Elements for a Conceptual Framework

         What makes the construction of a residential property price index (RPPI) so challenging? This question was addressed in Chapter 1 of this Handbook but it will be useful to remind readers about the main problems, which are as follows:                      The compilation of price indices typically relies on matching the prices for identical items over time. However, in the housing context, each property has a unique location and usually a unique set of structural characteristics. Thus, the matched model methodology will be difficult or impossible to apply.             Transactions are sporadic.             The desired index number concept may not be clear, or put another way, there are several distinct purposes for which an RPPI is required and, broadly speaking, different purposes require different indices.             For some purposes, notably the construction of national balance sheets and the estimation of user costs of owner occupied housing, a decomposition of a property price into land and structures components is required but it is unclear how best to accomplish such a decomposition. This issue will be discussed in more detail in Chapter 8 below.               