Back to Top

 Skip navigation

One of the advantages of GDP as a measure is that it is internationally comparable. To make it comparable between countries, we have to add imputed (that is, estimated) rent to the figure.

Actual rent for a place to live that is really paid is counted in GDP as normal. The cost to the tenant is part of Final Consumption Expenditure of Households, which is included in GDP by the Expenditure Method. The activity of being a landlord generates income which is added to Output in the Output Method and a profit (and sometimes pay to employees) that is counted in the Income Approach as Gross Operating Surplus and Compensation of Employees.

In countries where home ownership rates are very high, very little rent is paid and added to GDP as real rent, however, it seems counter-intuitive that a country is worse off because people own the homes they live in. Having tenants instead of owner-occupiers should not increase GDP. If someone has invested in buying a house to live in, they are really getting a return on that investment: they are not paying rent to someone else, which they might otherwise be doing. 

To neutralise the unequal rates of home ownership across countries, an imputed rent is added to GDP for householders who own their own home. The householders pay the rent like a tenant as part of their Final Consumption Expenditure in the Expenditure Method. They then receive it from themselves as the landlord as Output in the Output Method and as part of the profit in the Income Method. Thus all the inhabited homes add to GDP regardless of the status of the dwelling.

The imputed rent is based on the actual rent paid for similar types of house or apartment in the same area.

Final Consumption Expenditure of Households in National Accounts is therefore higher than the consumption we would see if we counted the rent that changes hands. Similarly, Household Disposable Income includes an imputed rent received which we do not observe as a transaction. National Accounts also shows rental income of owner-occupiers, which is not observed but imputed. By showing this rental income as well as expenditure, Household Saving is the same as it would be without the adjustment.

While imputed rent is a conceptual adjustment, and nobody actually takes out the cash to give themselves, it is a real part of the economy of a country. We recognise that having a place to live is availing of a service whether you produce it yourself or rent from someone else; the economic value of this service is usually known because there is a market for it.

What about mortgages? When people talk about renting or buying, they sometimes compare the cost of a mortgage to the cost of rent, and if you’re paying a mortgage it might feel like you’re paying rent to the bank. In accounting terms, buying a house with a mortgage adds the home to your Capital Assets on one hand and the debt to the your Financial Liabilities on the other hand.  Part of the cost of the mortgage is is paying back the principal (reducing financial liabilities) and the rest is counted as part of households’ outgoings (as FISIM and Investment Income).

In National Accounts, while mortgage holders pay themselves the same imputed rent as their neighbours who own their home outright, mortgage holders have higher outgoings to service the repayments, and these outgoings reduce collective Household Disposable Income and Saving. 

Imputed rent is only calculated for rent of dwellings: there is no imputed rent on office space or other letting for commercial activity.

Total and Imputed Rent at Current Prices

Read next: FISIM

A-Z of National Accounts

Topics by Theme