Quality-Adjusted Repeat-Sale House Price Indices

In the standard repeat-sales method, the maintained assumption is that the quality does not change between a house?s two sale dates. This assumption has been called into question. In particular quality changes from renovations carried out between a house?s two sales are not accounted for in the repeat- sales method. In this paper, I consider four simple adjustments to the standard repeat- sales method that attempt to control for quality changes between sales: in- cluding an intercept term; including a set of neighbourhood indicators as independent variables; de?ating the dependent variable appreciation rates by an estimate of renovations between sales; and dropping short-hold repeat- sales. I fi?nd that the neighbourhood and renovations methods work best and that the standard repeat-sales house price index signi?cantly over-estimates housing in?ation by over twenty percentage points over a a decade