REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the suitability of the owner-occupied housing (OOH) price index for integration into the harmonised index of consumer prices (HICP) coverage
Date: 2018-11-29
Institutions: European Commission, Eurostat
Subjects: EU statistics, European Central Bank, consumer price, data collection, household consumption, housing, official statistics, price index, statistical method

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 29.11.2018 COM(2018) 768 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the suitability of the owner-occupied housing (OOH) price index for integration into the harmonised index of consumer prices (HICP) coverage  
 
 
REPORT FROM THE COMMISSION 

TO THE EUROPEAN 
PARLIAMENT AND THE COUNCIL 
on 
the suitability of the owner-occupied housing (OOH) price index for integration into 
the harmonised index of consumer prices (HICP) coverage 

1. 

INTRODUCTION 

Article  3(7)  of  Regulation  (EU)  No 2016/792  (1),  requires  the  Commission  to  prepare  by 
31 December 2018  a  report  assessing  the  suitability  of  the  owner-occupied  housing  (OOH) 
price  index  for  integration  into  the  coverage  of  the  harmonised  index  of  consumer  prices 
(HICP). In preparing this report, the Commission asked the European Central Bank (ECB) for 
its view, as the main user of the HICP, and consulted the Member States on the feasibility of 
providing the OOH price index in line with HICP requirements. 

The HICP is  a consumer price index designed to measure inflation in  a harmonised manner 
across Member States. It was developed to be used by the Commission and the ECB to assess 
price stability in the Member States under Article 140 of the Treaty on the Functioning of the 
European  Union.  Before  the  adoption  of  Regulation  (EU)  No 2016/792,  the  compilation, 
collection and dissemination of the HICP were regulated by Regulation (EC) No 2494/95 (2) 
and its implementing regulations. 

When  the  HICP  was  published  for  the  first  time  (in  1997),  there  was  no  consensus  as  to 
whether  it  should  cover  owner-occupiers’  costs.  The  possibility  of  constructing  an  index 
based  on  the  ‘net  acquisition’  approach  was  examined  at  the  time  and  found  to  involve 
considerable practical difficulties for the Member States. In 2000, after consultations with the 
ECB,  Eurostat  launched  a  pilot  project  to  encourage  Member  States  to  look  into  ways  of 
compiling  an  OOH  index  based  on  that  approach.  The  adoption  of  Commission  Regulation 
(EU) No 93/2013 (3) provided a legal basis for the compilation of a standalone quarterly OOH 
price  index  based  on  ‘net  acquisition’.  Subsequently,  Regulation  (EU)  No 2016/792 
introduced a requirement to compile and disseminate such an index. 

This  report  presents  the  Commission’s  assessment,  in  the  light  of  the  relevant  legal 
requirements,  of  the  suitability  of  the  OOH  price  index  for  integration  into  the  HICP 
coverage. 

2.  HICP REQUIREMENTS 

Under Article 3(3) of Regulation (EU) No 2016/792, the HICP should cover price changes for 
goods  and  services  falling  within  the  scope  of  household  final  monetary  consumption 
expenditure. The key point here is the focus on: 

 (i) actual monetary transactions; and (ii) consumption expenditure. 

(1)  Regulation (EU) No 2016/792 of the European Parliament and the Council of 11  May 2016 on harmonised 
indices  of  consumer  prices  and  the  house  price  index,  and  repealing  Council  Regulation  (EC)  No  2494/95 
(OJ L 135, 24.5.2016, p. 11). 

(2)  Council Regulation (EC) No 2494/95 of 23 October 1995 concerning harmonised indices of consumer prices 

(OJ L 257, 27.10.1995, p. 1). 

(3)  Commission  Regulation  (EU)  No  93/2013  of  1  February  2013  laying  down  detailed  rules  for  the 
implementation of Council Regulation (EC) No 2494/95 concerning harmonised indices of consumer prices, 
as regards establishing owner-occupied housing price indices (OJ L 33, 2.2.2013, p. 14). 

1 

 
                                                 
Article 7(1) and (3) of the Regulation require Member States to provide their full set of HICP 
data no later than 15 calendar days after the end of the reference month (20 calendar days for 
the  January  indices).  Member  States  whose  currency  is  the  euro  have  to  transmit  the  flash 
estimate  of  the  HICP  no  later  than  the  penultimate  calendar  day  of  the  month  to  which  the 
flash refers. 

3.   EUROSTAT’S OOH PRICE INDEX 

OOH  costs  are  the  costs  associated  with  purchasing,  maintaining  and  living  in  one’s  own 
home.  The  main  approaches  to  measuring  the  inflation  faced  by  owner-occupiers  in  a 
consumer price index are: 

 

 

 

the (net) acquisition approach; 

the use approach (covering the user and rental equivalence approaches); and  

the payments approach.  

