Abstract
Motivated by the increasing importance of housing wealth, the paper reviews the debate about the inclusion of housing in social indicators. The review identifies the availability of two different approaches: the inclusion of imputed rent and the deduction of housing expenses from disposable income. The advantages and disadvantages of different measurement methods are discussed from the point of view of different policy aims (poverty and tax analyses). This study uses 2010 EU-SILC data and provides an assessment of the impact of the housing situation of households on relative poverty and inequality and corresponding transition matrices into and out of poverty, according to the two approaches for measuring the housing situation. The results show that relative income poverty and inequality decrease if imputed rent is taken into account, while they increase if housing expenses are considered. The paper suggests that the deduction of housing expenses provides a better measure of relative poverty, while avoiding most measurement problems. The use of the capital market approach for the estimation of imputed rent would improve the assessment of the redistributive effect of taxes. The analysis and comparison of both approaches provides useful suggestions on the distributional effect of housing in different housing systems. Finally, the paper concludes with some remarks on housing-related variables and measurement issues for the construction of better social indicators.
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Notes
For a wider discussion about wealth measurement challenges and availability of data see Maestri et al. (2014).
EU-SILC data contain two variables for the interests paid on mortgage: gross and net mortgage interest repayments. The net variable measures effective payments after taxes. However, for most countries the values of the two variables coincide, even in those where it is possible to deduct mortgage interest repayments. In EU-SILC 2010 twelve countries do not report net values and only two countries report different gross and net values (Finland and Sweden).
These values are based on imputed rental values available in 2010 EUSILC, estimated according to the method followed by each country (see Table 1).
In the analysis presented here the poverty line is fixed at 60 % of households median equivalised relevant income. We use the same concept of relative poverty as in the monetary poverty sub-indicator embedded in the EU2020 target for the reduction of poverty and social exclusion. The poverty line changes for different income concepts (disposable income, plus imputed rent, minus housing costs). Eurostat fixes the poverty line at 60 % of households median equivalised disposable income for the calculation of the at-risk of poverty rate after deducting housing costs.
Eurostat (2013) notes that this change may not be statistically significant.
Greece (and Germany) is not considered in Eurostat (2010b).
Re-ranking is defined as the share of households who change income quintile due to the inclusion of imputed rent in the income concept.
In the Netherlands income inequality increases by the same extent (+23 %) also with the imputed rent approach.
According to Eurostat (2013), for Denmark there may be a double counting of mortgage interest repayments using standard procedures for the inclusion of net imputed rent in disposable income.
In the United Kingdom and Malta is −12 %, in Greece and Estonia is −7 and −8 %, in Czech Republic and Portugal is −1 %.
In the United Kingdom is four times higher than in Malta, in Greece is almost two times than in Estonia, in Czech Republic is almost three times than in Portugal.
In the United Kingdom and Malta is −31 %, in Greece and Italy is −14 and 12 %, in Czech Republic and Finland is 4 and 3 %.
In the United Kingdom is more than two times larger than in Malta, in Greece almost two times than in Italy and in Czech Republic is three times larger than in Finland.
The concern about Dutch data is confirmed in Eurostat (2013).
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Acknowledgments
I gratefully acknowledge the European Commission—DG EMPL for funding this research. I thanks participants in the DG EMPL occasional seminar (Brussels, 2013) and in the Workshop Housing, Inequality and Welfare (Rome, 2013) for useful comments and suggestions.
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Maestri, V. A Measure of Income Poverty Including Housing: Benefits and Limitations for Policy Making. Soc Indic Res 121, 675–696 (2015). https://doi.org/10.1007/s11205-014-0657-z
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DOI: https://doi.org/10.1007/s11205-014-0657-z