Constructing a National House Price Index for Ireland

Niall O’Hanlon (Central Statistics Office) will present a paper on this topic at the next SSISI meeting on Thursday, 19th May 2011, starting at 6:15 pm, in the Royal Irish Academy, 19 Dawson Street, Dublin 2. Non-members are welcome to attend and participate in the discussion. The discussants will be David Duffy of ESRI and Marian Finnegan of Sherry FitzGerald.

The Central Statistics Office will publish the first results of its national House Price Index on May 13th 2011.  This hedonic index is constructed using data on mortgage drawdowns by eight lending institutions under Section 13 of the Housing Act (2002).

This paper describes how the development of the index has been largely driven by an impending European legislative requirement to produce indices of the costs of Owner Occupied Housing in the context of the Harmonised Index of Consumer Prices.  It discusses the limitations of data on Irish residential property transactions in the context of the national House Price Index and the proposed register of property transactions.  Practical considerations covering the treatment of data, the design of the hedonic functions, the rolling year regression model employed and the weighting of sub indices to form a composite national index are described.

The index results are examined in the context of some of the other measures of house prices in Ireland.  Finally, the paper explores some future challenges for further development of the measurement of residential property prices in Ireland.

15 replies on “Constructing a National House Price Index for Ireland”

It’s a very helpful advance in terms of a timely, monthly, actual/settled price index and the CSO is to be congratulated for it. However, it will

(1) Exclude cash sales though there is a commitment to show the overall value of the market so we might be able to take a stab at the margin of error if we assume cash/mortgage transactions to be homogenous
(2) It will be an index as opposed to prices and there will be four indices – national, Dublin houses, Dublin apartments, Non-Dublin all

We all know we need a proper House Price Register and the Bill to create same has languished since being introduced on the eve of the last General Election. There doesn’t appear to be any political opposition to a House Price Register and practically all participants in the property market agree that it will be a good development and will aid price discovery and support a better functioning market. It just seems like poor management of time and resources by politicians, FF last year and FG/Labour today that is stopping us getting the register that was called for as far back as in the Kenny Report in 1974.

Am i being naive or is this not the simplest possible index to construct, given that Revenue have the details of every property purchase in order to calculate and levy stamp duty? Why use mortgage drawdown data at all? What happens to cash purchases if you only use drawdown data?

I’ve indicated here before that whilst an index of the sort envisaged is obviously an important step. It will once again fail in determining the true cost of housing which is the rent paid on a street by street townland by townland basis.

Throughout the last decade had our beloved banks concentrated solely on rental yields the craziness of their lending decisions would have become all the more apparent by about 2000/01.

Instead we had to endure a further decade of daft lending practices because of the obsession of lending money to consumers on a times salary basis which gave people ‘buying power’ in the market but ultimatley the true value of the house based on equivalent rental yields was considered a mere after thought. How wrong can you be.

An index which complies house prices whereby banks (who ultimately price (incorrectly) 98% of property transactions) and still lend money on a times salary basis will be of little relevance because we all know – garbage in garbage out.

Yes but Revenue will correctly say that they dont have the spare resources and AFAIK there are data protection issues with sending the data to CSO.

@ Ian

You have, of course, pointed out the fact that the emperor, in this instance, has no clothes. But that is not the fault of the CSO.

I would guess that the real reason for the failure of successive governments to do the obvious and collect data on the basis of transactions – which is done as a matter of course in other countries – is a fear that Article 43 of the good old Irish constitution would be called upon once again to protect private interests on the totally spurious ground that private data was being revealed. This would, of course, not be the case as only aggregated anonymous data would be collected and released.

But the argument would have enormous political resonance.

We Irish are special!


You may well be right, but as you say it seems spurious logic at best – particularly since the information is already collected by one body, and therefore it is just one more step to collate the data and break it down regionally. All these discussions about how an index might be arrived at seem to me to be a rather frustrating attempt to find a more complicated way of working out data that already exists…. An Irish solution to an Irish problem!

@ YoB: You have commented several times on the way in which ‘up-to-date’ res property prices may be evaluated. You suggest rental as a basis.

I have no idea whether or not your proposal has merit (ie. will achieve objective of market transparency) so I will not offer any critique – I have one suggestion; see below.

But if you can think of any of the known unknowns, and even the unknown unknowns of your scheme – then this would be most useful. It is difficult enough get legislation enacted, but attempting to tweak out unintended consequences from existing legislation is a parliamentary nightmare.

Same applies to anyone else proposing an accessible res property scheme. The damn thing must be simple. The principal users are financial duffers.

I have one deep reservation about any ‘mechanical’ scheme to let res property prices (not values!) see the light of day. You are poking into an area of great sentimentality! What did the man say about ‘treading on someone’s dreams?’

A new Freedom of Information Act: Nothing is witheld or restricted unless Ombudsman agrees to the witholding or restriction. Ombudsman is answerable to parliment only. That’s about as simple as one could get. Fox amongst the chickens stuff!


@ Ian


@ YoB

You are, of course, absolutely right about using rental income as the sole foundation for valuations. But banks are less concerned about that aspect than an assessment of the supposed creditworthiness of the borrower. And we have seen where that has led.

What is really striking about the debate is the unwillingness of many of the participants to confront these two facts – (i) immediate availability with the Revenue Commissioners of necessary comprehensive data (ii) the absolute need to link capital valuations to rental – when these are literally staring them in the face.

Property has unique aspects as a small number of transactons can have an impact on the assumed wealth of many individuals across the economy.