All  these  approaches  are  conceptually  sound,  have  a  basis  in  economic  theory  and  have 
strengths and weaknesses (4). As to which method is most appropriate for measuring inflation, 
this  depends  on  user  needs  and  the  purpose  of  the  index.  For  the  HICP,  the  net  acquisition 
approach  has  been  judged  to  be  the  most  appropriate,  because  it  is  the  method  that  most 
closely corresponds to the purpose of the HICP, i.e. to measure the change through time of the 
total  expenditure  associated  with  all  actual  monetary  transactions  made  by  households  to 
acquire goods and services for consumption purposes. All other alternatives use imputations 
and therefore depart from actual monetary transactions. This is the main reason why Eurostat 
chose in 2000 to use the net acquisition approach for the OOH price index. 

The  net  acquisition  OOH  price  index  measures  changes  in  transaction  prices  in  respect  of 
dwellings  that  are  new  to  the  household  sector,  and  of  other  goods  and  services  that 
households  acquire  in  their  role  as  owner-occupiers.  It  excludes  transactions  between 
households.  It  comprises  the  following  sub-indices  (Article  3(1)  of  Regulation  (EU)  No 
93/2013): 

O.1.1.  Acquisition of dwellings 

O.1.1.1. New dwellings 

O.1.1.1.1.  Purchases of new dwellings 

O.1.1.1.2.  Self-built dwellings and major renovations 

O.1.1.2. Existing dwellings new to households 

O.1.1.3. Other services related to the acquisition of dwellings 

O.1.2.  Ownership of dwellings 

O.1.2.1. Major repairs and maintenance 

O.1.2.2. Insurance connected with dwellings 

O.1.2.3. Other services related to ownership of dwellings 

(4)  See chapter 1 of Eurostat’s 'Technical manual on Owner-Occupied Housing and House Price Indices' for an 

extensive discussion of the advantages and disadvantages of the various approaches. 

2 

 
    
                                                 
The  OOH  price  index  excludes  the  value  of  land  from  the  expenditure  weights  related  to 
dwellings (categories O.1.1.1 and O.1.1.2), but currently takes account of the full transaction 
price for dwellings (i.e. the dwelling structure and the underlying land).  

As  required  by  Article  6(2)  of  Regulation  (EU)  No  2016/792,  the  index  is  compiled  every 
quarter. It is currently released 100 days after the end of the reference quarter. 

4.  ASSESSING THE SUITABILITY OF THE OOH PRICE INDEX FOR INCLUSION IN THE HICP 

Two kinds of criteria for assessing the suitability of the OOH price index for inclusion in the 
HICP emerge from the above:  

 

conceptual – these relate to: 

 

 

the need to cover actual monetary transactions only; and  

the possible extension of the scope of the HICP to include assets (dwelling 
structures, land); and  

 

practical  –  these  refer  to  the  feasibility  of  producing  an  index  according  to  HICP 
standards of frequency and timeliness.  

4.1. Conceptual aspects 

The net  acquisition approach  for OOH is  the only  one that fulfils the  requirement of being 
based  exclusively  on  actual  monetary  transactions.  As  such,  the  net  acquisition  OOH  price 
index automatically satisfies the first criterion.  

However, the inclusion of the acquisition of dwellings (structures and underlying land) in the 
scope of the HICP is controversial. While there is general agreement that the purpose of any 
consumer price index is to measure changes in the prices of consumption goods and services, 
the  concept  of  consumption  is  imprecise.  In  official  statistics,  views  differ  as  to  whether  it 
should  include  the  costs  of  the  structure  and  the  land  that  together  make  up  the  cost  of 
acquiring dwellings: 

  One  view  is  implied  in  the  coverage  of  the  HICP  as  defined  in  Article  3(3)  of 
Regulation (EU) No 2016/792: ‘household final monetary consumption expenditure’, 
i.e. the part of the national accounts aggregate of household consumption expenditure 
incurred in monetary transactions. The national accounts treat dwelling structures as 
produced non-financial assets and land as a non-produced non-financial asset. Hence, 
from  the  national  accounts  perspective,  purchases  of  dwellings  do  not  belong  to 
household  consumption  expenditure.  This  means  that  including  the  net  acquisition 
OOH would involve expanding the current coverage of the HICP;  

