Chapter 14 Dwelling Services

Chapter 14 Dwelling Services

Introduction

Layout of the chapter

There are three main parts to this chapter:

·  The first part explains the methods that may be used to estimate expenditure on dwellings as part of final consumption expenditure of households. Separate sections cover the estimates for “modern” and “traditional” dwellings. (See below for the distinction between modern and traditional dwellings)

·  The second part describes the information required on rents. This part also describes the quantity approach which is a method of directly estimating the relative volumes of dwelling services. No information on rents is required and PPPs are derived indirectly by comparing the volumes with the expenditure figures.

·  The third part summarises the data on dwelling services that participating countries are required to submit for 1CP 2004.

Scope of rents

The scope of rents for dwellings (Basic heading 11.04.10.0) is explained in the Classification of Final Expenditures on GDP.[1] The main points to bear in mind are that:

·  Rents are payments for the use of a dwelling, the land on which it is situated and a garage or parking space in connection with the dwelling.

·  Rents do not include payments for the following goods or services, all of which are shown as separate expenditure items under final consumption expenditure of households: (The correct basic headings are shown in brackets.)

o  charges for water supply (11.04.41.1);

o  refuse collection and sewerage collection (11.04.42.1);

o  co-proprietor charges in multi-occupied buildings for caretaking, gardening, cleaning stairwells, heating, lighting, maintenance of lifts and refuse disposal chutes, etc. (11.04.42.1);

o  charges for electricity (11.04.51.1) and gas (11.04.52.1);

o  charges for heating and hot water supplied by district heating plants (11.04.55.1).

·  Rents include the costs incurred by the owner of the dwelling for current repairs and maintenance such as replacing that which is broken, painting the exterior woodwork, replacing damaged roof tiles, etc. They do not include expenditures for major renovations, reconstruction, or enlargements of dwellings; these expenditures are treated as gross fixed capital formation.

Modern and traditional dwellings

The measurement of dwelling services is made more difficult in some countries because many households live in what are here referred to as “traditional”, as opposed to “modern”, dwellings.

·  Modern dwellings are generally built by professional building companies. The walls are made of durable materials such as concrete, ceramic brick, cement blocks or wooden planking, and the roofs are covered in tiles, wooden shingles or metal sheeting. Most dwellings in urban areas will be classified as modern

·  Traditional dwellings are generally built by family members. The walls are made of less durable materials such as dried clay, sun dried bricks, bamboo or latticework and the roofs are made from reeds, straw or palm fronds. Traditional dwellings are generally located in rural areas and the families that occupy them are most likely to be engaged in agriculture.

Traditional dwellings present particular difficulties for the national accounts and for international comparisons because there are almost no explicit costs involved in their construction. Family members collect the materials themselves and provide their labour free of charge. In addition, traditional dwellings are rarely if ever sold or rented to third parties.

Different measurement methods usually have to be used for modern and traditional dwellings. For this reason, in countries where there are substantial numbers of both traditional and modern dwellings, the basic heading for actual and imputed rentals for housing (11.04.10.0) must be split into:

·  Actual and imputed rentals for modern housing (1.04.10.0/A); and

·  Actual and imputed rentals for traditional housing (11.04.10.0/B).

In some countries there will be no traditional dwellings and in others traditional dwellings may form only a small part of the dwelling stock. As a rule of thumb, if less than 5% of dwellings are of traditional construction, it will not usually be worthwhile to make estimates in respect of such dwellings. They will be omitted from the estimates of expenditure on dwelling services and no PPPs will be estimated for them.

Part 1. Expenditure on dwelling services

A. Modern dwellings

Standard procedure

Expenditure on dwelling services consists of two components: actual rents paid by households that rent their apartment or houses from another person who owns the dwelling - and rents that are imputed for households that live in dwellings that they themselves own.

