A technical advisory group (TAG) set up by the Reserve Bank of India (RBI) has recommended the creation of a Housing Start-up Index (HSUI) to be based on newly-built residential units in urban India and compiled on a quarterly basis. The central bank is likely to launch the index, work out the computation methodology and monitor its evolution.

The number of housing starts during a period indicates the demand and supply situation as reflected in conversion of building permits into actual starts. Housing starts are considered lead indicators of economic activity due to their strong forward and backward linkages with other sectors.

The TAG said the HSUI would be confined to newly built residential units in urban India, whose construction is authorised through the issuance of building permits. The start-up co-efficients should reflect the recent experience of converting the housing permits into housing starts and the number of permits issued during the past two years. The group made its recommendations after studying the practices followed in Canada and USA.

Post liberalisation, RBI has been largely looking at equity prices to keep a check on asset price inflation. The significance of real estate in the economy has increased substantially in the recent years, compelling the central bank to also look at real estate prices. The RBI had, in fact, made it more expensive for banks to lend to real estate as a counter-cyclical measure.

The Case-Shiller Home Price Indices are a useful tool for measuring the movement of nominal house prices in the United States. The index indicates the price direction by using sales data for the same house over time.

The HSUI will be initially based on co-efficient matrices constructed for the six metros.

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