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.
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2$\begingroup$ Does this answer your question? Does GDP count both the investment and the house rental? $\endgroup$– ArtCommented Mar 5, 2020 at 10:25
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2 Answers
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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.
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$\begingroup$ An even more interesting question might be, why countries do not include it in taxable income. $\endgroup$ Commented Dec 15, 2020 at 13:33
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2$\begingroup$ The UK scrapped imputed rent in 1963 when home ownership became more widespread. The Netherlands continue to include imputed rent in taxable income. $\endgroup$– sba222Commented Dec 15, 2020 at 13:44
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1$\begingroup$ You could say that the owner occupiers do derive an income from the house, but it's not in the form of cash, it's in the form of shelter from the weather, security etc. It still has value and can be considered equivalent to cash. $\endgroup$– bdslCommented Sep 27, 2022 at 10:59
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Taxing the potential income an asset could bring in when in fact, the owners are currently not making money off of that asset, sounds a lot like a wealth tax to me. A lot of countries have tried charging regular (usually monthly or yearly) taxes on assets citizens own but are not income generating and with the major exception of real estate, such taxes tend to fail miserably.
