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Handbook on Residential Property Price Indices

image of Handbook on Residential Property Price Indices

For most citizens, buying a residential property (dwelling) is the most important transaction during their lifetime. Residential properties represent the most significant component of households’ expenses and, at the same time, their most valuable assets. The Residential Property Prices Indices (RPPIs) are index numbers measuring the rate at which the prices of residential properties are changing over time. RPPIs are key statistics not only for citizens and households across the world, but also for economic and monetary policy makers. Among their professional uses, they serve, for example, to monitor macroeconomic imbalances and risk exposure of the financial sector.

This Handbook provides, for the first time, comprehensive guidelines for the compilation of Residential Property Price Indexes and explains in depth the methods and best practices used to calculate an RPPI. It also examines the underlying economic and statistical concepts and defines the principles guiding the methodological and practical choices for the compilation of the indices. The Handbook primarily addresses official statisticians in charge of producing residential property price indices; at the same time, it addresses the overall requirement on RPPIs by providing a harmonised methodological and practical framework to all parties interested in the compilation of such indices.

The RPPIs Handbook has been written by leading academics in index number theory and by recognised experts in RPPIs compilation. Its development has been co-ordinated by Eurostat, the statistical office of the European Union, with the collaboration of the International Labour Organization (ILO), International Monetary Fund (IMF), Organisation for Economic Co-operation and Development (OECD), United Nations Economic Commission for Europe (UNECE) and the World Bank.

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Elements for a Conceptual Framework

What makes the construction of a residential property price index (RPPI) so challenging? This question was addressed in Chapter 1 of this Handbook but it will be useful to remind readers about the main problems, which are as follows:

  • The compilation of price indices typically relies on matching the prices for identical items over time. However, in the housing context, each property has a unique location and usually a unique set of structural characteristics. Thus, the matched model methodology will be difficult or impossible to apply.
  • Transactions are sporadic.
  • The desired index number concept may not be clear, or put another way, there are several distinct purposes for which an RPPI is required and, broadly speaking, different purposes require different indices.
  • For some purposes, notably the construction of national balance sheets and the estimation of user costs of owner occupied housing, a decomposition of a property price into land and structures components is required but it is unclear how best to accomplish such a decomposition. This issue will be discussed in more detail in Chapter 8 below.

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