The Land Registry House Price Index (HPI) is a valuable tool for analysing housing market trends in England and Wales. However, accurate representation and understanding of these numbers are crucial to avoid misleading claims and opinions about the UK housing market. This guide aims to clarify the proper use and limitations of the Land Registry HPI.
Key Points to Understand
Geographic Coverage
England and Wales Only: The Land Registry HPI numbers only cover England and Wales. Data from Scotland and Northern Ireland are not included. It is essential to specify this limitation to avoid misleading representations of the entire UK housing market.
Data Accuracy and Quality
Reduction of Errors: The number of obvious errors and duplications in the Land Registry data has significantly decreased from 181,000 identified in 2015 to under 20,000 today. While this improvement enhances data reliability, the base data still has limitations.
Purpose and Design of the HPI
Algorithm-Adjusted Index: The Land Registry HPI is not designed to represent the average prices properties are being sold for. Instead, it is an algorithm-adjusted index used for economic forecasting. It provides an approximate value for 29.3 million properties based on the prices achieved by a small percentage of homes that transact each year.
Exclusion of Outliers: To reduce the impact of outliers, the Land Registry does not count sales until a property has transacted at least twice since 1995. This means properties that sell less frequently, such as larger "forever homes," are not represented.
Impact of Transaction Frequency
Retirement Bungalows and Probate Sales: Properties like retirement bungalows, which sell more frequently, are included in the index. Probate sales, often resulting from the passing of retirees, can skew the numbers. These types of sales tend to occur more frequently than transactions of larger, less frequently sold homes.
Misinterpretation of Data
Theoretical Values: The HPI represents theoretical values that aim to estimate the value of properties, including those not likely to be sold soon, such as local authority or housing association portfolios. Using these figures to comment on the current housing market without understanding their theoretical nature can lead to inaccurate portrayals.
Conclusion
To contribute meaningfully to discussions on the housing market, it is crucial for agents, editors, journalists and commentators to understand and accurately represent the Land Registry HPI. By acknowledging its limitations and the nature of its data, we can provide a clearer and more accurate picture of the housing market.
This approach will help avoid the dissemination of misleading information and foster informed decision-making among policymakers and the public.