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Improvements to sources and methods for imputed rental

National Accounts includes the concept of ‘imputed rental of owner occupied dwellings’. Imputed rental is an estimate of the housing services produced and consumed by households who live in their own dwelling. It is calculated to allow comparisons across countries with very different institutional frameworks for housing, and can be thought of as the value that owner-occupiers effectively pay themselves to rent their own homes. Imputed rental represents around 10% of GDP as measured by expenditure.

ONS introduced new data sources and methods for imputed rental in UK National Accounts published on and after 30 June 2016, and with the UK Blue Book 2016. This resulted in significant upward revisions to the value of imputed rental for the UK. There are changes to the level and growth of both the current price (CP) and chained volume measure (CVM) of Gross Domestic Product (GDP). Details of the changes made by ONS for the UK estimates are available at https://www.ons.gov.uk/releases/impactofmethodschangestothenationalaccountsandsectorfinancialaccountsq11997toq12016

https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/articles/changestonationalaccounts/imputedrental

The Scottish Government has also revised imputed rental using very similar data sources and methods. This page explains these improvements. This development was introduced as part of the annual Supply and Use Tables release for 1998-2013 and quarterly Gross Domestic Product statistics for Quarter 1 2016 (20 July 2016).

The UK development will not be incorporated into Regional Accounts until December 2016 and so would not normally be picked up by the Supply & Use Tables until summer 2017. To avoid this delay, and to ensure that GDP estimates for Scotland remain comparable with the latest UK results, we have included figures on a similar basis at this time. This results in a significant upward adjustment from the latest Regional Accounts constraints based on Blue Book 2015, as detailed below.

What is Imputed Rental?

Owner occupiers’ imputed rental is an estimate of the housing services consumed by households who are not actually renting their residence. It can be thought of as the value that owner-occupiers effectively pay themselves to rent their own homes. Of course no such payment occurs in reality, and so the payment must be “imputed” (or modelled).

Measurement of imputed rental is required by the international systems of national accounts as part of GDP to ensure that the valuation of housing services is calculated on a consistent basis over time and between countries. For example: if in one year everybody swapped homes with their neighbours and charged actual rental to each other, then the use of imputed rental ensures that there would be no change to the overall value of housing services consumed by the population; likewise, the use of imputed rental ensures that the level of GDP is not systematically higher in countries with higher prevalence of rented dwellings compared to those with higher prevalence of owner occupied dwellings.

How is it measured?

The European System of Accounts (ESA 2010) specifies that imputed rental should be measured using a ‘rental equivalence’ model. This method estimates an imputed rental value of each owner occupied dwelling by using the private sector rental value of similar properties. This can be viewed as the marginal opportunity cost of rental for owner occupiers

The current price measure is calculated first, using data on owner occupied housing stock stratified by dwelling type (1, 2, 3, 4+ bedroom properties). Within each of these strata, imputed rental is calculated as the average price of a privately rented dwelling, multiplied by the number of dwellings. Total imputed rental is simply calculated as the sum of all dwelling types.

For the years 2010-2014 estimates have been created using specifically Scottish data. The stock of owner occupied dwellings in Scotland is sourced from DCLG and the proportion of this stock with different numbers of bedrooms is sourced from the Scottish Household Survey. Prices are sourced from Scottish Government private sector rental statistics. For years prior to 2010 there is consistent data on housing stock, but not prices. Imputed rental is therefore back-cast from 2009-1998 in line with Scottish housing stock and changes in average UK prices.

The chained volume measure of imputed rental is calculated by deflating the current price value by a price index of owner occupier housing costs. The volume measure is not defined purely by the owner-occupied housing stock, as this method would not properly capture quality improvement in the stock.

In the newly revised UK results, the volume measure of imputed rental is calculated using the Owner Occupied Housing (OOH) component of CPIH to deflate the current price estimate in recent years, with alternative price sources based on the Living Costs and Food Survey used for earlier years in the series. For the Scottish estimates, we would ideally make use of the Scottish component of CPIH housing costs, but this is not available at this time. We therefore apply the assumption that prices in Scotland have evolved at the same rate as UK average prices (but not at the same level), and that the UK price series is therefore appropriate for Scotland. In practice, and to ensure direct comparability, we use the UK implied deflator calculated by dividing expenditure on imputed rental (Consumer Trends) by the chained volume measure of imputed rental (GDPo Low Level Aggregates). 

What is the impact of the changes

The previous estimates of imputed rental for Scotland were based on results in the ONS Regional Accounts, derived from a model based on house purchase prices, not rental equivalent prices, and consistent with UK Blue Book 2014. On this basis, imputed rental in Scotland ranged from £3.9 billion in 1998 to £10.1 billion in 2012. These values represented between 6.6% of the UK total in 1998 to 6.8% of the UK total in 2012.

On the new basis, calculated independently of Regional Accounts and equivalent to UK Blue Book 2016, imputed rental in Scotland is now estimated to have ranged from £8.7 billion in 1998 to £13.1 billion in 2012. Compared to the latest UK statistics, this represents between 7.8% of the UK total in 1998 and 8.0% of the UK total in 2012.

The revised Scottish figures have therefore increased because of both the increased valuation of imputed rental seen across the UK as a whole using the new prices data, and also because the improved methodology using rental prices (instead of purchase prices) indicates a higher proportion of UK imputed rental to be in Scotland.

For comparison, the proportion of total UK owner occupied housing stock in Scotland has ranged from 8.3% in 1998 to 8.7% in 2012. The imputed rental results therefore demonstrate that Scotland has lower rental prices than the UK average, with average imputed rental per dwelling in Scotland at 92% of the UK level. 

The imputed rental revision appears in the national accounts as an increase in the following components:

  • GDP (production/output approach) – increased output and GVA in real estate industry

  • GDP (income approach) – increased GOS and GVA in real estate industry

  • GDP (expenditure approach) – increased HHFCE on Housing

  • GDHI – increased HH Sector GOS (Primary Income Resources) and increased GDHI

The impact of the imputed rental methodology improvement, as well as other sources of revision to annual Scottish GDP for 1998-2013 is shown in the chart below.

Annual GDP Revisions