[A-List] How the imputed rental value of owner-occupied housing can boost GDP

[Michael Hudson]

I have an article coming out in the next Harpers (Feb?) on this very topic.
I can't quite find your figures, and my statistical books aren't at hand.
But  real estate's nominal "cash flow" does includes a non-cash element: the
imputed rental value for homeowners, as if they rented out their homes to
themselves. This is called the "rental income of persons." It is estimated
to be $104 billion in 1995, and $116 billion in 1996 (NIPA Table 8.10, line
21). However, as will be discussed below, the NIPA estimates for this
category of imputed homeowner rent are only about half as large as the BLS
statistics tracking what owner-occupants themselves believe the magnitude to
be -- some $225 billion in 1995.
    There's been a change of personnel at NIPA and their statistics are not
quite as open as before.
    Michael Hudson



On 12/24/05 5:13 PM, "Jurriaan Bendien" <adsl675281 at tiscali.nl> wrote:

> 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 =
> 5.9%
> 1970 OOH =  61.3  GDP = 1,038.5 percentage contribution of OOH to GDP =
> 5.9%
> 1980 OOH  = 178.4 GDP =   2,789.5 percentage contribution of OOH to GDP =
> 6.4%
> 1985 OOH  = 280.8 GDP =  4,220.3 percentage contribution of OOH to GDP =
> 6.7%
> 1990 OOH =  412.8 GDP  =  5,803.1  percentage contribution of OOH to GDP =
> 7.1%
> 1995 OOH  = 531.2 GDP = 7,397.7 percentage contribution of OOH to GDP =
> 7.2%
> 2004  OOH = 1,145.2 GDP = 11,734.3 percentage contribution of OOH to GDP =
> 9.8%
> 
> 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
> OOH!!
> 
> Jurriaan
> 
> 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...
> 
> 
>