1. Workshop on Residential Property Price Indices
RPPI Handbook
Chapter 5: Stratification or ‘Mix Adjustment’ Methods

2. Contents 5.1 Simple mean or median indexes 5.2 Stratification
5.3 Aggregation and weighting issues when stratification methods are used
5.4 Main advantages and disadvantages
5.5 An example for the Dutch town of “A”
5.6 The treatment of seasonality for the Dutch example
Chapter 5

3. 5.1 Simple mean or median indexes
Measures of central tendency
Median is typically used
Noisy and (often) biased estimates of price change – changes in the quality mix
Chapter 5

4. 5.2 Stratification Simplest tool to control for mix changes
Effectiveness depends on stratification variables used - data availability issues
Age class as additional stratification variable could help to reduce the quality change problem
Mix adjustment has been widely used
Chapter 5

5. 5.3 Aggregation and weighting issues
Homogeneous stratum: unit value is appropriate (average) price
Sales RPPI: Fisher formula possible and preferred
Chaining will be best if price changes are fairly smooth
Stock RPPI: (fixed base) Laspeyres formula if timely stock data is missing
Chapter 5

6. 5.4 Main advantages and disadvantages
Adjusts roughly for compositional change
Easy to construct and to explain
Does not deal adequately with quality changes of individual dwellings
Some unit value bias (compositional change) will remain
Sampling variability (noise) or empty cell problems
Chapter 5

7. 5.5 An example for the Dutch town of “A”
Small town in the Netherlands
Data on sales for detached houses; 14 quarters, 2289 observations
Variables: selling price, land size (area of the plot), structure size (living space), age (decades)
Empty cells: matched-cell approach
Chapter 5

8. 5.6 The treatment of seasonality for the Dutch example
Each stratum (class of house) in each season is treated as a separate good
Rolling year fixed base Fisher indexes
Other seasonal adjustment methods also possible
Chapter 5