[OPE-L] How the imputed rental value of owner-occupied housing can boost GDP

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Sat Dec 24 2005 - 17:13:17 EST

As we know, the official national accounts concept of value-added includes
the imputed rental value of owner-occupied housing (OOH). This is the
average market-based rent that all domestically resident owner-occupiers
together would get, "if" they rented out their housing, and it is a
component of GDP (gross value added), whether measured according to income,
product, or expenditure method. Some feminist theorists complain that the
value of housework is not included in GDP, but, it could be argued at least
you have this imputed rent included.

Of course, in reality, most owner-occupiers do not rent out their housing,
precisely because they occupy it themselves, either freehold or paying
mortgage to a financial institution (though some might rent out part of the
house etc.). It's an imputation only, which does not measure any really
existing transaction volume, and strictly speaking, it's a fiction that
makes sense only in terms of a value theory in neoclassical economics,
according to which people earn rents from property ownership although they
don't earn them (the treatment of rents in national accounts is a separate
story; in general, you can say that, if business enterprises rent more
productive assets rather than owning them, GDP is reduced, and vice versa,
if they own more, GDP is increased; conceptually land rents, subsoil rents
and rents in respect of financial assets are excluded altogether from GDP,
and do not enter into the conventional national income measures).

However, what now is the real magnitude of the effect of OOH? From the US
online NIPA data set conveniently provided by the Bureau of Economic
Analysis, one can get figures to assess the overall quantitative implication
for the output total (annual figures in billions of current US$ and rounded
percentages to one decimal point; I've used Table 7.4.5 for OOH).

1960 OOH =  31.3  GDP =  526.4  percentage contribution of OOH to GDP =
1970 OOH =  61.3  GDP = 1,038.5 percentage contribution of OOH to GDP =
1980 OOH  = 178.4 GDP =   2,789.5 percentage contribution of OOH to GDP =
1985 OOH  = 280.8 GDP =  4,220.3 percentage contribution of OOH to GDP =
1990 OOH =  412.8 GDP  =  5,803.1  percentage contribution of OOH to GDP =
1995 OOH  = 531.2 GDP = 7,397.7 percentage contribution of OOH to GDP =
2004  OOH = 1,145.2 GDP = 11,734.3 percentage contribution of OOH to GDP =

As you can see,  the fraction keeps creeping up, and soon it will be double
what it was in 1970, first breaking that magic 10% of US GDP barrier,
especially given that home ownership among the US population has, with easy
credit, strongly increased (in 2004, there were 112 million US households of
which 77 million were privately owned, i.e. 68.8%. In 1976, the earliest
year for which I could find census data, it was about 42.7%.

So anyway, as you can see, just as with business enterprises, if more people
*own* homes rather than *rent* them, official total productivity measures
increase, and official total net output and GDP goes up. Yeah, you can say


It's been a hard day's night, and I've been working like a dog
It's been a hard day's night, I should be sleeping like a log
But when I get home to you, I'll find the things that you do
Will make me feel alright...

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