Two big drawbacks of the ESRI/PermanentTSB index is that volume change is not disclosed and it has not captured big value drops as the avg mortgage size of one lender may be lower than the market avg.

As to the CSO, it has been publishing data on agricultural land sales but apparently stripping out land above a particular threshold which would imply development land.

It has suited both FF because of its nexus with construction and the IFA who would not have wished to have data on development land sales to spoil the ‘an béal bocht’ mantra.

During the bubble, agricultural land became the most expensive in Europe as turnover was very low.

In addition to CAP welfare, a job at the local factory and a few bob from the 23% of the €18bn roadbuilding budget that was allocated for land purchases, put little pressure on farmers to sell land other than at extortionate development rates.

According to Savills in 2007, in France, each field changed hands at least once every 70 years, but in Ireland on average a field changed hands every 555 years! Total annual turnover in Ireland is less than 0.2% of the total acreage.

Savills said Ireland has a little over 10 million acres in agricultural use, which put the sales ratio in 2008 at 0.0005743%

So volume is important.

You are trying to treat the symptoms lads – a noble effort but pointless in the great scheme of things.
Until our masters reform the monetory system such efforts are a waste of time.
The value of the house is based on deposits now – where do deposits come from ?
Its quite funny really.

@ Yob and Michael

Straw in the wind stuff. I spent the last couple of days in Galway and was talking to a single woman who has 30k in the bank, reasonable needs and expectations, a respectable permanent position – and no Irish lender would offer her a mortgage.

I wonder, YoB, if we went your way, would the system be open to gaming as we saw Dublin landbanks and property prices being gamed for the sake of a small number of investor players?

Here we go again. S+P sez we is out of the res property slump. Three cheers for S+P!!! (Snozzle and Pinnochio)

Nice ‘lakeside’ res in Sutton (soon to be inudated by rising sea levels!) 4 mill -> 0.6 mill! That’s some ‘drop’.

So volume is important. Yep! Probabilistic prediction on Trichet notching that interest rate rack a little tighter?

We should have ‘book’ on this: loser/s buy the Kool Aid. I bet another – -50% from current values to trough, with a +10% bounce off that @ 2015 (prices being shrouded in fog and all).


@Brian Woods

Just so it’s clear my ‘scheme’, if that’s what it’s to be referred to as, is as about as unique as the air we breathe. In fact I believe Adam Smith first muted the motion back c300 years ago. Believe me it’s not unique.

That’s why it’s frustrating the ongoing property debate or more correctly property debacle continually misses the most obvious and probably the most fundamental point regarding this market and that is that banks price property not consumers. This is a fundamental fact, but largely washed over as, ‘so what’.

I’m afraid this misunderstood fact has enormous consequences for all the country’s citizens. It means that as pricing is ultimately the preserve of our beloved banks and given that we now know that that responsibility was wholly neglected for a decade it must, and does, raise serious legal questions for the banks and their actions in the market which they ultimately control.

I’ve said it here before but the residential mortgage disaster in the ROI will in time be recognized as the biggest mis-selling financial scandal ever visited upon a developed economy in time.

The lending metrics versus long run rental yields were ‘wrong’ in the ROI for a decade.

In that time more money per capita was lent to the citizens in the ROI than any other country on earth on a relative basis since bank lending statistics records were kept. Some feat.

Given these facts I’m continually annoyed at commentators raising issue with the legality or fairness of debt forgiveness schemes. In simple terms if the banks screwed up the pricing of property as Royally as they did, why in God’s earth should the consumer be asked to bear 100% of this mis-pricing burden. There is no logic (fairness aside) to the stance currently assumed by Regulators and others who fail to make this basic connection.

The residential property market is unlike virtually no other market as it lives and dies by the availability of credit/leverage. Most, if not all, other risk asset markets are cash markets and this differentiation matters hugely.

Those in control of the leverage control the price.

For far too long bankers, commentators etc have mixed up the financing decision and the valuation decision when it comes to property.

It seems to me that these two very separate questions have somehow merged, be it through ignorance or otherwise into a ‘model’ which seeks to do both – this particular merger has failed spectacularly. We need to demerge the two. Valuation (in general) is a long run mean reversion question whereas financing is idiosyncratic and individually dependant – the two simply do not mix.

Therefore deriving any index from metrics which are fundamentally artificial will never give one a true picture of the real market values – the property ‘market’ is, as a result, actually an unreal asset market (which seems at variance with its name). Its pricing is determined by the banks which employ pricing models which are fundamentally flawed in almost all respects.

Where markets in general move from unreality to reality is where the market becomes a cash transactional market and in most instances cash markets are much better at true price discovery than leverage markets.

We know that rents are real cash items (does anyone really borrow (aside from direct Govt transfers via rental allowance) to pay a monthly rental)? Perhaps they do – but the incidence is very small relative to the market so all things considered using a cash metric to determine price is always a more comprehensive method to employ than other available alternatives. Whether there are unknown unknowns here is always open to debate however in most instances history tells us that we’re probably on firmer ground using a rental/cash method than any other as all others as far as I can see suffer as a result of mixing up the financing and valuation decisions which is always likely to lead to an inferior result.

@ YoB: Thank you very much for your detailed and considered reply. Lot clearer now. My model-in-use is trashed – Kuhnian Paradigm shift! Neurons are in overdrive.

“Those in control of the leverage control the price.”

I shall print this out and put it up on my Quote Board. Actually, I shall print out your complete reply as a reference.

Valuation v Finance: This is Frederick Soddy stuff. Nice one.

Thanks again.


Comments are closed.