery. However, i is also he mos daa-iesive mehod..3 The repea sales mehod, reviewed i Chaper 6, uilizes iformaio o he same properies which have bee sold more ha oce. Because oly mached models are used, here is o chage i he qualiy mix o corol for. I is basic form, he oly iformaio required is price, sales dae ad address of he propery. So he repea sales mehod is much less daa- iesive ha hedoic mehods. Also, he repea sales mehod will auomaically corol for micro locaio (address), somehig which hedoic mehods are uable o do..4 The mached model mehodology, where prices of exacly he same iem are compared over ime, is he aural sarig poi for he cosrucio of ay price idex. Because of he low icidece of rasacios, ad because he qualiy of houses coiually chages, he sadard mached model mehodology cao be applied sraighforwardly. The repea sales mehod aemps o deal wih his issue by lookig oly a properies ha have bee sold more ha oce over a sample period. This, however, ca lead o a relaively low umber of observaios ad o sample selecio bias. To overcome such problems, assessed values of he properies could be used..5 I may couries, official goverme assessmes are available for all properies, because such daa are eeded for axaio. If he assessmes perai o some referece dae, a RPPI ca be cosruced by relaig acual sale prices o assessed values. This cosiues a varia of he mached model mehodology, he disic feaure beig ha composiioal chage is accoued for. I his case, here is o eed o use ecoomeric echiques. The various assessme-based mehods, ad i paricular he sale-price appraisal raio (SPAR) mehod, are reviewed i Chaper 7..6 Chapers 4-7 all ed wih empirical examples esed o acual daa i order o illusrae he mehods discussed ad o provide addiioal backgroud maerial. The daa se covers 4 quarers of resideial propery sales for a relaively small ow i he Neherlads. As will become clear i Chapers 4-7, mos mehods are uable o decompose a RPPI io a lad ad a srucures compoe. Chaper 8 discusses how hedoic regressio mehods ca be used o obai such a decomposiio ad cosiders how o cosruc a RPPI for he sock of housig whe hedoic regressio mehods are used. Usig he acual daa, his chaper also suggess ways o overcome several pracical problems ha are ofe ecouered i empirical work of his aure, such as a high correlaio bewee he size of he srucure ad he size of he lad..7 I pracice, because of he high cos of uderakig purpose-desiged surveys of house prices, he approaches adoped by saisical agecies ad ohers o cosruc RPPIs have bee maily a fucio of he house price daa ses geeraed by he legal ad oher processes associaed wih buyig a house. The idices so cosruced ca vary accordig o he poi i he house purchasig process a which he price is measured, for isace wheher he fial rasacio price or he earlier valuaio used for securig a loa is ake. Also, he amou of deailed iformaio available o he characerisics of he properies sold will affec idex compilaio mehods, ofe acig as a cosrai o he echiques available o qualiy adjus for houses of differe sizes ad locaios. Thus, daa availabiliy has hisorically bee a cosrai o he approach used for idex cosrucio..8 Chaper 9 qualiaively examies he differe daa sources ha ca be used for cosrucig RPPIs, such as pried ews media, real esae ages, morgage compaies, propery regisers ad ax offices. I he fial secio, aeio is paid o he siuaio i may developig couries where daa are scarce ad he issue of propery owership is ambiguous..9 Chaper caalogues he availabiliy of RPPIs i differe couries ad also preses some case sudies. I relies o mea-daa gahered by various orgaisaios, icludig he Europea Ceral Bak ad he Bak for Ieraioal Selemes, ad more recely a fac-fidig exercise coduced by Eurosa i coecio wih he iclusio of ower-occupied housig coss i he Europea Uio s Harmoised Idex of Cosumer Prices, which was exeded o cover some o-eu couries..2 Chaper provides addiioal pracical guidace by demosraig he workig of he RPPI cosrucio mehods (excludig he SPAR mehod) ha were oulied i Chapers 4, 5 ad 6 o simple examples usig small daa ses..2 Chaper 2 cocludes by providig recommedaios. Hadbook o Resideial Propery Prices Idices (RPPIs) 3

