In the National Income Dynamics Study in South Africa, total household income is measured by totalling labour income, government income, investment income, capital income, agricultural income, remittances and imputed rental income for owner-occupied housing (see page 48 of the user manual). Why is this last variable calculated and included? The household doesn't actually earn that income, so surely it's more a measure of wealth? Please point me to literature that backs up this methodology.
The household owns an asset, the house, from which an income can be derived. The household could decide to let the house and with the income rent another house. Alternatively, the household could decide to live in the house that they own. In the latter case household income would be lower, unless imputed rental income is considered.
So calculating and including imputed rental income serves to control household income for households' decision to let and rent or live in their own house. If it wasn't included, household income would swing considerably based on how many households decide to rent or buy their home in any given period.