<p>How do house price changes affect the cost of living? The retail price index in the UK does not directly incorporate house price changes. Instead it uses mortgage interest to capture the cost of owning a home. This is a useful method from many perspectives. However, from a consumer welfare perspective, while mortgage interest does capture the cost of a particular service, it does not capture the cost of housing services. The shadow price of housing captures the welfare cost to a household of changes in housing prices. In this paper we create a new shadow price index using RPI data and the shadow price of housing and investigate how replacing the mortgage interest with the shadow price of housing affects measures of the cost of living.</p>
Authors
Laura Blow
cemmap co-Director University College London
Lars Nesheim is a Professor of Economics at UCL and Co-Director of the Centre for Microdata Methods and Practice (cemmap).
Working Paper details
- DOI
- 10.1920/wp.cem.2009.0309
- Publisher
- IFS
Suggested citation
Blow, L and Nesheim, L. (2009). A retail price index including the shadow price of owner occupied housing. London: IFS. Available at: https://ifs.org.uk/publications/retail-price-index-including-shadow-price-owner-occupied-housing (accessed: 18 May 2024).
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