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17 Uses of Resideial Propery Price Idices 2

18 2 Uses of Resideial Propery Price Idices Iroducio 2. There are may areas of sociey where idividuals or orgaisaios use resideial propery price idices (RPPIs) direcly or idirecly eiher o ifluece pracical decisio makig or o iform he formulaio ad coduc of ecoomic policy. Differe uses ca have a sigifica impac o he preferred coverage of he idex ad also o he appropriae mehodology applied for is cosrucio. 2.2 From a idividual household s perspecive, real esae ofe represes he sigle larges ivesme i heir porfolio. I also accous for he larges share of wealh i mos aios balace shees. Chages i house prices ca have far-reachig implicaios for idividuals. For example, chages i housig equiy ad household deb levels ca permeae hrough o he overall ecoomy. I fac, cosumer spedig is ofe affeced by chages i house prices as a resul of wealh effecs ad is effec o cosumer cofidece. House prices ifluece home improveme ad reovaios expediures, which i may couries are higher ha overall spedig o ew house cosrucio. House prices play a major role i he measureme of he affordabiliy of home-owership, a key housig policy objecive i some couries. House price chages also ifluece he decisio o build ew houses (he supply side) as well as he decisio o become a homeower (he demad side). ( ) Ivesors ur o house price idices o o oly measure wealh bu also o help i assessig curre ad fuure raes of reur. ( 2 ) 2.3 From a broader perspecive, aalyss, policymakers, ad fiacial isiuios follow reds i house prices o expad heir udersadig of real esae ad credi marke codiios as well as o moior he impac o ecoomic aciviy, ad fiacial sabiliy ad soudess. ( 3 ) For isace, morgage leders will use iformaio o house price iflaio o gauge defaul risk. Ceral baks ofe rely o movemes i house price idices o moior households borrowig capaciy ad deb burde ( 4 ) ad heir effecs o aggregae cosumpio. ( 5 ) 2.4 I his coex i should be emphasised ha he differe uses of resideial propery price idices may require differe cocepual bases ad mehodology, alhough i pracice, oher facors someimes come io play, such as daa availabiliy. ( 6 ) I geeral, o sigle idicaor of house price chage ca saisfy every purpose. For isace, he price dyamics of he housig marke for ( ) See Duffy (29). ( 2 ) Resideial cosrucio ivesme accous for abou 5% of GDP i he euro area. ( 3 ) See Case ad Wacher (25). ( 4 ) See Fiocchiaro ad vo Heideke (27). ( 5 ) See Case e al. (2), Phag (24) ad Belsky ad Prakke (24). ( 6 ) See Fewick (26) ad also Chaper 9. moiorig house iflaio, as experieced by purchasers, may bes be esimaed by collecig iformaio o curre rasacio prices ad usig his iformaio o cosruc a price idex for he sales of housig uis. I coras, o esimae a ecoomy s (real) sock of wealh, iformaio o he sample of rasaced dwelligs mus ideally be supplemeed by iformaio o he sock of o-rasaced dwelligs i order o cosruc a price idex for he housig sock. This may be doe by re-weighig o reflec he differe mix of houses i he housig sock compared wih rasacios bu he adequacy of his mehod depeds o wheher he dwelligs ha are acually rasaced ca ac as a proxy for he oes ha have o bee subjec o a chage of owership. If he price of houses ha have o chaged owership is o available ad iformaio o heir umbers ad characerisics is limied or eve o-exise, he user eeds o be assured ha he profile of he rasacios is represeaive of he overall housig sock. I pracice, he laer codiio may o be fully me as differe secors of he housig marke ca be iflueced by differe facors ad he limied umber of rasacios may lead o ureliable or eve o-exise daa o prices for some of hese differe sraa. 2.5 The (price deermiig) aribues of idividual houses ofe chage over ime. These chages iclude improvemes o he dwellig i he form of reovaios o kiches ad bahrooms, replaceme widows wih isulaed glazig, or he isallaio of