UK GDP accounts for profits on sale of home

A house is built and sold to a family as their primary residence for £1000 in 2000. The purchase price is included in GDP for 2000. In 2001 the house is sold for £2500. The seller pays solicitors' and agents' fees of £200. This is included in services part of GDP for 2001. He pockets £300 profit on the sale. Is this profit part of GDP?

I think not, but can find no authoritative answer.

1 Answer

The $£2000$ appears in GDP in 2000, as production (less intermediate goods consumed) and as value added (the wages of the builders and profit of the developer) and as expenditure (capital formation or investment by the original buyer).

The $£2500$ actually does appear twice in 2001, once positively (by the new buyer) and once negatively (by the seller), as fixed capital formation in the expenditure measure of GDP.

So in aggregate this cancels out and does not add to GDP in 2001 (correctly so, as no value has been added in 2001 - equivalently there has been no production in 2001), but might appear in more detailed elements of the national accounts, for example if the new buyer was an individual while the seller was part of government.

• The £300 is a holding gain, and therefore doesn't contribute to GDP (but would show up in the revaluation account), however the £200 solicitor and agent fees do contribute to GDP in 2001. The disposal transaction would be accounted for as -£2300 Gross Fixed Capital Formation, and the acquisition as +£2500 GFCF, as costs of ownership transfer are included in the valuation of GFCF. – Gary Mar 6 '17 at 5:57