Information on rents actually paid may be obtained directly from a household expenditure survey. An alternative is to calculate the average rents for various types of dwellings and multiply the numbers of rented dwellings of each type by their average rents. The source for information about rents will often be a special rent survey carried out to meet the needs of the consumer price index. The numbers of rented dwellings may come from a population or housing census or, in most industrialised countries, from administrative records on dwellings which are maintained by local authorities for tax purposes.

In practice the straightforward procedure described above is more complicated in some countries because employers provide housing below cost to their employees or because rents are subsidised or controlled by government.

·  If employees are provided with free or cheap accommodation by their employers, the difference between what they pay and the market rent for that type of accommodation is treated in the 1993 SNA as income in kind. It becomes a component of compensation of employees and the same amount is added to expenditure on rents in household final consumption expenditure. In this case, the rents reported by the employees in the household expenditure or rents survey must be adjusted to the estimated market rent in calculating actual expenditure on dwelling services. The market rent is obtained by adding the estimated income in kind to the rent actually paid.

·  In some countries, governments provide subsidised accommodation for low-income households. In this case, the 1993 SNA treats the subsidy as a social transfer in kind to the households concerned and not as income in kind. The subsidy is treated as government expenditure on dwelling services and not as final consumption expenditure of households. As a result, the rents reported by these households do not need any adjustment; the (subsidised) rents actually paid by these households are the correct ones to use in calculating actual expenditure on dwelling services.

·  Another common practice is for governments to impose controls either on the level of rents or on the annual increases that owners can impose. Usually the regulations on annual increases apply only to sitting tenants and owners are free to set rent levels for new tenants. This can result in a situation where a range of rents are paid for similar dwellings – very low for long-sitting tenants and substantially higher for new tenants. This is one example among many where governments interfere with the functioning of the market but no special adjustments are called for. Expenditure on rents will be the sum of all these different rents.

The standard procedure for the measurement of imputed expenditure on dwelling services was explained in Chapter 3 (Final Expenditures). For convenience the relevant section is included here:

The general rule is that rents of dwellings occupied by their owners should be imputed by reference to rents actually paid for similar dwellings. “Similarity” in the case of dwellings is usually judged by considering type of dwelling (single family or multi-family), location (city centre, suburban or rural), and facilities (floor-space, running water, indoor toilet, electricity, central heating, etc.). The recommended approach is to complete a matrix such as in the table below showing the average rents actually paid for each type of dwelling. The number of owner-occupied dwellings of that type is then distributed over the same matrix to obtain, by multiplication, the total imputed rents of owner-occupiers.

Illustrative matrix for imputing rents of owner-occupied dwellings.
1) Single-family dwelling
Location / Facilities
Floor space under 30 M2 / Floor space 30 – 70 M2 / Floor space over 70 M2
Running water / No running water / Running water / No running water / Running water / No running water
Capital city
Central location
Suburb
Other large cities
Central location
Suburb
Rural areas

Tables similar to the above are required for each type of dwelling that is separately distinguished. Note that the table above is purely illustrative. Only two aspects of “facilities” are shown – floor space and water supply. Other facilities such as indoor toilet, electricity supply, central heating, air-conditioning, etc., may need to be added as cross-classifications. For example, dwellings with less than 30 m2 of floor space and with running water may need to be further divided into those with and without indoor toilets. The classification by location and by facilities should be determined by the extent to which these various factors influence the level of rents and this will vary from one country to another. Equally important is the availability of data. Clearly the matrix cannot be more detailed than the information that is available on the characteristics both of owner-occupied and of rented dwellings.

User cost approach

In some cases the standard procedure described above cannot be applied. This is the case where so few dwellings are rented that rents actually paid cannot be regarded as typical. In some countries most of the dwellings available for rent are occupied by foreigners or by employees of government or large public enterprises at rents which cannot be regarded as representative. In other cases, dwellings may only be available for rent in the capital city.

