# 2. Literature: Collecting and Estimating House Prices

Despite their importance, private property price data are not readily available for most countries and are particularly scarce for EMDEs. Further, the lack of standardization of property prices and the heavy reliance on indices to monitor changes over time make comparisons across countries cumbersome. Addressing this gap, the paper places itself at the crossing of three streams of literature: existing efforts to collect or collate data on residential property prices and to construct residential property price indices (Section 2.1); studies on determinants of house prices (Section 2.2); and a relatively new area of big data and machine learning approaches to estimate (determinants of) house prices (Section 2.3). Finally, we summarize the existing gap within this line of research and outline how we address it (Section 2.4).

## 2.1 Current Efforts to Collect House Price Data and Existing House Price Indices

Since housing plays a key role in the growth of many aspects of a country’s economy including the development of the construction industry, job creation, and improving the living conditions of many HHs, governments have a great interest in understanding property prices and their developments over time. Most advanced economies’ statistical offices or central banks, therefore, started collecting data on residential property prices in the 1970s (Knoll et al. 2017). Also, tax authorities, land registries, or real estate associations collect, hold, and sometimes even publish data on residential property prices in many advanced economies.<sup>3</sup> With the 2008-2009 global recession, which many scholars attributed to misalignments in housing and housing-related asset prices, the interest in dynamics in housing markets rose significantly (e.g., Goodhart & Hofmann 2008; Del Negro & Otrok 2007). Since then, several international organizations and central banks have increased efforts to develop global property price indices and collated real property price data for various predominantly developed economies to monitor macro-financial stability and price developments. One early methodology to track property prices is the Case-Shiller National Home Price Index which measures the value of residential real estate in major US metropolitan areas and serves as a blueprint for subsequent price indices in other developed countries.<sup>4</sup> Extending the collection of residential property prices to EMDEs has been slow, in either indexed or other forms. In the following section, we briefly discuss the most important sources.

First, a primary source for residential property prices, covering a relatively large number of countries, is provided by the Bank for International Settlements (BIS). BIS collects quarterly data on residential property prices for 60 countries, predominantly focusing on advanced economies. Property prices are harmonized as much as possible by BIS according to the recommendations outlined in the Handbook on Residential Property Price Indices (RPPIs), which summarizes best practices in how to calculate property price indices (European Union [EU] et al. 2013). As BIS compiles data from various sources, the data series differ from country to country, varying in frequency, type of property, covered area, priced unit, compilation method, or seasonal adjustment . In addition, while BIS publishes some actual prices, most data are only available in an indexed format, allowing for tracking aggregate price movements over time. BIS does not provide

> 3 The UK Land Registry, for instance, makes house price data publicly available: https://www.gov.uk/guidance/about-the-price- <u>paid-data.</u>

> 4 <mark>These price indices, including twenty cities, low-, medium-, and high-tier home price indices, condominium indices, and a U.S. national index, are now published as the S&P/CoreLogic/Case-Shiller Home Price Indices by Standard & Poor’s.</mark>

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