eergy efficie heaig or air-codiioig sysems, ad also exesios of he srucure which reflec he rece red i may couries owards larger houses. Improvemes ad exesios will be parially offse by depreciaio of he srucures. Irrespecive of he purpose of he idex, a ideal RPPI should be adjused for all of hose chages. To pu i differely, he idex should represe chages i he prices of properies ha are comparable i qualiy over ime. 2.6 The eed for qualiy adjusme exeds beyod corollig for home improvemes ad depreciaio, however. The mix of dwelligs ha are sold i oe period is likely o be differe from ha i he ex period whe, say, he sample of houses sold cosiss of more larger houses compared o he previous period. Such composiioal or mix chages may have a cyclical paer because sales of larger houses will ypically declie as a ecoomy eers a recessio. Composiioal chages of he sample over ime, jus like qualiy chages of he idividual dwelligs, should o be ierpreed as price chages measureme echiques are required o adjus he price chages for qualiy mix chages. A shor overview of he various mehods ha are available o solve he problems of qualiy (mix) chage will be provided i Chaper 3. A deailed discussio of hese mehods will follow i Chapers Hadbook o Resideial Propery Prices Idices (RPPIs)

19 Uses of Resideial Propery Price Idices 2 A Review of he Differe Uses of Resideial Propery Price Idices 2.7 Resideial propery price idices have a umber of impora uses: as a macro-ecoomic idicaor of ecoomic growh; for use i moeary policy ad iflaio argeig; as a ipu io esimaig he value of housig as a compoe of wealh; as a fiacial sabiliy or soudess idicaor o measure risk exposure; as a deflaor i he aioal accous; as a ipu io a idividual ciize s decisio makig o wheher o buy (or sell) a resideial propery; as a ipu io he cosumer price idex, which i ur is used for wage bargaiig ad idexaio purposes; ( 7 ) for use i makig ier-area ad ieraioal comparisos. Each use is cosidered i ur. As a Macro-Ecoomic Idicaor of Ecoomic Growh 2.8 Risig house prices are ofe associaed wih periods of ecoomic expasio while fallig house prices ofe correspod wih a slowig ecoomy. Goodhar ad Hofma (26) show ha for 6 idusrialised couries here exiss a srog correlaio bewee house prices ad ecoomic aciviy. I fac he six major bakig crises i advaced couries sice he mid 97s were all associaed wih he bursig of a housig bubble (Reihar ad Rogoff, 29). ( 8 ) I he mai, house prices are reaed as a leadig idicaor alhough here is some debae abou wheher house price chage is a leadig, laggig or coicide ecoomic idicaor. 2.9 Wha is clear is ha risig house prices are ofe associaed wih ecoomic growh hrough a leas hree chaels: Higher (relaive) house prices ed o simulae icreased cosrucio aciviy, which i ur leads o higher ( 7 ) The iclusio of a house price idex i he calculaio of a CPI depeds o he objecives of he CPI ad, i paricular, wheher a acquisiios, paymes or user cos approach is adoped. Furher discussio of hese issues is give i he Cosumer Price Idex Maual (ILO e al., 24) ad he Pracical Guide o Producig Cosumer Price Idices (Uied Naios, 29). ( 8 ) Claesses, Kose ad Terroes (28; 25) fid ha... recessios associaed wih house price buss are o average over a quarer loger ha hose wihou buss. Moreover, oupu declies (ad correspodig cumulaive losses) are ypically much larger i recessios wih buss, 2.2 (3.7) perce versus.5 (2.3) perce i hose wihou buss. These sizeable differeces also exed o he oher macroecoomic variables, icludig cosumpio, ivesme ad he uemployme rae. employme ad higher icomes for a wide rage of workers ivolved i he housig marke, such as real esae ages, cosrucio workers ad professioals i he fiacial ad he legal professios. Expecaios of higher fuure reurs o propery ivesme lead builders o sar ew cosrucio ad his is accompaied by higher marke demad i propery-relaed secors from ower-occupiers ad propery ivesors. ( 9 ) I addiio, buildig aciviy will ed o icrease from more home reovaios. Higher house prices ed o lead o icreased sales of exisig housig