Two issues need to be considered. The first relates to estimating household expenditure on dwelling services in the GDP and the second relates to calculating PPPs for dwelling services.
Estimating household expenditure on dwelling services in the GDP
According to the System of National Accounts (SNA), household consumption expenditure should include both the actual expenditure by households on rents for dwellings and an estimate of how much owner-occupiers would have paid in rent if they had to pay rents for their dwellings instead of owning them. This estimate is referred to as an “imputation” and the SNA suggests that the best way to make the imputation is to use rents actually paid for similar dwellings. Thus, for example, the rent of an owner-occupier living in her own two-story, six room, detached house with 200 square meters floor space in a suburb of the capital city is to be imputed at the average rent actually paid for a similar dwelling in a similar location.
In order to make these imputations, the national accounts compiler will need information on rents being paid for a variety of different kinds of houses and apartments in different parts of the country. In many countries, however, dwellings are only available for rent in a few locations and the few that are available for rent may not be typical of the majority of dwellings in the country. For example, these dwellings may be only luxury dwellings for highly paid expatriate managers of foreign-owned companies or they may be basic dwellings with few amenities for low paid migrant workers. An additional problem is that in many developing countries people in rural areas construct their own houses using traditional materials like bamboo, mud, wattle, thatch and palm leaves and these buildings are almost never rented.
As a result of these problems, the estimates in the national accounts for dwellings are very often understated in many countries. Some countries make no imputation for rents of owner-occupied dwellings and other countries only impute rents for owner-occupied dwellings in urban areas and do not make any imputation for traditional dwellings in rural areas. All countries taking part in ICP 2011 are required to reconsider their national accounts estimates for dwelling services. Countries where the SNA guidelines cannot be followed because the dwellings that are available for rent are not representative of the dwelling stock as a whole should make new estimates for dwelling services based on the user cost approach. In many case this lead to significant revisions to the size of GDP. This improved the international comparability of GDP and the expenditure weights used to calculate PPPs for dwelling services were more realistic.
Calculating PPPs for dwelling services
The standard procedure for calculating PPPs for dwelling services is exactly the same as for any other service. PPPs are obtained by averaging price relatives (in this case rent relatives) for identical, or very similar, dwelling services in each country. The standard procedure has been found to work well in countries where the dwellings actually rented are representative of the stock of dwellings as a whole and where the statistical agencies collect information on rents paid for the different kinds of dwellings that are rented in most parts of the country. For ICP 2011, all countries were requested to provide information on rents for dwellings using the Rent Survey questionnaire that was prepared by the Global Office.
ICP 2005 showed that many countries cannot supply information on rents that can be used to calculate PPPs by the standard procedure. These countries were only be able to complete a few parts of the questionnaire. For these countries an alternative method of calculating PPPs can be applied. This is called the “Quantity Approach” and it involves calculating the “volumes” of housing services generated in each country. For each pair of countries, bilateral PPPs are obtained by dividing the ratios of the volumes of dwelling services into their “expenditures relatives”; these latter are the ratios of the two countries’ expenditures on actual and imputed rents for dwellings taken from the national accounts.
The volume of dwelling services is obtained in two stages. First, a simple measure of the quantity of dwelling services is calculated using either the floor space or the number of rooms in all dwellings. Quality indicators referring to amenities such as electricity and running water are then used to convert these quantity measures into volume measures. For ICP 2011, all countries are required to complete the Quantity Approach questionnaire which collects the information needed to calculate these volume measures.