The problem that is Imputed Rent and hence GDP

Over the lifespan of this website I have explained quite a few problems with our main measure of economic well-being and growth called Gross Domestic Product or GDP. This time I will focus on the problems and issues caused by a rarely discussed issue called imputed rent. This concept skulks away in the back ground partly because it is from the income version of GDP and the main figure is the output version. For those who are not aware of the state of play there are 3 ways of measuring GDP which are output, expenditure and income. Output is the most commonly used and if you here GDP mentioned then invariably that is what is meant but not every version is as for example Japan has a more expenditure based calculation.

There have been two roads which have led me to the Income GDP version. They are that the American numbers were a better guide post credit crunch to economic activity than the output version, and my interest in the housing sector reflected in this instance by the rent issue. Sadly such numbers are restricted access in the UK as a problem in particular occurred in the late 1980s under the then Chancellor but now Lord Lawson. In theory the 3 versions are supposed to come to the same answer but back then the variation was wide enough for him to order our statisticians to prioritise the output numbers and “adjust” the other versions. I can give you an example from Portugal of how the 3 numbers can vary as a while ago when I was looking at the data the divergence was 4%. It makes you think about those who discuss 0.1% changes does it not?!

What is Imputed Rent?

The story starts here.

In the national accounts, owner occupiers are deemed to be unincorporated businesses producing housing services, which they then consume.

Are “deemed to be”! So here is the first issue which is that it does not actually exist. After noting that let us press on.

The principle involved is to impute a rental value for an owner-occupied property, which is the same as the rental that would be paid for a similar property in the private rented sector. The imputed rent methodology calculates rent for owner occupiers and rent-free dwellings.

Why is this done. The US Bureau for Economic Analysis explains.

 The largest imputation in the GDP accounts is that made to approximate the value of the services provided by owner-occupied housing.  That imputation is made so that the treatment of owner-occupied housing in the GDP is comparable to that of tenant-occupied housing, which is valued by rent paid.  That practice keeps GDP invariant as to whether a house is owner-occupied or rented.

Their explanation is from 2006 when Imputed Rent was already 6.2% of GDP and the largest imputation which combined were 14.8% of GDP. It then argues this.

Without imputations, the GDP story is incomplete and can be misleading.

The other side of the argument is that including things which do not exist – owner occupiers do not receive Imputed Rent – is misleading.

Measurement of Imputed Rent

As it does not exist it cannot itself be measured and the only route to it is to measure actual rents. This poses its own problems in practical terms as this from the UK ONS demonstrates.

Imputed owner occupier rent is calculated from an average rent per room being multiplied by the total number of rooms in owner-occupied dwellings. Rent per room is calculated from Actual Rental (see section 02.4.1) and number of rooms rented (based on Living Cost and Food survey – LCF).

In the UK they will have some idea of the number of rooms but there will be errors in those numbers. However the main issue is whether we have numbers for rents which are reliable. I am sure that there are issues in every country but the UK has had particular problems and this is linked to my articles on the CPIH measure of inflation which includes rents. My view is that this has been a shambles illustrated by the way that the UK establishment had to abandon its rental estimates because they were in disarray.

You might think that a complete change to the actual rental numbers would have a big impact on Imputed Rent. In fact they seemed to sail through it pretty much unscathed as all sorts of other adjustments were made to provide the same answer. Or as Kylie would put it.

I should be so lucky
Lucky, lucky, lucky

As the luck quotient rose the credibility one fell.

Upwards Revisions

Back in the 2013 Blue Book the UK ONS decided the Imputed Rent numbers had been too low.

There are upward revisions to the level of total annual HHFCE (national concept) in all years from 1997 to 2011. The largest revisions, of just under 2% of total HHFCE, are in 2008 to 2011.

HHFCE is Household consumption and increasing it by 2% is a big deal and it was Imputed Rent that did it. Actually it more than did it as looking at 2010 will explain. UK household consumption and hence GDP rose by £17.1 billion of which the rise in Imputed Rents was £33.6 billion. The difference was a rise in estimates of repairs of £12.7 billion and some smaller items such as smuggling.

The New Economics Foundation weighs in

Just over a year ago the NEF gave an idea of scale.

Inclusion of how much home-owners would pay if they actually rented boosted UK GDP in 2014 by £158bn – a 8.9% share

We also got an idea of the scale of the housing and Imputed Rent boom.

A growing proportion of GDP is nothing more than earnings from property. 12.3%  of the UK’s measured GDP in 2014 was rent and “imputed rent”…….Since 1985, rent and imputed rent have almost doubled as a share of GDP, from 6.2%.


In the last few days and weeks the situation has changed again and let me show how.

these changes will have a substantial impact both on imputed rental itself and on total current price GDP.

Okay how? I summarised it thus on the Royal Statistical Society website.

For those who have not looked at the numbers then nominal UK GDP has been revised up by at least £50 billion in each of the years 1997 to 2006 due to Imputed Rent and then by a declining amount up to 2011. To give an idea of scale VAT fraud is considered a big deal but changes to it top out at £2.1 billion in 2011.

The official view on the changes is as shown below.

Although this improved the series for the most recent period, bringing it in line with the CPIH, it also led to a discontinuity (which has now been removed in the new method).

The discontinuity peaked in 2010 and I would tell you by how much but the link to the numbers on the official ONS site take you to a page which does not exist. Friday’s update tells us this.

In 2014, annual real GDP growth has been revised up by 0.3 percentage points from 2.9% to 3.1%,

Not the strongest grasp of mathematics there I think! Anyway there was yet another change to Imputed Rent as it added 0.1% to economic growth in that year (and in 2012 too).


