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About this book

This book answers the question of how exactly property price indexes should be constructed.

The formation and collapse of property bubbles has had a profound impact on the economic administration of many nations. The property price bubble that began around the mid-1980s in Japan has been called the 20th century's biggest bubble. In its aftermath, the country faced a period of long-term economic stagnation dubbed the "lost decade." Sweden and the United States have also faced collapses of property bubbles in the 20th and early 21st centuries, respectively.

It has been pointed out that the "information gap" that existed between policy-making authorities and the property (including housing) and financial markets was a problem. In 2009, the IMF proposed the creation of a housing price index to the G20 in order to fill this information gap, and the proposal was adopted. Furthermore, in 2011, it was suggested that the next economic crisis would be caused by a bubble in commercial property prices, and it was decided to create a commercial property index as well.

This book provides practical examples of how the theory of property price indexes can be applied to the issues of property as a non-homogenous good and a technological and environmental change.

Table of Contents

Frontmatter

Index Theory for Property Price Indexes

Frontmatter

Chapter 1. International Policy Discussion in Property Price Indices

Abstract
This paper highlights some of the themes that emerged from the OECD-IMF Workshop on Real Estate Price Indexes which was held in Paris, November 6–7, 2006.
W. Erwin Diewert, Kiyohiko G. Nishimura, Chihiro Shimizu, Tsutomu Watanabe

Chapter 2. Theoretical Background of Hedonic Measure and Repeat Sales Measure-Survey-

Abstract
When it comes to methods of quality adjustment for property price indexes, if one looks at the Residential Property Price Indices Handbook published by EuroStat in 2013, it present a variety of methods along with their advantages and disadvantages: (a) Stratification or Mix Adjustment Methods, (b) Hedonic Regression Methods, (c) Repeat Sales Methods, and (d) Appraisal-Based Methods. This is because, in reality, multiple methods have been applied in the estimation of property price indexes.
W. Erwin Diewert, Kiyohiko G. Nishimura, Chihiro Shimizu, Tsutomu Watanabe

Empirical Studies for Property Price Indexes

Frontmatter

Chapter 3. A Comparison of Alternative Approaches to Measuring House Price Inflation

Abstract
Some real estate data for sales of detached houses in the Dutch town of “A” is used in order to construct house price indexes using a variety of methods. A main purpose of the paper is to determine whether the different methods generate different empirical results. The data cover 14 quarters of sales, beginning in 2005 and ending in the middle of 2008.
W. Erwin Diewert, Kiyohiko G. Nishimura, Chihiro Shimizu, Tsutomu Watanabe

Chapter 4. Estimation of Residential Property Price Index: Methodology and Data Sources

Abstract
Fluctuations in real estate prices have substantial impacts on economic activities. In Japan, a sharp rise in real estate prices during the latter half of the 1980s and its decline in the early 1990s led to a decade-long stagnation of the Japanese economy. More recently, a rapid rise in housing prices and its reversal in the United States triggered a global financial crisis. In such circumstances, the development of appropriate indexes that allow one to capture changes in real estate prices with precision is extremely important, not only for policy makers but also for market participants who are looking for the time when housing prices hit bottom. Recent research has focussed on methods of compiling appropriate residential property price indexes. The location, maintenance and the facilities of each house are different from each other in varying degrees, so there are no two houses that are identical in terms of quality. Even if the location and basic structure are the same at two periods of time, the building ages over time and the houses are not identical across time. In other words, it is very difficult to apply the usual matching methodology (where the prices of exactly the same item are compared over time) to housing.
W. Erwin Diewert, Kiyohiko G. Nishimura, Chihiro Shimizu, Tsutomu Watanabe

Chapter 5. The System of National Accounts and Alternative Approaches to the Construction of Commercial Property Price Indexes

Abstract
How can a commercial property price index (CPPI) be defined and constructed? And what kind of relationship does the measurement of commercial property’s value have to the System of National Accounts and to concerns about national financial sectors? In order to answer such questions, this paper aims to outline the concepts that can be used to define and measure the value of commercial property, and to clarify the relationship of such measurement to the System of National Accounts and to the financial system.
W. Erwin Diewert, Kiyohiko G. Nishimura, Chihiro Shimizu, Tsutomu Watanabe

Housing Services in CPI and SNA

Frontmatter

Chapter 6. Measuring the Services of Durables and Owner Occupied Housing

Abstract
When a durable good (other than housing) is purchased by a consumer, national Consumer Price Indexes typically attribute all of that expenditure to the period of purchase, even though the use of the good extends beyond the period of purchase.
W. Erwin Diewert, Kiyohiko G. Nishimura, Chihiro Shimizu, Tsutomu Watanabe

Chapter 7. New Estimates for the Price of Housing in the Japanese CPI

Abstract
Throughout their histories most advanced nations have experienced abrupt increases and subsequent decreases in asset prices, especially housing prices. These fluctuations have had substantial impact on the financial system, often leading to a stagnation of economic activity. The most representative examples are Japan and Sweden in the 1990s and, more recently, the global financial crisis triggered by the sub-prime problem in the United States. Reinhart and Rogoff (2008) conducted an exhaustive, long-term, comparative time series analysis of economic data from numerous countries which made it clear that the incidence of various economic phenomena is a common factor underlying banking crises. It has been noted that one of these phenomena is a significant increase in asset prices, and property prices in particular, compared to rents.
W. Erwin Diewert, Kiyohiko G. Nishimura, Chihiro Shimizu, Tsutomu Watanabe

Chapter 8. Imputed Rent for OOH in National Account

Abstract
Housing price fluctuations exert effects on the economy through various channels. More precisely, however, relative prices between housing and other assets prices and goods/services prices are the variable that should be observed.
W. Erwin Diewert, Kiyohiko G. Nishimura, Chihiro Shimizu, Tsutomu Watanabe

Backmatter

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