Seeking a Benchmark for RPPIs Presentation to the Workshop on “Residential Property Price Indices” organised by Statistics Netherlands 10-11 February 2011 Chihiro Sakuraba Bank of Japan The views expressed are those of the speaker and should not be attributed to the Bank of Japan.

RPPI as an unbiased-sampling Population (or Universe) of RPPI a) individual property: completely heterogeneous, gigantic but fixed number b) random and low frequency of sales Selection procedures c) non-random sampling, or constant monitoring d) non-periodic observation e) control or neglect of incidental factors Chihiro Sakuraba "Workshop on RPPIs" 10-11 February 2011

Residential properties as risky assets one of the household investment high dependency on external financing subject to rational portfolio selection Intrinsically, a benchmark index required. Chihiro Sakuraba "Workshop on RPPIs" 10-11 February 2011

Value and price of residential property Σpt qt Σpt q0 value index≡ = ≡price index, if qt =q0 Σp0 q0 Σp0 q0 Since the (quality-adjusted) quantity of residential properties is unchanged or known, the aggregate value of properties becomes a RPPI. If the average external financing ratio has been stable, then the credit aggregates for housing coincides the true RPPI. Chihiro Sakuraba "Workshop on RPPIs" 10-11 February 2011

Chihiro Sakuraba "Workshop on RPPIs" 10-11 February 2011

Credit aggregates: benchmark features span the universe not involve quality and aggregation issues include marginal movements even in short run may not be robust to structural change either in capital markets or property supply Chihiro Sakuraba "Workshop on RPPIs" 10-11 February 2011

Chihiro Sakuraba "Workshop on RPPIs" 10-11 February 2011 Issues Aggregation of housing loans and home mortgages Investment behavior constrained by imperfect property market, e.g. asymmetric information of owned home Collateral policy of lenders Casualty issues, e.g. coincidence with macroeconomic activities or credit cycles, deeply related to macroprudential policy. Chihiro Sakuraba "Workshop on RPPIs" 10-11 February 2011

Why we need a benchmark for RPPIs? A benchmark RPPI assures optimal decision in property investment and housing credit, enhances the competitiveness of property market, and provides precise information to authorities. Testing coincidence with credit aggregates will be a plausible way of selecting a benchmark RPPI. Thank you for your attention. Chihiro Sakuraba "Workshop on RPPIs" 10-11 February 2011