uis ad his i ur ca lead o addiioal ax reveues i he form of propery rasfer axes geeraed from he higher volume ad value of propery sales. These icreased ax reveues ca lead o icreased goverme spedig which i ur provides addiioal ecoomic simulus. Risig real esae prices will lead o improvemes i he household secor s balace shee (he wealh effec) ad his i ur will geerally lead o icreased household spedig o cosumpio ad ivesme. ( ) Accordig o a repor by he U.S. Cogressioal Budge Office (27), whe house prices surged i he 99s ad 2s, cosumer spedig grew faser ha icomes. This household wealh effec geerally leads o icreases i spedig by cosumers o home reovaios ad repairs i addiio o icreased spedig o oher goods ad services. 2. Of course, he above simulaive effecs of icreasig house prices go io reverse whe (real) house prices fall. I is herefore impora ha he public ad ecoomic policy makers have a heir disposal accurae ad imely iformaio o movemes i real esae prices. 2. Asse prices, icludig real esae prices, are a key idicaor for more fully udersadig he dyamics of he ecoomy. ( ) Accordig o Plosser (27), asse prices coai impora iformaio abou he curre ad fuure sae of he ecoomy ad ca play a impora role i he deliberaios of ceral bakers as hey seek o achieve heir objecives of price sabiliy ad susaiable oupu growh. For Use i Moeary Policy ad Iflaio Targeig 2.2 I addiio o he above geeral ieres i moiorig propery prices, may ceral baks have iflaio arges which ca direcly ivolve idices of propery prices. For isace, ceral baks i some couries uilize a Moeary Codiios Idex (MCI) as a day-o-day ( 9 ) See Zhu (25). ( ) See Campbell ad Cocco (27). ( ) See Turvey (989) ad Goodhar (2). Hadbook o Resideial Propery Prices Idices (RPPIs) 7

20 2 Uses of Resideial Propery Price Idices operaig arge for he coduc of moeary policy. I a expaded versio of his idex, as ha suggesed by Jaroci ski ad Smes (28) ad Goodhar ad Hofma (27), he MCI would iclude some measure of house prices because of he impora role his variable plays i he iflaioary process ad for ecoomic performace. Oher ceral baks who have a iflaio arge based o he Cosumer Price Idex (CPI) will idirecly ake io accou he moveme i house prices whe seig ieres raes, depedig i par o he reame of Ower Occupied Housig (OOH) i heir coury s CPI. This issue is discussed furher i Chaper I ca be argued ha i he fuure, resideial propery prices are likely o play a icreasig role i he coduc of moeary policy. Over rece years a iflaio arge has bee used by a growig umber of couries o defie ad operae heir moeary policy frameworks. The IMF (27) provides a lis of 28 couries classified as iflaio argeers accordig o heir exchage rae arragemes (wihou specifyig he arge or iflaio measure). Carare ad Soe (23) exed his aalysis furher by classifyig couries ha use a iflaio arge for moeary policy, io fully-fledged iflaio argeers, eclecic argeers ad iflaio argeig lie regimes, usig he clariy ad credibiliy ( 2 ) of he commime o he iflaio arge o classify idividual couries. The auhors he ideify 42 medium ad large coury ceral baks who have some form of floaig exchage rae mechaism (i.e. o adopig a fixed exchage rae) leavig heir degree of commime o a iflaio arge as he defiig moeary objecive. They esimaed ha by 2 some 7 idusrial ad emergig markes operaed fully-fledged iflaio argeig, ha is have a medium o high level of credibiliy, clearly commi o heir iflaio arge ad isiuioalize his commime i he form of a raspare moeary framework ha fosers accouabiliy of he ceral bak o he arge. The umber of couries operaig fully-fledged iflaio argeig has bee icreasig over he years. As a Ipu for Esimaig he Value of Housig as a Compoe of Wealh 2.4 House prices are a ipu io he measureme of aggregae wealh i he ecoomy. Exisig dwellig uis are par of he balace shee accous i he Sysem of Naioal Accous (SNA). Thus i is ecessary o have a price idex for his asse class i order o form esimaes of real household wealh. As was meioed i he iroducio o his chaper, risig house prices will geerae a ( 2 ) Clariy is gauged by he public aouceme of he iflaio arge ad by he isiuioal arragemes for accouabiliy. Credibiliy is measured idirecly usig as a proxy he acual iflaio ouur ad by marke raigs of log-erm local currecy goverme deb. wealh effec ha ca lead o icreases i cosumpio ad icreased household borrowig. 