Residential Property Price Indexes: Eight Capital Cities methodology

1 This release contains a range of Residential Property Price Indexes (RPPIs) and related statistics. Definitions of the terms used are provided in the glossary.

2 Residential property prices are of significant interest to policy makers, market analysts and researchers for a range of economic and social reasons. This is because the housing market plays an important role in the Australian economy.

3 RPPIs measure price change of the stock of residential dwellings over time. The ABS RPPIs serve the dual purpose of:
(a) a macroeconomic indicator of residential property price inflation; and
(b) supporting the compilation of the non-financial assets component of the Household Balance Sheet in the Australian System of National Accounts (ASNA).

4 The ABS has compiled a House Price Index since 1986. A significant review of the HPI occurred in 2004. Several improvements to the HPI were implemented as a result of this review and a new series (Series 1) of the HPI was introduced in the September quarter 2005 issue (with improvements applied back to the March quarter 2002). The most significant change was the introduction of a stratification approach (footnote 1) to compile the HPI. For more information on the 2004 review, see Information Paper: Renovating the Established House Price Index, November 2005 (cat. no. 6417.0).

5 The historical series, from 1986 to 2005, continues to be available as an indicator of established house price movements over a longer period. This historical series is not directly comparable to the existing HPI series post 2002 due to the change in methodology resulting from the 2004 review.

6 A second review of the HPI commenced in 2007. This review refined the stratification method and updated the dwelling stock values using 2006 Census data. The 2007 review to the HPI was introduced in the December quarter 2008 issue, creating Series 2, and linked to Series 1 at the March quarter 2008.

7 The next review in 2012 resulted in the expansion in scope beyond the existing HPI to include attached dwellings and produce an aggregate RPPI. The dwelling stock values were also updated using data from the 2011 Census. This third series (i.e. Series 3) was introduced in the December quarter 2013 issue and linked to Series 2 at the March quarter 2013. The index reference period for all indexes was also updated to 2011-12 = 100 in the December quarter 2013 issue.

8 In 2014, the RPPI work program was reviewed in response to planned reductions to the ABS work program. The outcomes of this review were implemented in the March quarter 2015.

9 In summary, the changes from the 2014 review were:

• all Australian residential property sales data used to compile the price indexes and related statistics are now supplied to the ABS by CoreLogic;
• from the March quarter 2015 the suite of residential property price indexes are considered final;
• the method of calculating prices in the total value of the dwelling stock was modified due to the change in timing of the release;
• the unstratified median price and number of dwelling transfers series are now published up to the current quarter.
   

10 This review did not result in the introduction of a new index series. For more information on the implementation of the outcomes of the review please refer to the Feature Article: Implementation of the ABS Residential Property Price Index Review Outcomes in the March quarter 2015 issue.

11 The most recent review of the RPPIs and the Total Value of Dwelling Stock (TVDS) was conducted in 2018, with updates introduced in the December quarter 2018 issue. Outcomes of this review include:

• the weights and variables used to stratify the indexes were updated using data from the 2016 Census;
• inputs used to compile the TVDS were updated using data from the 2016 Census; and
• changes to the residential property sales dataset supplied by CoreLogic were implemented.
   

12 The new price index series (Series 4) was linked to the existing series (Series 3) at the September quarter 2018. Updates to the TVDS were incorporated into the series over a number of quarters. A two year window was used to smooth in the change for the Household series, while a four year window was used for the Non-Household series. Revisions to the unstratified median price and number of dwelling transfers series resulting from the changes to the residential property sales dataset have been incorporated from March quarter 2014, when CoreLogic data was introduced into this series.

13 Details of the concepts, sources and methods underlying the compilation of the current index series (Series 4) are described in the Residential Property Price Indexes: Concepts, Sources and Methods,(cat. no. 6464.0)

14 The suite of Residential Property Price Indexes (from now on referred to collectively as 'the indexes') is:

• A Residential Property Price Index (RPPI);
• An Established House Price Index (HPI); and
• An Attached Dwellings Price Index (ADPI).
   

