Economics: Calculating GDP?

Question

hi.. ive been wondering about the proper estimation of GDP regarding imputed rent...

let's say 15 out of 20 houses are rented to students for $1 a month, making it $12 a year x 15....

so how can I estimate for the consumption of imputed rent by the remaining 5 owners of the houses.. is it still $1??? or i just ignore these 5 home owners... thanks guys...

Answer 1

It all depends on the purpose of the Calculation:

If you are calculating GDP, you must estimate the actual rent incomes. If 15 out of the 20 houses are rented out actually, the rent income component of GDP is only 15*12*$1= $180. So, there is no need to find out imputed rental income from residential houses which are not rented out at all.

On the other hand, if you know that three of the remaining houses are also rented out but the home-owners do not report them as they are not taking rent from the students since the three students take the responsibilty of maintaing their lawns for free, then the question of imputing rental incomes come. The students provide some value added service of lawn mowing and cleaning (the equipment is provided by the home-owners) which is their imputed income and this income they notionally (not actually) pay to the home-owners as rent. Thus GDP would include the notional income of the students of 3*12*$1=$36 and also an imputed (notional) rental income $36 for the three homeowners. These three homeowners and their tenant students do produce services (house accomodation and lawn mowing and cleaningf respectively) but they exchange their services under a barter arrangement and does not require to report their notional incomes from these services. So, the imputed $36 of accomodation service has to be included in GDP on an imputed basis (and the same principle applies to the valued added by lawn. mowing/ cleaning services of the three students).

I hope I have been able to convey the circumstances under which imputed rental income of homeowners who receives free lawn-mowing services of students, apparently for free.

The remaing two home-owners do not rent out their rooms and enjoy a greater space for themselves does not really generate value. They have purchased the homes as durable consumption goods and are consuming accomdation whose value is already counted in the GDP when the houses were purchsed by them.