A house price index defined in the potential outcomes framework

N.T. Longford


Current methods for constructing house price indices are based on comparisons of sale prices of properties sold two or more times and on regression of the sale prices on the attributes of the properties and of their locations. The two methods have well recognised deficiencies, selection bias and model uncertainty, respectively. We introduce a new method based on propensity score matching. The average house prices for two periods are compared by selecting pairs of properties, one sold in each period, that are as similar on a set of available attributes (covariates) as is feasible to arrange. Uncertainty associated with the matching is addressed by multiple imputation. The method is applied to a register of transactions of residential properties in New Zealand and compared with the established alternatives.


October 2009