6416.0 - Residential Property Price Indexes: Eight Capital Cities, Dec 2018 Quality Declaration 
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APPENDIX 1 UPDATING THE WEIGHTS AND STRATIFICATION VARIABLES IN THE RESIDENTIAL PROPERTY PRICE INDEXES (RPPIs)


INTRODUCTION

1
The purpose of this appendix is to describe the process used to update the weights and the variables used to stratify the indexes. This process ensures the RPPIs continue to (a) provide a robust and accurate macroeconomic indicator of residential property price inflation; and (b) support the compilation of the non-financial assets component of the Household Balance Sheet in the Australian System of National Accounts (ASNA).

2 Every five years, following the availability of data from the Census of Population and Housing, an index review is undertaken to update the quantities of dwellings that underpin the weights of the indexes. It also provides an opportunity to update the variables used to stratify the indexes. The most recent index review occurred in relation to data from the 2016 Census and has resulted in the introduction of Series 4 of the indexes from the December quarter 2018 issue.


STRATIFICATION

3
The RPPI, HPI and ADPI all use a stratification approach to control for changes in the composition of properties bought and sold over the reference period.

4
The method of stratification used for Series 4 has not changed as a result of the index review. This means that suburbs continue to be grouped into strata based on their long term median price (the median price of the suburb between the 2011 and 2016 Census) and their Socio-Economic Index for Areas (SEIFA) score (2016) on the Index of Relative Advantage and Disadvantage. This approach balances homogeneity of suburbs within the same stratum with sufficient sales observations to construct reliable measures of price movements. For further information on the stratification approach used in the Indexes, see Residential Property Price Indexes: Concepts, Sources and Methods, Australia (cat. no. 6464.0).

5
As a result of the updated variables for stratification, the number of strata for both the HPI and the ADPI has changed in some cities.



Table A1.1 Number of strata, Series 4 (from the December quarter 2018)

HPI
ADPI

Sydney
21
13
Melbourne
16
14
Brisbane
16
9
Adelaide
13
11
Perth
13
12
Hobart
8
6
Darwin
5
5
Canberra
8
8




6 For information on the number of strata for the previous series of indexes, please consult Residential Property Price Indexes: Concepts, Sources and Methods, 2014 (cat. no. 6464.0) and Appendix 'Updating the Weights and Stratification Variables in the RPPIs' from the December quarter 2013 release of Residential Property Price Indexes: Eight Capital Cities (cat. no. 6416.0).


NEW WEIGHTS

7
The weights underpinning the indexes are based on the value of dwellings (including land) in scope of the indexes. The weights are expressed in terms of stock values. While the underlying quantities (i.e. number of dwellings) are held constant from period to period, the stock values are updated each period to reflect the changes in prices. The strata for the HPI and ADPI are re-valued each quarter by applying a price relative (i.e. the ratio of the current period median price of the stratum to the previous period median price of the same stratum) to the value of the dwelling stock for that stratum to produce a current period stratum value. The current period values of each stratum are then summed to derive the current value of the total dwelling stock in the capital city. Index numbers are subsequently derived from the total values.

8
Over time the number of dwellings in a city will change. To maintain the indexes relevance, it is necessary to update the quantities which underpin the dwelling stock weights on a timely basis. This re-weight utilised dwelling counts from the 2016 Census of Population and Housing, to derive values to replace those calculated with data from the 2011 Census. The quantities have been valued with the September quarter 2018 prices to produce new weights for the indexes. A more detailed explanation of how weights are derived can be found under 'Weights and their Sources' in the Residential Property Price Indexes: Concepts, Sources and Methods, Australia (cat. no. 6464.0).

9 The indexes are available for each of the eight capital cities. The capital cities in Series 4 are defined by the Australian Statistical Geography Standard (ASGS) level of the Greater Capital City Statistical Areas (GCCSA) as used in the 2016 Census of Population and Housing. For more information see Australian Statistical Geography Standard (ASGS) (Vol 1, cat. no. 1270.0.55.001). The following tables show the weights for Series 4 of the indexes.


Table A1.2 Series 4 Weighting Pattern, (a), percentage contribution to eight capital cities

RPPI
HPI
ADPI

Eight Capital Cities
100.0
100.0
100.0
Sydney
40.1
35.5
51.5
Melbourne
30.6
31.8
27.6
Brisbane
10.5
11.9
7.1
Adelaide
5.8
6.4
4.4
Perth
9.2
10.4
6.4
Hobart
1.1
1.3
0.5
Darwin
0.5
0.5
0.5
Canberra
2.2
2.3
1.9

(a) Components may not sum to 100.0 due to rounding

Table A1.3 Series 4 Weighting Pattern (b), percentage contribution to RPPI

RPPI
HPI
ADPI

Eight Capital Cities
100.0
71.4
28.6
Sydney
100.0
63.2
36.8
Melbourne
100.0
74.2
25.8
Brisbane
100.0
80.6
19.4
Adelaide
100.0
78.5
21.5
Perth
100.0
80.3
19.7
Hobart
100.0
85.9
14.1
Darwin
100.0
69.4
30.6
Canberra
100.0
74.8
25.2

(b) Components may not sum to 100.0 due to rounding


10 For information on weights for the previous series, please see Residential Property Price Indexes: Concepts, Sources and Methods, 2014 (cat. no. 6464.0) and Appendix 'Updating the Weights and Stratification Variables in the RPPIs' from the December quarter 2013 release of Residential Property Price Indexes: Eight Capital Cities (cat. no. 6416.0).


IMPLEMENTING THE NEW WEIGHTS AND STRATA

11
The new price index series with updated weights and stratification variables are joined to the old series to form a continuous series via a process known as chain linking. At the link period, which in this instance is the September quarter 2018, new dwelling stock weights and strata are introduced in parallel to the old basis and median prices are calculated using both the new and old strata. The published index number for the link quarter is produced on the old basis; however movements and index numbers from this quarter on are derived by moving forward the new link period values with price relatives of the new strata.


IMPACT ON UNSTRATIFIED MEDIANS AND NUMBER OF TRANSFERS

12
The number of transfers and the unstratified medians are not directly impacted by the process of updating the weights and the variables used to stratify the indexes.