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FEATURE ARTICLE: EXPERIMENTAL OTHER DWELLINGS PRICE INDEX
Benchmark Index Construction
8 The benchmark index number is produced for each quarter once data has been collected over three quarters - by this time the VGs dataset is considered complete or near complete (e.g. this Feature Article is being published in the June quarter 2012 which means the Benchmark series will go up to the December quarter 2011). In the regular production of the HPI the benchmark series is considered final and not subject to any further revision. Users should note, however, that as the EODPI and EADPI are experimental indexes, the data published in this Feature Article may be revised when the ABS first publishes the new series in the future.
9 The reliability of each index is largely dependant on the availability of sufficient pricing information each quarter. Users should note that the small cities of Hobart and Darwin have considerably fewer sales than other cities, with around 200 to 400 sales each quarter in each city, and there may be occasions when clusters have a low number of price observations leading to volatility in the index. Rather than suppress publication, the series are included here because it is believed that the long term trends are reliable. However, because of the limitations in the reliability of individual quarter-to-quarter movements, users are advised to exercise due care when analysing such movements.
10 To calculate the benchmark series, each quarter a price relative for each cluster is obtained by dividing the median other dwelling price in the current period by the median other dwelling price in the previous period. The dwelling stock is then re-valued based on the price relatives. This value is then the current estimated value of the other dwelling stock in each cluster. An aggregate capital city value is obtained by summing the value of each cluster, and then the price index for the city is then derived by dividing this current period value by a link or base period value and then multiplying by a link or base period index number. The manner of index construction is the same as is used in the HPI. Refer to House Price Indexes: Concepts, Sources and Methods, Australia (cat. no. 6464.0) for more information on this approach.
11 Once the current period value of the dwelling stock in all capital cities has been obtained, these values can be summed together to allow the derivation of a weighted average index of the eight capital cities. The weight of each capital city in the eight capitals index is presented below.
Proposed Methodology for the Leading Indicator Series
12 In the HPI, the two most recent quarters (the leading indicator series) are compiled by using a combination of mortgage lenders' data and VGs data. Both sets of data are merged and duplicates (where the same property appears in both data sets) are identified and removed (the VGs data is kept, whilst the mortgage lenders data is discarded where a duplicate is found). The first estimate (the most recent quarter) of the EODPI and HPI is referred to as the P1 estimate and the second estimate (the second most recent quarter) is referred to as the P2 estimate. Due to the fact that identification of duplicates is not as straightforward for other dwellings as it is for houses, a number of alternative methods were investigated for compiling the EODPI indicator series. These methods were assessed on how accurately the leading indicators predicted the benchmark result.
13 For the P2 estimate, it is proposed to compile the index in the same way as the benchmark series, using only VGs data. For the P1 estimate (except for Perth), the proposed method involves using VGs data for the first two months of the quarter, and mortgage lenders data for the third. For example, the data used to compile the June quarter 2012 P1 estimate would consist of VGs data for properties with exchange dates in April and May 2012 and mortgage lenders data for properties with exchange dates in June 2012. This merged data set is then used to calculate the median for each cluster and update the estimated value of the other dwelling stock accordingly. For Perth, it is proposed to compile the P1 estimate using VGs data only as this produces fewer revisions to the indexes. As in the HPI, P2 and P1 estimates for the EODPI (and consequently the EADPI) will be subject to revision, even if compiled only from VGs data.
14 As in the HPI, in order to minimise bias in compiling the index, price relatives are determined only by comparing current benchmark medians with previous benchmark medians and current leading indicator medians with previous leading indicator medians. Thus, in the leading indicator series, medians from the current second preliminary estimates (P2) quarter are compared with medians from the previous second preliminary estimates quarter, and medians from the current first preliminary estimates (P1) quarter are compared with medians from the previous first preliminary estimates quarter. Using this approach, price relatives are derived from datasets which have a similar composition of VGs and mortgage lenders' data.
15 The methods proposed above have, to date, produced the most reliable leading indicator series. However, the methodology proposed is subject to change as the leading indicator series is still being evaluated, and for this reason results of the leading indicator series are not presented in this Feature Article. The ABS welcomes user feedback on the proposed methodology.
Approach used for the Experimental All Dwellings Price Index
16 A benefit of using the total value of the dwelling stock to construct price indexes allows for aggregation to higher levels (as values are expressed in dollars, they can be added together without further transformation). This property is the basis for the construction of the weighted average of the eight capital cities in both the HPI and EODPI. The value of the dwelling stock for each city in the current period is added together for a value of the dwelling stock in the eight capital cities. This additivity means that with information on the total value of the established house dwelling stock and other dwelling stock, prices indexes can be constructed for all dwellings in each of the capital cities, as well as a weighted average of the eight capital cities. The Experimental All Dwellings Price Index (EADPI) is an experimental price index that measures the price change for the stock of all dwellings in each capital (as well as a weighted average of the eight capital cities).
17 Users should note however, that prior to the March quarter 2008, the Experimental All Dwellings Price indexes are not constructed in the manner described above. Methodological differences between the HPI and EODPI prevent the use of the standard value aggregate approach. Prior to the March quarter 2008, the Experimental All Dwellings Price Indexes are weighted averages of the HPI and EODPI. The weights are based on the value of the capital city housing stock from the 2001 Census at the September quarter 2003 prices as this methodology is similar to that used for the construction of link period value aggregates.