15 The RPPI is an aggregation of the HPI and the ADPI and measures the price change in all residential dwellings within the eight Greater Capital City Statistical Areas (GCCSAs). Index numbers and percentage changes for the RPPI are presented in Table 1.

16 The HPI measures the price change in all established detached houses on their own block of land and is compiled for the eight GCCSAs. Index numbers and percentage changes for the HPI are presented in Table 2.

17 The ADPI measures the price change of attached dwellings within the eight GCCSAs. Dwellings in scope of the index are:

• flats, units and apartments; and
• semi-detached, row and terrace houses.
   

18 Index numbers and percentage changes for the ADPI are presented in Table 3.

19 Estimates are also available for median price and transfer counts of established houses and attached dwellings for capital cities and rest of state (Tables 4 and 5).

20 The total value of all residential dwellings estimates are presented in Table 6. Values of dwellings and land are used in the compilation of the non-financial assets component of the household balance sheet published annually in the Australian System of National Accounts (ASNA) (cat. no. 5204.0) and quarterly in the Australian National Accounts: Finance and Wealth (cat. no. 5232.0).

21 For more detailed information on residential property price indexes and related statistics than is provided in these explanatory notes refer to Residential Property Price Indexes: Concepts, Sources and Methods(cat. no. 6464.0).

22 The scope of the RPPIs is all residential properties in the eight GCCSAs. The scope is restricted to those dwellings where the primary purpose is residential (i.e. excluding commercial properties) regardless of ownership and tenure of the occupants (i.e. including government owned properties and properties owned by private landlords).

23 The definition of dwelling structure type for the purpose of the RPPI is consistent with the ABS classifications: the Functional Classification of Building 1999 (Revision 2011) (cat. no. 1268.0.55.001), which is used in building activity statistics; and the Dwelling Structure Classification, which is used in the Census of Population and Housing (refer to Census Dictionary, 2016 (cat. no. 2901.0)).

24 Dwellings in scope of the RPPI are:

• Ordinary detached house;
• House with office;
• House with flat;
• Rural residential houses (within a capital city and not part of a farming business);
• Semi-detached, row and terrace houses;
• Townhouses; and
• Flats, units and apartments.
   

25 The GCCSAs capture the socio-economic extent of the State/Territory capital cities for statistical purposes. For more detail please see Australian Statistical Geography Standard (ASGS) (Vol 1, cat. no. 1270.0.55.001). From the December quarter 2013 issue all references to capital cities are defined by the ASGS GCCSA. Historical naming conventions (i.e. Sydney rather than Greater Sydney) have been maintained in this publication. A time-series will be maintained but users should exercise caution in interpreting medians and numbers of house transfers over time, as historical data will reflect capital city boundaries as previously defined. This is particularly significant for Canberra where the capital city is now defined to be the whole of the ACT.

26 Where table headings indicate the estimates relate to the rest of state or whole of state, the ASGS classification is used to determine boundaries. For example, the total value of the dwelling stock relates to each state or territory.

27 Sales prices of established houses and attached dwellings are based on the exchange date of the sales. The exchange date most closely approximates the time at which the market price is determined. Exchange date information is available for all cities except Adelaide and Darwin. For these cities, a modelled exchange date is used.

28 The ABS employs a stratification approach to compile the RPPIs. The stratification approach separates the total sample of residential properties into a number of sub-samples or strata. Dwelling transactions are stratified by dwelling type, long term median price and Socio-economic Index for Areas (SEIFA) score. Each quarter, the strata are re-valued by applying a price relative (i.e. the current period median price of the stratum compared 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.

29 When the number of price observations available for a stratum is nil or extremely low in a quarter, a price movement for the stratum is derived using imputation methods based on price movements of other strata.

30 More information on the stratification methodology is available in Residential Property Price Indexes: Concepts, Sources and Methods (cat. no. 6464.0).

