Residential Property Price Index August 2016

Definition

The Residential Property Price Index (RPPI) is designed to measure the change in the average level of prices paid by households for residential properties sold in Ireland. The RPPI specifically excludes non-household purchases, non-market purchases and self-builds (i.e. where the land is purchased separately). The index is mix-adjusted to allow for the fact that different types of property are sold in different months.

Legal Basis

The RPPI is compiled in accordance with Commission Regulation (EU) No 93/2013, laying down detailed rules for establishing owner-occupier house price indices, and forms part of Ireland’s international obligations to provide harmonised house price indices to the European Statistical System (ESS).

Data Sources

The RPPI is compiled from a variety of data sources. The principal data source is stamp duty returns made to the Revenue Commissioners. All transfers of ownership of residential properties in the State must be referred to the Revenue Commissioners for stamp duty assessment under the Stamp Duties Consolidation Act (SDCA) 1999. The data collected includes the address of the property and the sales price.

These data are matched by the CSO to Building Energy Rating (BER) data, compiled by the Sustainable Energy Authority of Ireland (SEAI). Under Statutory Instrument (S.I.) No. 243 of 2012, all residential property for sale must disclose their BER assessment (with some very minor exceptions). The BER data includes the property address, the total floor area (m²) and the dwelling type (apartment, detached house, semi-detached house, etc.). The BER data are matched to the stamp duty data using an address matching algorithm (or Eircodes, where available on both datasets).

The stamp duty returns are also matched by the CSO to the GeoDirectory (again using an address matching algorithm or Eircodes). The GeoDirectory provides the Small Area code of the property, which is used to link the property to the Haase-Pobal (HP) deprivation index. The HP deprivation index measures the relative social advantage (or disadvantage) of each Small Area and serves as a useful locational characteristic in the RPPI price model.

Only stamp duty returns where a satisfactory match is made to both a BER and the GeoDirectory (currently 75% of all returns) are used in the compilation of the RPPI.

Quality Adjustment

Residential properties are heterogeneous, meaning that no two houses or apartments are exactly identical. This poses a challenge when trying to construct a price index as there is a need to separate pure price change from differences in the quality and mix of the products being bought over time. Typically this is done by comparing the prices of exactly the same products, time after time.  For example, this is the method used in the Consumer Price Index, where a fixed basket of consumer goods is re-priced every month.  However, in the case of residential properties, price is determined by many characteristics (location, size, dwelling type etc.) which make direct price comparisons difficult. Furthermore, only a small portion of the total housing stock is sold in any given month.  The combination of these factors means that the price comparison process that would typically be used to calculate a price index cannot be used in the case of houses and apartments.

The hedonic method is the prevalent statistical process for the measurement of change of residential property price. In this method, transactions over two or more successive periods are pooled and the characteristics which influence price (dwelling type, dwelling size, geographical location and neighbourhood quality) are analysed and their relative contributions to the overall price are estimated. By excluding the price change determined by these characteristics independently, we are left with a pure price change for a consistent set of characteristics from one time period to another - or more simply - a residential property price index. This index uses a rolling 12 month hedonic regression model.

Weights

Weights are calculated at the beginning of each year based on the total value of transactions during the previous year as given by the stamp duty data for each component index. This approach produces an annually chain-linked Laspeyres-type price index.

Periodicity

The index is compiled and published on a monthly basis. Annual price indices are derived from an average of the 12 calendar monthly indices. Quarterly indices are compiled from three-month averages specifically for EU publication.

Data Smoothing

In order to mitigate short-term volatility in the series and highlight longer-term trends the published indices are smoothed using a double-exponential data smoothing technique. However, care should still be taken when interpreting monthly changes which may indicate residual short-term volatility rather than underlying change in longer-term price trends.

Aggregate indices are compiled using the unadjusted sub-indices and then smoothed independently. As a result these higher level indices may, in some periods, show slight deviations from their published constituent sub-indices. 

Geographic Split

The RPPI is split into two higher level geographical areas. These are Dublin and the Rest of Ireland (i.e. Ireland excluding Dublin). Both house and apartment sub-indices, as well as an all dwelling index, are provided for each of these areas.