  When the pilot project to develop an OOH price index was being prepared in 2000, 
Eurostat discussed with the ECB and Member States how to apply the net acquisition 
approach  to  OOH  in  the  HICP.  In  those  discussions,  an  alternative  view  emerged 
(with  a  perspective  that  differed  from  that  of  the  national  accounts),  according  to 
which  one  could  regard  the  cost  of  land  as  investment  (asset)  and  the  cost  of  the 
structure as consumption. The rationale for this view is that, while the structure (as a 
sort of durable good with very long service life) will be consumed (i.e. consumption 
of  fixed  capital),  the  land  normally  remains  at  constant  quality  (except  under  very 
unusual circumstances). This view regards the net acquisition OOH as conceptually 
viable for integration into the HICP, but requires structure and land to be separated 

3 

 
    
for  the  purpose  of  prices  and  weights.  It  was  the  view  taken  by  the  ECB  when 
consulted for the preparation of this report. 

In  practice,  it  is  normally  possible  to  separate  land  and  structure  price  components 
only  via  modelling,  since  land  and  structure  are  usually  purchased  as  a  single 
package  with  one  overall  transaction  price.  However,  deriving  the  separation  of 
prices  via  modelling  would  mean  that  the  HICP  was  no  longer  limited  to  actual 
monetary  transactions.  Moreover,  the  academic  literature  shows  that  the  resulting 
price estimates can differ widely, depending on the underlying assumptions; 

  A third view is based on an analogy with the HICP price index for actual (market) 
rentals,  which  tracks  the  cost  of  both  the  structure  and  the  land  belonging  to 
dwellings  that  are  rented  out.  According  to  this  view,  a  case  could  be  made  for 
accepting the inclusion of both the structure and the land in the OOH component in 
the consumer price index in the same way as the price index for market rentals does. 
This  view  regards  the  net  acquisition  OOH  as  conceptually  suitable  for  integration 
into the HICP without separating structure and land.  

To conclude, integrating the net acquisition OOH would involve a departure from the HICP 
coverage  which  is  derived  from  the  national  accounts.  In  official  statistics,  views  differ  on 
whether the cost of the structure and of the land (which together make up the cost of acquiring 
a dwelling) can be considered as consumption expenditure that can be covered in a consumer 
price  index  or  should  be  regarded  as  assets  and  thus  left  out  of  the  coverage.  From  a 
conceptual point of view, the inclusion of the cost of dwellings in the HICP therefore remains 
controversial. 

4.2. Practical aspects 

The OOH price index is currently compiled every quarter and released 100 days after the end 
of  the  reference  quarter.  To  meet  HICP  requirements,  it  would  have  to  be  produced  every 
month  and  released  at  the  end  of  the  reference  month  as  a  flash  estimate  and  15  days  later 
with the full set of figures.  

The information in this section is based on Member States’ answers to  a Eurostat review in 
summer 2017. The three most important OOH sub-indices (together they account for 85 % of 
total OOH expenditure) are discussed below in the order of their average weight in total OOH 
in 2010-2017 in the Member States for which data was available: 

  O.1.1.1.2.   Self-built and major renovations index;  

  O.1.1.1.1.   Purchases of new dwellings index; and  

  O.1.2.1.   Major repairs and maintenance index. 

For the Self-built and major renovations index, the sources used by most Member States are 
the construction cost index, the construction output price index or a combination of the two. 
In  most  countries,  these  indices  are  produced  every  quarter,  as  provided  for  in  Regulation 
(EC) No 1165/98  (5) and  the Commission’s proposal  for a framework  regulation  integrating 

(5)   Council Regulation (EC) No 1165/98 of 19 May 1998 concerning short-term statistics (OJ L 162, 5.6.1998, 

p. 1). 

4 

 
    
                                                 
business  statistics  (6).  Only  two  Member  States  reported  that  they  compiled  a  monthly 
construction cost or price index, but in one case the index is based partly on estimates (rather 
than transaction data, as required for the HICP) and in the other the timeliness is not suitable 
for HICP. 

For  the  Purchases  of  new  dwellings  index,  most  Member  States  use  administrative  data 
sources (transaction registers). In most cases, the number of transactions over a month is seen 
as  insufficient  to  produce  a  reliable  index:  the  results  will  be  much  more  volatile  and  less 
accurate than quarterly data. Moreover, the figures would normally be provisional up to a year 
after the reference month, whereas for the HICP a provisional index has to be finalised in the 
following month’s publication (Article 9 of Regulation (EC) No 1921/2001 (7)).  

The HICP timeliness requirement is even more challenging than the monthly frequency, due 
to  the  administrative  schedules  in  registering  dwelling  transactions.  Once  notaries  have 
concluded the final acquisition contract, it generally takes them at least two weeks (in some 
cases up to two months) to forward the data to the registry. This means that only a fraction of 
the transactions concluded in the reference month will be registered by the end of that month, 
reducing even further the data available to compilers.  

