Estimating regional house price levels : Methodology and results of a pilot project with Spain

While indices tracing the evolutions of regional house prices are increasingly available, this is less the case for similar data on house price levels. And where data on house price levels exist, they are not necessarily consistent with the patterns observed from house price indices. Yet, consistent regional statistics on house price levels are fundamental to assess housing affordability, potential barriers to labour mobility across regions, and for the design of housing policies. This article puts forward a method to compile regional house price levels that are consistent with the evolutions given by quality-adjusted house price indices, representative of the underlying stock of dwellings, and based on the information on house price levels that is available at all dates rather than in a single reference year. This method could be scaled up to different countries. The results obtained with Spanish data show that the decline in house prices following the global financial crisis of 2008-09 initially reduced the dispersion in house prices across Spanish regions, but this dispersion has increased again afterwards, and since 2016, it exceeds the one recorded in 2008. A comparison of price-per-m² to regional-income ratios shows that the relative housing affordability in the region of Madrid deteriorated compared to all other Spanish regions in the last decade. Monitoring whether shifts in housing demand following the COVID-19 pandemic will reverse this trend will be key.