You are perhaps waiting for an idea of scale so let me help out from the last quarter of 2015 when Imputed Rentals in the UK reached £43.2 billion in current price terms compared to £24 billion a decade before. That is a lot for a number which not only has theoretical issues in terms of its concept but the way we have tried to measure it has been very flawed as otherwise we would be needing all these “improvements” would we?! There was an obvious problem here in a nation the size of the UK.

The LCF data are based on around 400 households’ rental prices per quarter,

So whilst I welcome the efforts to improve the quality of the UK data on rents – which also feeds into the inflation numbers – there is a clear problem with what we have been told in the past. This feeds into less confidence in what we are being told now. At a time of house price booms this poses more than a few questions for the UK economic landscape and as for the Imputed Rent numbers well they continue to sing along with Jeff Lynne and ELO.

You took me, higher and higher
It’s a livin’ thing,
It’s a terrible thing to lose
It’s a given thing
What a terrible thing to lose.

Oh and this whole episode provides another critique to nominal GDP targeting.


14 thoughts on “The problem that is Imputed Rent and hence GDP

    • Grotesquely, would probably be a suitable answer.

      It’s clearly safe to say that a fair chunk of the recovery has been down to an accounting trick.

      I’ve often thought they’ll start imputing taxi fares next,you know where you could have taken a cab but drove your car.

      Imagine all the economic growth that would deliver.

  1. “The LCF data are based on around 400 households’ rental prices per quarter,”

    LOL !

    and these guys call themselves professional?

    professional liars maybe


  2. silly question Shaun but if we remove imputed rent as its frankly bogus and then removed imputed sex and drugs because again its fake ( or lies as you please )

    did GDP grow at all ?


    • Hi Forbin

      If we removed Imputed Rent then the output GDP numbers would be much larger than the income version. That would be a difference of around £168 billion in 2015 which even the most unwary would probably question.

      If we removed the sex and drugs effort then both numbers would drop and actually so would expenditure. Measuring expenditure would perhaps be the most difficult of all as there would not be many willing to declare their expenditure on say coke or hookers. The sex and drugs numbers may be the worst of all as they are often based on surveys from the past.

  3. Great blog as usual, Shaun.
    It seems that there is a difference in the scope of imputed rents in UK GDP and US GDP. Anne Harrison told me that the Office of National Statistics treats imputed rents on foreign secondary residences owned by British residents as imputed rent imports while imputed rents on secondary residences in the UK owned by non-residents are treated as imputed rent exports. According to Kyle Brown of the US Bureau of Economic Analysis, all imputed rents on secondary residences in the US are treated as part of GDP. There is no such thing as exports or imports of imputed rents.
    If calculating imputed rents in general is difficult, calculating imputed rental imports, which would be a deduction from GDP, must be much worse.
    Happy Victoria Day! Bonne fête des patriotes!

    • Hi Andrew and Happy Victoria Day to you as well.

      I was aware that the UK treatment of imputed rents was complex but was not aware that the US simplifies it so thanks for that. In terms of scale the changes in imports and exports of imputed rents are relatively small.

      “The impact on GDP from the changes to imputed rental exports is small. The impact on the balance of trade is no greater than £600 million in a single year, in current prices”

      Of course £600 million is a tidy sum of money though….

      As to such calculations being difficult I heartily concur and the numbers could easily be way out and how would we ever really know? There are some sweeping assumptions in the methodology. However with more foreign ownership of UK properties there will be increasing flows of imputed rent abroad.

  4. Shaun,I have long thought that official figures are not fit for purpose and you have just given me further reason to doubt their veracity! It matters less when growth is at 5 or 6% or inflation at similar levels as it is not unreasonable to assume that whilst the actual figure is not entirely accurate we are at least growing or inflation is positive. When we have levels at close to zero or only 1 to 2% at best then these things matter. As it stands i suspect we only have the vaguest idea if our GDP is positive, 0 or negative! In these circumstances the skip index, credit growth, employment figures or simply what you observe out and about are a better guide to reality.

    • Hi Pavlaki

      Perhaps Forbin was right when he suggested a while back that we needed GDP growth of above 2% for the ordinary person to feel any benefit. Quite a few numbers have gone down that road such as the PMI business surveys where 50 is supposed to be stagnation but i would be more realistic to use say 49-51 for that.

      But yes we need to keep a sharp lookout for other indicators as well.

  5. Excellent work Shaun. They like to shout about small GDP increases but fail to mention that imputed rent increases won’t make people richer. Cheaper housing costs increase my purchasing power

    • Hi ExpatInBG

      The UK establishment just do not get that concept as this today from the Chancellor George Osborne indicated.

      ‏@George_Osborne 10h10 hours ago
      By 2018 house prices hit by between 10% and 18% after an EU exit.

      He tries to cover it up by saying mortgage costs would rise in fact he said it just as JP Morgan forecast a 0.5% Bank Rate cut!

  6. Shaun,

    First of all,thanks for talking about this issue.I really can’t think of the last time I saw this issue discussed anywhere with a higher profile than your blog in the UK.Mish Shedlock in the US often discusses it,but take away the blogosphere and the silence in the MSM is deafening.
    In this piece,Mish suggests imputing lawn cutting.

    As with so much of modern economic practice,I struggle to even consider how a couple of academics in ivory towers on public pensions could have seen imputed rents as anything other than accounting fiction.They’re as complicit in this as the politicians in Westminster

    How can you float a burgeoning national debt on something that’s non existent?And that’s before you start picking apart the obvious inconsistencies in the compilation of the figures.

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