2.5 More geerally, idividuals will have a idirec sake i real esae asse prices, icludig resideial propery, hrough pesio fuds ad oher direc ivesmes i real esae. As a Fiacial Sabiliy or Soudess Idicaor o Measure Risk Exposure 2.6 Fiacial Soudess Idicaors (FSIs) are idicaors of he curre healh ad soudess of he fiacial sysem ad isiuios of a coury ad of heir corporae ad household compoes. They iclude boh aggregaed idividual isiuio daa ad idicaors ha are represeaive of he markes i which he fiacial isiuios operae, icludig saisics o real esae prices. FSIs are calculaed ad dissemiaed for he purpose of supporig aioal ad ieraioal surveillace of fiacial sysems. The IMF developed FSIs wih a view o moiorig ad sregheig he global fiacial sysem ad o icreasig sabiliy followig he fiacial marke crises of he lae 99s, ad as a way of combaig he subseque growig umber of bakig crises ha have occurred globally. The compilaio guide for fiacial soudess idicaors provides some advice o compilig house price idices whils ackowledgig he relaive absece of ieraioal experiece ad guidace ad he absece of a comprehesive framework for cosrucig such idices. More recely, he Ocober 29 Repor o he G-2 Fiace Miisers ad Ceral Bak Goverors o he Fiacial Crisis ad Iformaio Gaps ( 3 ) meios ha iformaio o dwelligs ad heir associaed price chages are criical igredies for fiacial sabiliy policy aalysis. 2.7 Sharp falls i real esae prices have a derimeal impac o he healh ad soudess of he fiacial secor ad o he fiacial siuaio of idividuals ad of idividual households, by affecig credi raigs, he value of collaeral, ad he deb o equiy raio. 2.8 I should come as o surprise ha he relaioship bewee real esae cycles ad ecoomic cycles is well documeed ad ha he role of real esae prices i deb fiace ad fiacial crises has log bee recogised. This has led o he use of resideial propery price idices as idicaors of fiacial sabiliy, paricularly i couries where real esae accous for a sigifica proporio of aioal ad household wealh, ad where he propesiy of home owership is relaively high. 2.9 The use of reds i resideial propery prices, ad real esae prices more geerally, as a idicaor of fiacial soudess, has bee suppored by i-deph aalyical ( 3 ) Available a: hp:// 8 Hadbook o Resideial Propery Prices Idices (RPPIs)

21 Uses of Resideial Propery Price Idices 2 sudies. Icluded amogs he vas amou of maerial published o his subjec is a paper by Nabarro ad Key (23) who prese a model for real esae ad ledig cycles, suppored by case sudies. Their paper races he cyclical evoluio from iiial idicaors provided by he real marke, o propery prices ad hrough o balace shees of borrowers ad leders, ad draws aeio o a umber of releva idicaors of he real esae marke. I describes wha he auhors call he dagerous ierdepedece bewee real esae cycles ad fiacial sysems. Whils he auhors ackowledge he highly upredicable aure of he real esae cycle ad is differe characerisics ad properies from oe cycle o he ex, hey discuss he likages bewee real esae cycles ad deb fiace o ideify areas where improved iformaio could suppor effecive coueracig sraegies ad policies. They explai how a reliable ad cos-effecive sysem of performace measureme ad moiorig ca be developed ad implemeed ad sugges how such a sysem ca provide a mechaism for aalyical decisio makig, desiged o impac upo he behaviour of he real esae secor. 