The following rules are recommended for deciding when the standard approach should not be used:

·  less than 25% of all dwellings in the country are actually rented;

·  more than half of the rented dwellings are occupied by foreigners or by employees paying low rents; and

·  rented dwellings are not evenly distributed over all parts of the country.

When the standard procedure cannot be used, expenditure on dwellings is estimated by the user cost approach. The user cost approach consists of estimating each of the costs that the owners of the dwelling would need to take into account in fixing a market rent if they decided to rent their dwellings to other people rather than to live in them themselves. These costs (with 1993 SNA codes in brackets) are:

·  Intermediate consumption (P2).

·  Other taxes on production (D29).

·  Consumption of fixed capital (K1).

·  Net operating surplus (B2).

The sum of consumption of fixed capital and the net operating surplus can be described as the capital service provided by the dwelling and the net operating surplus is sometimes referred to as the cost of capital. Here, however, we use the terms that are used in a national accounts context.

Table 1 is in the form of a worksheet and lists the various data items that are required to impute expenditure on owner occupied dwelling services by the user cost approach.

The Table is completed for each type of owner-occupied dwelling that can be separately distinguished in the housing statistics available in each country. At a very minimum it would be desirable to distinguish:

·  Single-family dwellings (houses or villas)

·  Apartments below a certain floor space (e.g. below 30 m²)

·  Apartments above a certain floor space (e.g. 30m² or more)

Table 1. Worksheet for estimating expenditure on owner-occupied dwelling services by the user-cost method

Item No. / Description of the item / Value
Intermediate consumption
UC 01 / Expenditure on maintenance and repair of owner-occupied dwellings
UC 02 / Gross insurance premiums paid on owner-occupied dwellings
UC 03 / Insurance claims paid to owners (minus)
UC 04 / Net insurance premiums paid by owners. (UC02) –(UC03)
UC 05 / Total intermediate consumption. (UC 01)+(UC 04)
Other taxes on production
UC 06 / Taxes paid by owners on dwelling services
UC 07 / Taxes paid by owners on the value of owner-occupied dwellings and their associated land
UC 08 / Total taxes paid by owners. (UC06) + (UC08)
Consumption of fixed capital
UC 09 / Consumption of fixed capital on owner-occupied dwellings at current prices
Net operating surplus
UC 10 / Current market value of the stock of owner occupied dwellings at the beginning of the year
UC 11 / Current market value of the stock of owner occupied dwellings at the end of the year
UC 12 / Current market value of the stock of owner occupied dwellings at mid-year ((UC10) + (UC11))/2
UC 13 / Rate of return on owner-occupied dwellings in percent per annum.
UC 14 / Net operating surplus. (UC13) * (UC12)/ 100
Expenditure on owner-occupied dwelling services
UC 15 / Expenditure on owner-occupied dwelling services. (UC05) + (UC 08) + (UC09) + (UC14)

Notes to Table 1

(UC 01) Expenditures on maintenance and repair are expenditures on replacing or repairing parts of the dwelling that are broken or dilapidated; repairing the roof, replacing window frames, painting the outside of the building are examples. Maintenance and repair expenditures do not extend the service lives of dwellings beyond their previously expected lifetimes and do not involve enlarging the dwelling. (Expenditures of this kind are treated as gross fixed capital formation in the SNA).

Information about expenditures on maintenance and repairs is usually obtained from a household expenditure survey although some countries estimate them from a supply/use table. In some countries expenditures on maintenance and repair of dwellings are incorrectly shown as a separate component of final consumption expenditure of households. When the user cost approach is used, they must be included as part of rents and not as a separate expenditure item. Note also that when countries use the standard procedure, rents will already include these expenditures and showing them as a separate item of household consumption expenditure will lead to double counting.

(UC 02) Gross insurance premiums on dwellings should only include insurance on the dwellings themselves and not on their contents; premiums for the latter are a separate item of household final consumption expenditure. When data are available only for the total of both kinds of insurance, the necessary split between the two can be estimated as being proportional to the relative values of the stock of dwellings and the contents.