31 All Australian residential property sales data are supplied to the ABS by CoreLogic (footnote 2). This dataset is a combination of residential property sales data obtained from State and Territory Land Titles Office or Valuers General Offices in each capital city (collectively referred to as VGs) and real estate agents data provided to CoreLogic. The ABS applies classifications to this dataset to create the residential property sales dataset from which the price indexes and related statistics are produced.

32 The weights underpinning the indexes are based on the total value of dwellings (including land) in scope of the indexes. The weights are updated at roughly five yearly intervals to take account of changes in the quantity (number) of dwellings. Dwelling counts are obtained from the five yearly Census of Population and Housing and are combined with mean prices calculated from VGs data to produce new weights for the indexes. The most recent weights are published in the December quarter 2018 issue.

33 Estimates of the Total Value of the Dwelling Stock (TVDS) are available in Table 6. The TVDS comprises three outputs: the mean price of residential dwellings; the number (or quantity) of residential dwellings; and the total value of residential dwellings (which is an aggregation of the price and quantity components). Dwellings in scope of the value of the dwelling stock are the same as the RPPI; however, geographic coverage is expanded to the whole of state.

34 As with the price indexes, the TVDS uses a stratification approach. Price, quantity and value information is stratified by location (based on Statistical Area Level 2 (SA2) from the ASGS) and dwelling type (established houses and attached dwellings).

35 A representative price for all dwellings in the stock is obtained from information on dwellings sold during the reference period. Price information from dwellings sold is used to represent the price of all dwellings not sold during the period. A quarterly mean dwelling price by geographic area and by dwelling type for all strata is calculated.

36 The number of residential dwellings is calculated by taking counts of dwellings from the latest Census and adjusting these counts for net additions to the stock since the last Census. These net additions are calculated by taking completions data from Building Activity, Australia (cat. no. 8752.0) and adjusting completions data by the long term realisation rate (i.e. the long term average rate at which completions result in net additions to the stock).

37 The total number of residential dwellings is calculated at the state level and pro-rated down to each SA2. As completions data are not available in time for use in compiling the most recent quarter's estimates, quantity information is modelled using historical trends in the latest quarter.

38 To compile the TVDS, price and quantity data is combined in each SA2 and then aggregated up to the state/territory and national level. Information from the Census is used to further break down total value information into Household and Non-Household sector ownership.

39 Information on the price of dwellings is calculated from the residential property sales dataset, excluding real estate agents data. The main source of data for the number of residential dwellings is the Census of Population and Housing, adjusted for subsequent net additions to the stock.

40 To enable the timely publication of data on the value of the dwelling stock, the movement of the RPPI (at the capital city level) is used as a proxy for movements in the mean prices (at the state level) for the most recent quarter. This results in the TVDS estimates being Preliminary in this period.

41 Revisions to the TVDS are applied to both the second and third most recent quarters, due to updated completions and unit record residential property sales data becoming available to use in the direct calculation of quantity and price. The TVDS for the third most recent quarter is considered Final.

42 Further information on the methodology used to compile TVDS is available in the Residential Property Price Indexes: Concepts, Sources and Methods (cat. no. 6464.0).

43 In addition to the release of stratified and weighted price indexes for each capital city, the ABS publishes, for each capital city and the rest of state, the median price of all established houses and attached dwellings transfers, and the number of established houses and attached dwellings transfers (Tables 4 and 5).

44 The median prices are calculated with no stratification or weighting applied. These 'raw' medians will not correspond to the published index numbers and will not produce price movements that are consistent with those numbers.

45 The number of transfers of established houses and attached dwellings provides an indication of the level of sales activity for each quarter.

46 From the March quarter 2015 issue the source of unit record residential property sales data has changed. The complete CoreLogic unit record file, including real estate agents data, has been used to calculate the series from the March quarter 2014 up to the current quarter. There are differences in the numbers produced using the new data source compared to the previous data source (which contained VGs data only). Therefore, users should apply caution when comparing data prior to March quarter 2014 with data after March quarter 2014.