2.2 Iformaio o resideial propery ad oher propery prices eeds o be supplemeed by releva ad imely deailed aalyses, ad by oher iformaio such as he proporio of houses beig purchased wih cash raher ha beig fiaced hrough a loa. The average raio of loa o propery price, ad how his is disribued, provides a idicaio of he exposure of he borrower ad he leder, as does he price o earigs raio ad, o a cerai exe, he volume of rasacios. ( 4 ) Similarly, a more deailed aalysis of he ypes of houses beig sold by regio will show wheher aciviy i he housig marke is coceraed i paricular segmes of he marke such as high-ed properies or i cerai geographical locaios such as he capial ciy or large urba areas. As a Deflaor i he Naioal Accous 2.2 Naioal saisical agecies use house price idices i a leas wo ways. Firs, he srucures compoe of a price idex for ewly-buil houses is ofe used o deflae curre price values for resideial cosrucio i he aioal accous; see Bover ad Izquierdo (23). Secod, house price idices may be icluded i he cosrucio of he CPI, depedig o he choice of is cocepual basis. This secod use is cosidered below ad i more deail i Chaper Price idices ad deflaors are seemigly differe eiies wihi a wider group of saisics relaig o prices. ( 5 ) I is perie o oe agais his backgroud ( 4 ) Pas observaio suggess ha whe price-o-earigs raios ge o a ususaiable high level, he adjusme is iiially see i a reducio i he volume of housig urover raher ha i rasacio prices. ( 5 ) However, he uderlyig heory of deflaors ad (direc) price idexes is he same; see Chaper 6 i SNA (993). Samuelso ad Swamy (974) oe he followig: Alhough ha wo of he mos rece ad widely available refereces o he compilaio ad use of aioal accous deflaors, SNA (993) ad he Eurosa (2) Hadbook o Price ad Volume Measures i Naioal Accous, pre-dae he CPI Maual (24) ad PPI Maual (24) The CPI ad PPI Mauals were developed i parallel ad ake advaage of he laes research io idex umber heory ad pracice, which is o fully refleced i he official lieraure o aioal accous. ( 6 ) The wo mauals are esseially based o he same uderlyig ecoomic priciples ad saisical heory. They provide a comprehesive ad cohere overview of he cocepual ad heoreical issues associaed wih cosumer ad producer price idices ad raslae hese io available opios for pracical measureme. The CPI Maual also aced as a caalys for he ew ILO Resoluio o Cosumer Price Idices, which was passed i 23. As a Ipu io a Idividual Ciize s Decisio Makig o Wheher o Buy (or Sell) a Resideial Propery 2.24 The buyig or sellig of a dwellig is ypically he larges fiacial rasacio a household will eer io durig his or her life. Chages i house prices are herefore likely o ifluece subsaially wheher a household purchases a propery ad also he budge plas ad savigs decisios of he prospecive house buyers ad sellers. The purchase of a house is cosidered by may ower-occupiers boh as a meas of obaiig sheler services ad as a capial ivesme, he laer poeially providig a opporuiy for sigifica capial gais i he loger-erm. Curre price levels ad reds, ogeher wih expecaios abou fuure reds i house prices ad morgage ieres raes, ( 7 ) will ifluece a idividual s decisio o wheher o purchase ow or pospoe he purchase. The opporuiy cos associaed wih he sums of moey ivolved will also come io play as prospecive purchasers evaluae he aleraive choices available o hem. For isace, prospecive purchasers will ofe ake io accou he impac of chages i house prices o marke res More geerally, idividuals also have a idirec sake i real esae asse prices hrough pesio fuds ad oher ivesmes for which house prices will likely have a effec. For isace, he porfolios of some pesio fuds iclude aparme blocks whose res provide a mos aeio i he lieraure is devoed o price idices. Oce somehow esimaed, price idices are i fac used, if a all, primarily o deflae omial or moeary oals i order o arrive a esimaes of uderlyig real magiudes. ( 6 ) The CPI ad PPI Mauals are cosise wih he maerial i Chaper 6 of SNA (993) ad also wih he 28 Sysem of Naioal Accous bu delve deeper io he problems associaed wih he cosrucio of price idexes, paricularly a lower levels of aggregaio. ( 7 ) Ieres rae policy will have a impac boh o iflaio ad o e disposable icome afer he payme of ieres. Hadbook o Resideial Propery Prices Idices (RPPIs) 9