18 For example, if the weight for other dwellings was 0.3 (and the index was 120.0), and the weight for established houses was 0.7 (and the index was 110.0), the EADPI would be calculated as follows:
EADPI = (0.3 x 120.0) + (0.7 x 110.0)
EADPI = 113.0
19 The weighting pattern for the EADPI is presented below.
THE EXPERIMENTAL OTHER DWELLINGS PRICE INDEX
Scope and Coverage
20 The HPI measures price change of the stock of established houses over time. Established houses are defined as detached residential dwellings on their own block of land regardless of age. The EODPI is designed to measure the price change of the stock of other dwellings in the capital cities whose primary purpose is residential. For the purposes of the EODPI, other dwellings are defined consistent with ABS standards, the Functional Classification of Buildings (cat. no. 1268.0.55.001) and the Dwelling Structure Classification (STRD) used in the Census of Population and Housing (refer to Census Dictionary, 2006 (cat. no. 2901.0)).
21 Examples of dwellings in scope of the EODPI are:
22 Examples of dwellings out of scope of the EODPI are:
23 When data are received by the ABS, processing classifies residential buildings into either established houses or other dwellings. However, given that the VGs in each State and Territory have different methods of classifying residential buildings, some dwellings (in Sydney, Brisbane, Hobart and Darwin) in-scope for EODPI may instead be included in the HPI established houses price sample.
24 The scope of the EODPI includes other dwellings within capital city statistical divisions (SD), as defined in the Australian Standard Geographic Classification (cat. no. 1216.0), however coverage is limited to those suburbs which existed within SD boundaries at the time of the 2006 Census. As the ABS has moved to a new geography classification, the Australian Statistical Geography Standard (ASGS) (Vol 1, cat. no. 1270.0.55.001), it is planned that the EODPI, together with the HPI will move to the ASGS during the next re-weight (to be implemented for the HPI in the December quarter 2013), and capital cities will be defined by the ASGS Greater Capital Cities Statistical Areas.
25 The ABS uses the date of exchange of contracts to determine when the price of the property was agreed upon, even though the property may not legally change owners until several months after that. Exchange dates are not captured in South Australia or the Northern Territory. The exchange dates for Adelaide and Darwin are modelled based on the settlement date (the date the property legally changes hands).
Results and Analysis: December quarter 2011
26 The experimental price index for other dwellings for the weighted average of the eight capital cities fell 1.4% in the December quarter 2011, compared to the final index for established houses which fell 0.6% in the quarter. Overall, the experimental price index for all dwellings in the eight capitals fell 0.8% in the December quarter 2011.
27 For other dwellings, the negative quarterly movement was a result of falls in Sydney (-2.3%), Melbourne (-1.7%) and Perth (-0.7%). This was partially offset by rises in Brisbane (+1.4%), Adelaide (+1.6%), Canberra (+2.7%), Darwin (+0.4%) and Hobart (+0.2%).
28 In Brisbane in the December quarter 2011, all of the positive contribution to growth was in clusters where median prices were below $400 000. Price increases in clusters with other dwellings median prices in the range of $200 000 to $400 000 were also seen in Sydney, Darwin, Hobart and Adelaide. Clusters with median prices above $600 000 experienced moderate falls in prices in Sydney and Melbourne in December quarter 2011.
29 For all dwellings, the negative quarterly movement was a result of falls in Sydney (-1.6%) and Melbourne (-1.3%). This was partially offset by rises in Canberra (+2.3%), Brisbane (+0.3%), Perth (+0.3%), Adelaide (+0.3%), Hobart (+1.3%) and Darwin (+1.4%).
30 In the year to the December quarter 2011, the experimental price index for other dwellings for the weighted average of the eight capital cities fell 3.0%, whilst for established houses it fell 4.4%. Overall, the experimental price index for all dwellings in the eight capital cities fell 4.0%.
31 Over the past 5 years the experimental price index for other dwellings for the weighted average of the eight capital cities has risen 23.9%, with all the capital cities having a positive movement. Over the 5 year period, Perth has risen the least (+7.4%). All other cities have rises in their indexes of above 10%, with the largest rise in the index being in Darwin (+47.2%).
32 A full time series of both indexes is presented in two tables at the end of this Feature Article. Further information on the two experimental indexes, which includes a full time series of quarterly and annual percentage changes of both index series, as well as a time series of unstratified medians and transfers for other dwellings, are available as a datacube from the ABS Website.
33 The ABS believes the experimental benchmark indexes presented in this paper are robust and fit for purpose. In the absence of any compelling arguments to the contrary, it is proposed that the experimental label be lifted and the index continue to be compiled and published in some form in the future. The leading indicator series is still undergoing evaluation and the publication of these indexes will be subject to them being assessed as fit for purpose.
34 Development of indexes covering areas outside the Capital City Statistical Divisions is continuing. The ABS expects to begin to produce experimental indexes this year, which, subject to data quality, will be the subject of a Feature Article in the future.
35 The ABS welcomes any comments on the developments described in this paper and on any aspect of the work undertaken to date. Of particular value would be any suggestions as to how best to publish the results in future. The ABS will be accepting feedback until 9 November 2012.
36 Queries or comments can be addressed to:
Mr. Mark Dubner
GPO Box 796
Sydney NSW 2001
Telephone: (02) 9268 4448
House Price Indexes: Concepts, Sources and Methods, Australia (cat. no. 6464.0)
Information Paper: Renovating the Established House Price Index, Nov 2005 (cat. no. 6417.0)
Research Paper: Refining the Stratification for the Established House Price Index (Methodology Advisory Committee), Jun 2008 (cat. no. 1352.0.55.093)
Consumer Price Index: Concepts, Sources and Methods, 2011 (cat. no. 6461.0)
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