47 The implementation of the updated residential property sales dataset supplied by CoreLogic, from the December quarter 2018 issue has resulted in revisions to the median price and transfers series. The ABS has revised this series back to March quarter 2014, when CoreLogic data was introduced into this series.

48 As the ABS receives more unit record residential property sales data, the median prices and the number of houses and attached dwellings transfers are revised as necessary. The usual practice is to update the most recent ten quarters of published figures. The current quarter median price and number of transfers are known to be revised in the following quarter and have therefore been annotated as preliminary ‘p’ and subject to revision.

49 Users should exercise caution in comparing price movements in the indexes and changes in the value of the dwelling stock and its components. The indexes are designed to measure the change in value of the stock of dwellings in the capital cities fixed at the last Census, whereas TVDS is designed to measure the current value of the dwelling stock in the States and Territories. As such, movements in the value of the dwelling stock are a result of changes in the price and quantity of dwellings. Movements in the indexes represent price change only.

50 Users should exercise caution when comparing the unstratified median prices published in Table 4 and the mean value of dwellings published in Table 6. The unstratified median price (for established houses and attached dwellings) of dwelling transfers over the reference period is the mid-point of all properties bought/sold in the period. This means that half of all properties (in the same region and of the same dwelling type) bought/sold in the period did so at a price below the median, the other half had a price above the median. In contrast, the mean value of residential dwellings represents what the average dwelling value was in the reference period. The mean value is derived by taking the total value of residential dwellings and dividing by the estimated number of dwellings in the stock. The mean values are calculated across the whole of state and for all dwelling types, in comparison to the medians which are calculated for individual dwelling types and for the capital city and rest of state separately.

51 Movements in indexes from one period to another can be expressed either as changes in index points or as percentage changes. The following example illustrates the method of calculating index points changes and percentage changes between any two periods:

Established Houses: Sydney index numbers (see Table 2) -
June Quarter 2019 158.1
less March Quarter 2019 158.4
equals change in index points -0.3
Percentage change -0.3/158.4 x 100 = -0.2%

52 In this publication, percentage changes are calculated to illustrate two different kinds of movements in index numbers:

• movements between corresponding quarters of consecutive years; and
• movements between consecutive quarters.
   

53 Index Numbers for financial years (not included in this publication) can be calculated as simple, arithmetic averages of the four quarterly index numbers for the financial year. The following example illustrates the method of calculating the financial year index number for 2018-19:

Established Houses: Sydney index numbers (see Table 2) -
September Quarter 2018 172.1
plus December Quarter 2018 165.4
plus March Quarter 2019 158.4
plus June Quarter 2019 158.1
equals 654.0
Financial year 2018-19 Index 654.0/4 =163.5

54 The published index numbers have been rounded to one decimal place, and the percentage changes (also rounded to one decimal place) are calculated from the rounded index numbers. In some cases, this can result in the percentage change for the total level of a group of indexes (i.e. RPPI) being outside the range of the percentage changes for the component level indexes (i.e. HPI and ADPI).

55 For the total value of the dwelling stock, mean prices are calculated from unrounded figures and subsequently rounded. Therefore, estimates of the components of TVDS published in Table 6 cannot be combined to replicate the total values.

56 The number of price observations available to compile the indexes each quarter depends on market activity. For the smaller capital cities (Hobart, Darwin and Canberra) there are occasions when strata have low numbers of price observations. Rather than suppress publication of the series they are included, as the long term trends are considered reliable. Care should be exercised when analysing the indexes' quarter-to-quarter movements of the smaller capital cities.

57 The process of presenting preliminary, revised and final TVDS estimates and revising unstratified medians and transfer counts has been outlined in the relevant sections of these explanatory notes.

58 Once the estimates are final, revisions would only occur in exceptional circumstances, such as to correct a significant error.

59 Current publications and other products released by the ABS are listed on the ABS website http://www.abs.gov.au. The ABS also issues a daily Release Advice on the website which details products to be released in the week ahead.