22 2 Uses of Resideial Propery Price Idices icome ad where a capial gai is expeced o maerialise from a icrease i he propery value. As a Ipu io he Cosrucio of a Cosumer Price Idex (CPI) 2.26 House prices will direcly affec measured iflaio whe he CPI icludes ower-occupier housig coss ad he mehod of measureme draws o house prices as oe of he ipus. Measured iflaio is idirecly affeced if house prices ifluece marke res, which cosiue aoher eleme of a CPI, ad where addiioally impued res are used as a proxy for ower-occupied housig coss. Reig ad buyig ca be subsiues ad he level of house prices will have a impac o he rae of reur obaied by a ladlord o his or her ivesme ad also o he re charged The reame of Ower Occupied Housig (OOH) is oe of he mos difficul challeges faced by compilers of cosumer price idices. There are a umber of aleraive cocepual reames ad he choice bewee hem ca have a sigifica impac o he overall idex, affecig boh he weigh aribued o OOH (ad by implicaio o a RPPI) ad he measured rae of iflaio. I essece here are four possible mai approaches o icludig OOH i a CPI: he acquisiios approach, he paymes or moey oulays approach, he user cos approach ad he real equivalece approach. The firs hree approaches require he cosrucio of a housig price idex. These various approaches o he reame of OOH are reviewed i more deail i Chaper 3. For Use i Makig Ieraioal ad Ier-area Comparisos 2.28 House price idices are also used i cojucio wih (comparable) bechmark daa o house price levels across regios or couries o geerae ier-area or ieraioal comparisos of livig cos differeials. The problems ha arise i aempig o price he services of OOH i a aioal coex also arise i he coex of ier-area ad ieraioal comparisos. I he laer coex, however, he problems are somewha more difficul ha makig, say, aioal comparisos over ime because ier-area/ieraioal comparisos require comparable ypes of housig across he regios/couries beig compared (or comparable iformaio o he characerisics of housig uis across he regios if a hedoic regressio echique is used) i order o cosruc a cosa qualiy price idex The Europea Ceral Bak (ECB) i co-operaio wih he ceral baks of he idividual couries of he euro-zoe ad he Europea Uio has a ieres i comparaive measureme of chages i resideial propery prices across differe euro-area couries ad for he euro-area as a whole. The raw daa used here come from various aioal sources ad have primarily bee colleced ad documeed by he Bak for Ieraioal Selemes (BIS). ( 8 ) Sice 2, he ECB has compiled a aggregae idex for he euro-area by weighig ogeher chages i prices for houses ad flas for he euro-area couries. ( 9 ) The aioal mehodologies associaed wih he figures available for each idividual coury ad for he euro-area aggregae, have improved over rece years bu perhaps fall shor of he sadards applied o oher ecoomic saisics ad price idicaors for he euro-area. ( 2 ) The BIS has also brough ogeher resideial propery price saisics for he o-euro area couries of he Europea Uio ad has i may cases bee cofroed wih eve more proouced issues cocerig daa comparabiliy ad qualiy. 2.3 Such comparisos ca be cofouded by mehodological ad coverage differeces ad also by differeces i he frequecy ad imeliess of he daa. Some of hese differeces arise from he differe sources of daa used o compile aioal idices. Chaper 9 explores hese daa sources i more deail ad Chaper gives a iveory of he differe mehods used by couries o compile heir idices of resideial propery prices. I ca be observed ha a oable proporio of couries, icludig some developed couries, do o have reliable resideial propery price idices. ( 8 ) The BIS daa se of resideial propery price saisics is available a: hp:// saisics/pp.hm. ( 9 ) See box Prelimiary evidece o developmes i euro area resideial propery prices i he Ocober-2 issue of he ECB Mohly Bullei. ( 2 ) See Eiglsperger (2), page Hadbook o Resideial Propery Prices Idices (RPPIs)

23 Elemes for a Cocepual Framework 3

