Constructing a national house price index for Ireland

1. INTRODUCTION On May 13th, the CSO published the first set of results for Its Residential Property Price Index (RPPI) ahead of an Impending EU legislative requirement to provide RPPI data to Eurostat from 2012. The hedonically mix-adjusted Index Is compiled using mortgage drawdowns data provided by the main mortgage lenders. It Is the only transactions based measure of residential property prices In Ireland. Section 2 of this paper describes the European context In which the Index has been created. Section 3 describes the data source and explains why other data on property transactions cannot currently be used. Section 4 details the quality of the mortgage drawdown data and the various data preparation processes. Section 5 covers the quality adjustment procedure. Section 6 Introduces the Initial results of RPPI and section 7 outlines some future challenges. 2. EUROPEAN REQUIREMENTS FOR HOUSE PRICE STATISTICS 2.1 Owner Occupied Housing in the HICP While there Is an obvious need at a national level for an official measure of residential property price Indices, the design of the CSO RPPI has been largely determined by Impending legislative requirements at EU level. It Is necessary therefore to examine these requirements In order to set the context In which the Index has been developed. Indices of the acquisition and ownership costs of owner occupied housing (OOH) represent the most significant gaps In coverage of the Harmonised Index of Consumer Prices (HICP). This exclusion of OOH costs Is the largest difference between national indices and the EU wide measure of consumer goods price inflation. Consequently, the HICP may not accurately measure the full spectrum of inflationary pressures in the EU. In order to address this issue the EU initiated a pilot project to measure the costs of OOH in 2001 with 5 countries participating in the first stage. The project is currently in its 4th stage which will run until the end of 2011 with 24 countries participating. Ireland joined the project in 2008 during Stage 3. The current financial crisis, and the role that house prices have played in it, has given an added importance to the harmonised house price indices in their own right and they are now one of the indicators required for the scoreboard for the surveillance of macro-economic imbalances. The ECB has requested volume and value data on the residential property sector in addition to price indices so it can assess the dynamics of housing market activities. These data will comprise of both the number of residential dwellings sold as well as the transaction values. These transactions data are available for several EU countries. However, they are generated from various sources and may not be comparable. The ECB requires harmonised statistics covering residential property sales at least at a quarterly frequency and within three months after the reporting period. Discussions of how this concept should be implemented will continue in 2011. A draft Regulation on OOH (which includes the development of a harmonized House Price Index) is currently being discussed at EU level with an expectation that it will be enacted in time for the transmission of national house price indices from the second quarter of 2012. The Regulation will establish OOH price indices with a view to improving the relevance and comparability of the Harmonized Indices of Consumer Prices ('HICPs'). The key conceptual elements of the draft legislation to note are: * 'owner-occupied housing price index' means an index that measures the changes in the transaction prices of dwellings new to the household sector and other goods and services that households acquire in their role as owner-occupiers. * 'house price index' means an index that measures the changes in the transaction prices of dwellings that households purchase. * the OOH index follows the 'Net acquisitions' approach which measures changes in actual prices paid by consumers for the acquisition of dwellings that are new to the household sector, and changes in other costs related to the ownership, and transfer of ownership, of dwellings. …