Residential property price indices: fit for purpose?

Purpose – Residential property price indices (RPPI) are widely used to monitor trends. This article aims to pose the question as to whether the choice of methodology is significant or whether there are material differences in average prices, price trends, and market turning points between RPPI. Design/methodology/approach – The differences between RPPI are explored for the UK, which has RPPI that use different methodologies and capture data at different stages in the transaction process. The different approaches are compared and contrasted. Findings – Comparisons between RPPI indicate that there is a relatively low degree of association between them, particularly during periods of recession. There is a trade off between the timeliness with which the RPPI is produced and the reliability of the price data on which it is based. The RPPI that make use of the most reliable price data do not have access to the richest data about individual properties, exposing them to the risk of divergent groups of properties being aggregated together. Research limitations/implications – There are certain types of RPPI that are not found in the UK, principally median indices and sale price appraisal ratios so that the study is confined to mix adjustment, hedonic and repeat sales approaches. Practical implications – Those relying on RPPI should exercise caution over their use and recognise that in periods of recession in particular their results may differ materially. Social implications – Economic policy makers and financial services regulators should adopt a cautious approach to the use of RPPI and not to become unduly reliant on a particular index. Originality/value – The literature on RPPI tends to focus on the statistical techniques used to compile them, but neglects how these are related to the problems of data capture issue. By looking at the relationship between the statistical methodology and where in the transactions process data are captured it is able to bring another perspective to the debate about which methods are most effective and which should be relied on for public policy.