24 3 Elemes for a Cocepual Framework Iroducio 3. Wha makes he cosrucio of a resideial propery price idex (RPPI) so challegig? This quesio was addressed i Chaper of his Hadbook bu i will be useful o remid readers abou he mai problems, which are as follows: The compilaio of price idices ypically relies o machig he prices for ideical iems over ime. However, i he housig coex, each propery has a uique locaio ad usually a uique se of srucural characerisics. Thus, he mached model mehodology will be difficul or impossible o apply. Trasacios are sporadic. The desired idex umber cocep may o be clear, or pu aoher way, here are several disic purposes for which a RPPI is required ad, broadly speakig, differe purposes require differe idices. For some purposes, oably he cosrucio of aioal balace shees ad he esimaio of user coss of ower occupied housig, a decomposiio of a propery price io lad ad srucures compoes is required bu i is uclear how bes o accomplish such a decomposiio. This issue will be discussed i more deail i Chaper 8 below. 3.2 The firs wo difficulies are well recogized i he housig measureme lieraure as he followig quoaios idicae: The price of housig is harder o measure ha ha of mos oher goods ad asses because of hree key disiguishig characerisics. Firs, ad mos imporaly, dwelligs are heerogeeous. No wo dwelligs are ideical, if oly because hey cao occupy quie he same locaio. This meas ha sampled house prices may be a poor idicaor of all house prices because we cao always reliably predic he sales price of a give dwellig from he price of aoher. Rober Wood (25; 23). The fudameal problem ha price saisicias face whe aempig o cosruc a real esae price idex is ha exac machig of properies over ime is o possible for wo reasos: (i) he propery depreciaes over ime (he depreciaio problem) ad (ii) he propery may have had major repairs, addiios or remodelig doe o i bewee he wo ime periods uder cosideraio (he reovaios problem). Because of he above wo problems, cosrucig cosa qualiy real esae price idices cao be a sraighforward maer; some form of impuaio or idirec esimaio will be required. Erwi Diewer (29b; 92). Such saemes idicae ha he cosrucio of a RPPI will be much more difficul ha he cosrucio of a ormal price idex based o a mached model mehodology. I should be recogized a he ouse ha, because of he difficulies resulig from he uiqueess of each dwellig ui, i would o be possible o cosruc a perfec RPPI; i will oly be possible o cosruc a approximaio o he heoreically ideal idex for each purpose. 3.3 The quesio of wha is he purpose of a RPPI has bee addressed i Chaper 2, where he may uses of a RPPI were cosidered. This chaper focuses o he uses of RPPIs o fill i gaps i he Sysem of Naioal Accous ad i he cosrucio of a CPI. I is likely ha if appropriae RPPIs ca be cosruced o fill i hese gaps, he he resulig family of RPPIs will mee he eeds of mos users. 3.4 Broadly speakig, wo separae RPPIs ca be disiguished: ) a cosa qualiy price idex for he sock of resideial housig a a paricular mome i ime; ad 2) a cosa qualiy price idex for resideial propery sales ha ook place durig a paricular period of ime. The cosrucio of hese wo ypes of idex will be differe; e.g., he weighig associaed wih he wo ypes will differ. I his chaper, he mai approaches o cosrucig a RPPI will be briefly discussed. Deails o hese mehods will be preseed i Chapers 4 o A variey of miscellaeous opics will be addressed i he fial four secios of his chaper. These opics iclude he frequecy of he RPPI ad user eeds, he cosisecy of mohly wih quarerly esimaes ad he cosisecy of quarerly wih aual esimaes, revisio policies, ad seasoal adjusme. Resideial Propery Price Idices ad he Sysem of Naioal Accous 3.6 The Sysem of Naioal Accous (SNA) 993 ad is rece updaig, he Sysem of Naioal Accous 28, ( ) provide a comprehesive accouig framework for a ecoomy. The SNA pariios he value flows i he ecoomy io various meaigful caegories ad provides a recociliaio of he flow accous wih he correspodig sock accous. I is furhermore recommeded o decompose he values i he cells of hese accous io price ad volume (or quaiy) compoes. ( ) See Eurosa, IMF, OECD, UN ad he World Bak (993) ad (29). 22 Hadbook o Resideial Propery Prices Idices (RPPIs)