Civil Engineering Reference
In-Depth Information
Figure 14.1
Calculating a price index
In the example two baskets of goods are compared and a base year of 2000 is selected.
2010, expressed in relation to 2000, gives a price index of 117; in short an increase of 17%.
2010
Price Index =
x 100
2000
£35.60
£30.48
Price Index =
x 100
117
Price Index =
capital and rental values for more than 50,000 commercial properties on a regular
basis. The data surveys 23 countries, with some markets going back to a base year
of 1981. Similarly, the largest two mortgage lenders - Nationwide and Halifax -
publish a house price index each month, based on comparisons of the prices of four
different house types across 13 regions of the UK. These two financial institutions
base their indices on the mortgage offers they have made in the previous month.
Houses costing over one million pounds are excluded, as it is assumed that this
may distort the average picture. A more comprehensive but less up-to-date measure
comes from the Land Registry. This index is based on stamp duty transactions and,
therefore, covers every property deal in England and Wales. However, it is slow to
reveal what is happening in the market since the stamp duty is paid at the end of the
property transaction and that can be four or five months after the sale price has been
agreed - and house prices can rise or fall by as much as 20 per cent within three
months. Recently, two websites - Hometrack and Rightmove - have added further
indices to this set. They collect information from 4,000 estate agents on asking
prices and agreed prices and cover more properties than Nationwide and Halifax.
All these indices are monitored and collated by the Department for Communities
and Local Government (DCLG) to form a further measure of house prices.
Each house price index produces a different estimate of house price inflation.
This is because the indices are dependent both on the sample data that has been
used to make up each specific basket and the way that each index is subsequently
calculated. For interest, we contrast the DCLG data with the Nationwide, Halifax
and Land Registry indices in
Figure 14.6
(see page 261).
House price indices are important because they are used by the government
and the monetary policy committee as an indicator to assess the economy. For a
