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
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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
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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
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2000 March = 100
Housing loans and RPPI in Japan
250
200
Urban Land Price Index for top 6 cities
(Source: Japan Real Estate Institute)
150
100
50
Total outstanding of housing loans
(Source: Flow of funds compiled by BOJ)
0
1980
1985
1990
1995
2000
Chihiro Sakuraba "Workshop on RPPIs"
10-11 February 2011
2005
2010
5
Credit aggregates: benchmark features



span the universe
not involve quality
and aggregation
issues
include marginal
movements even in
short run
Short-run discrepancy between housing loans and RPPI
1.5%
Semi-annual growth rate of
total outstanding of housing
loans (left-hand, source: Flow
of funds compiled by BOJ)
1.0%
4
0.5%
2
0.0%
0
-0.5%

6
Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep
2006 2006 2007 2007 2008 2008 2009 2009 2010 2010
may not be robust
growth rate of
to structural change -1.0% Semi-annual
Urban Land Price Index for top
either in capital
6 cities (right-hand, source:
-1.5%
Japan Real Estate Institute)
markets or property
supply
Chihiro Sakuraba "Workshop on RPPIs"
10-11 February 2011
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-4
-6
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Issues
a.
b.
c.
d.
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
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Why we need a benchmark for RPPIs?
a.
•
•
•
b.
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
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