In addition, house price indices are provided for each of the four Dublin administrative areas; Dublin City, Dún Laoghaire-Rathdown, Fingal and South Dublin. The volume of transactions of apartments in Dublin is not sufficient to provide the same breakdown.

House price indices are also provided for seven regions outside of  Dublin; Border (excluding County Louth), Midlands, West, Mid-East (including County Louth), Mid-West (including South Tipperary), South-East (excluding South Tipperary) and South-West. The volume of apartments transacted outside of Dublin does not permit a similar breakdown.

These house price indices by region and area of Dublin are experimental and depend on there being sufficient transactions in future to calculate separate indices.

Base Period

The base period for the RPPI is January 2005. Therefore, the RPPI answers the question how much would it cost to purchase the same set of dwellings sold in January 2005 in any subsequent month? The index for January 2005 is set to 100 and all subsequent price movements are expressed relative to this base.

Calculating Percentage Changes in the Index 

The movement of the RPPI is expressed as percentage change, rather than a change in index points, because index point changes are affected by the level of the index in relation to its base period, whereas percentage changes are not.                                               

The example below illustrates the computation of a percentage change:

Using the RPPI to Value an Individual Property

The RPPI can be used to estimate the updated value of an individual dwelling provided that a prior value is known subsequent to January 2005. Simply multiply the sale or valuation price by the current relevant index and divide by the index at the date of sale/valuation.

For example, consider a house sold in South Dublin in June 2010 for €220,000.

      South Dublin house price index June 2010:                           80.8

      South Dublin house price index currently:                              91.9

      Estimated current value:                                                      €220,000 x (91.9 / 80.8)   =   €250,223

This estimate provides an approximate value only, based on aggregate price movements of all dwellings. It presupposes that there has been no material change in either the dwelling or its neighbourhood in the period concerned. The CSO takes no responsibility for calculation of value based on the RPPI.

 Provisional Results 

The legal deadline for submitting a stamp duty return is within 44 days of the date of execution (in some cases, returns are submitted later than this). In practice, therefore, only a fraction of the transactions executed in any given month are available for index compilation the following month. Rather than delay the RPPI, preliminary results are prepared based on the early returns. These preliminary results are updated the following two months as new transaction data for the reference month becomes available. Therefore, the RPPI results for the latest two months are provisional.

Additional indicators

Volume, Value and Average Price

The RPPI is accompanied by an extensive range of additional statistical information on the residential property market. Three principal statistics are provided; volume, value and average price. Volume is the number of dwellings transacted (note than more than one dwelling can be purchased in a single transaction). Value is the total value of all dwellings transacted (in millions of euro). Average price is the value divided by the volume. These indicators are available for both household and non-household buyers, for market and non-market sales.

Household Buyer Type

The additional indicators for households are further available broken down by household buyer type; first-time buyer owner-occupiers, former owner-occupiers and other household buyers (non-occupiers, for example buy-to-let).

New and Existing Dwellings

The additional indicators are available broken down by new and existing dwellings. A new dwelling is one that has not previously been inhabited.

Geographical Breakdown

The additional indicators are available broken down by county. In addition, a more detailed geographical breakdown is available for household market transactions by Eircode Routing Key (the first three characters of the Eircode). Note that the descriptors applied to these Eircodes are not official labels. However, they generally follow pre-existing postal town names.

Dwelling Type

A breakdown by dwelling type (house or apartment) is also available for household market transactions. In approximately one in every four cases, the dwelling type has been imputed based on its other known characteristics. Therefore, these statistics should be seen as estimates rather than definitive results.

Executions and Filings

The compilation of the additional indicators is affected by the progressive availability of stamp duty returns. Accordingly, two sets of indicators are presented, executions and filings:

• Executions refer to the month the property was legally transferred.
• Filings refer to the month the stamp duty return was submitted to the Revenue Commissioners.

Execution statistics are the definitive guide to residential property sales. However, they are necessarily incomplete for a period (until all the relevant stamp duty returns have been filed). Execution statistics are preliminary and subject to revision until 12 months have elapsed.

Filing statistics only represent administrative activity. However, filing statistics are not subject to revision and therefore may serve as useful lead indicators for broader developments in the residential property sector.