For the Major repairs and maintenance index, most countries use the construction cost index, 
the  construction  output  price  index  or  a  combination  of  the  two.  Therefore,  the  above 
comments in relation to the Self-built and major renovations index apply here too.  

In conclusion: 

 

 

the  Self-built  and  major  renovations  index  and  the  Major  repairs  and  maintenance 
index  are  based  on  the  construction  cost  index  and/or  the  construction  output  price 
index, which in the majority of Member States are produced only every quarter; and 

for the Purchases of new dwellings index, most Member States use administrative data 
sources that in some cases could allow the production of a volatile and less accurate 
monthly index, but this would not meet HICP timeliness requirements.  

Overall,  it  appears  unfeasible  to  produce  an  OOH  index  with  monthly  frequency  and  a 
timeliness that (even roughly) meets HICP requirements. 

5.  THE ECB’S VIEW (8) 

A key requirement as regards the ECB’s analyses, assessments and forecasting of inflation in 
the euro area is that integrating the OOH price index should deteriorate neither the frequency 
nor  the  timeliness  of  the  HICP.  The  ECB  notes  that  the  OOH  price  index  is  produced  only 
every quarter and released 100 days after the end of the reference quarter. 

(6)  Commission proposal of 6 March 2017 for a Regulation of the European Parliament and of the Council on 
European business statistics amending Regulation (EC) No 184/2005 and repealing 10 legal acts in the field 
of business statistics (COM(2017) 114 final). 

(7)  Commission  Regulation  (EC)  No  1921/2001  of  28  September  2001  laying  down  detailed  rules  for  the 
implementation of Council Regulation (EC) No 2494/95 as regards minimum standards for revisions of the 
harmonised index of consumer prices and amending Regulation (EC) No 2602/2000 (OJ  L 261, 29.9.2001, 
p. 49). 

(8)  The  ECB’s  view  was  communicated  to  the  Commission  (Eurostat)  by  letter  dated  20 September 2017 

(ARES(2017) 4634173). 

5 

 
    
                                                 
Furthermore,  the  ECB  considers  the  inclusion  of  asset  price  developments  in  the  HICP 
problematic and notes that the OOH index includes the price of land.  

The ECB concludes that the integration of the OOH price index would deteriorate the current 
frequency  and  timeliness  of  the  HICP,  and  would  introduce  an  asset  element.  Against  this 
background,  it  takes  the  view  that  the  OOH  price  index  is  in  practice  not  suitable  for 
integration into the official HICP. 

6.  COMMISSION’S ASSESSMENT 

Given the importance of the HICP for monetary policy and in view of the ECB’s needs as its 
main user, the Commission considers it essential that integrating the OOH price index should 
have  no  negative  impact  on  the  quality  of  the  HICP,  in  particular  as  regards  frequency  and 
timeliness.  

In a large majority of Member States, the sources used for two of the three most important 
OOH sub-indices are produced on a quarterly basis only. For the third, most Member States 
use  administrative  data  sources  that  could  in  some  cases  allow  the  production  only  of  a 
volatile, less accurate monthly index that would not meet HICP timeliness requirements. 

Therefore,  it  appears  that  the  OOH  price  index  currently  cannot  be  produced  according  to 
HICP standards of frequency and timeliness. 

Moreover,  including  the  net  acquisition  OOH  index  would  involve  a  departure  from  the 
current  definition  of  HICP  coverage  as  ‘household  final  monetary  consumption  expenditure 
that  represents  the  part  of  the  national  accounts  aggregate  of  household  consumption 
expenditure incurred in monetary transactions’. In official statistics, views differ as to whether 
the cost of the structure and the land that together make up the cost of acquiring a dwelling 
can  be  considered  as  consumption  expenditure  that  could  be  covered  in  a  consumer  price 
index  or  should  be  regarded  as  assets  and  thus  left  out  of  the  coverage.  From  a  conceptual 
point  of  view,  therefore,  the  inclusion  of  the  cost  of  dwellings  in  the  HICP  remains 
controversial. 

Against  this  background,  the  Commission’s  assessment  is  that  the  OOH  price  index  is 
currently not suitable for integration into the coverage of the HICP. In line with Article 3(7) 
of Regulation (EU) No 2016/792 and in close cooperation with the ECB, the Commission will 
pursue the methodological work required for the integration of the OOH price index into the 
HICP  coverage  and  report  to  the  European  Parliament  and  to  the  Council  on  that  work,  as 
appropriate. 

6