"CHAPTER 12: RENTAL INCOME OF PERSONS"

CHAPTER 12: RENTAL INCOME OF PERSONS
(Updated: November 2019)
https://www.bea.gov/system/files/2019-12/Chapter-12.pdf

 

The Bureau of Economic Analysis (BEA) makes the official estimates of the National Income and Product Accounts (NIPAs). Two key aggregates in these accounts are the nation’s gross domestic product (GDP) and the personal income of households. The rental value of owner‐occupied housing is an important component of both. It accounts for about 8 percent of GDP and largely determines the rental income of persons.

Imputing Rents to Owner‐Occupied Housing by Directly Modelling Their Distribution by Arnold J. Katz  

 

 
I had been looking at the relation between what we spend ("Personal Consumption Expenditures") and our after-tax income ("Disposable Personal Income") and I got some particularly interesting results because of a mistake in my calculation. So then I was being extra-careful, going over details...

The FRED graph page listed some tables for the data I was looking at. I've been discovering recently how useful such tables are: They show components that are added together (or subtracted out) to come up with the data; they identify all the datasets involved; and the tables even provide links to the data.

Turns out, it's not Disposable Personal Income minus Personal Consumption Expenditures that leaves us with Personal Saving. Nope. It's Disposable Personal Income, minus Personal Consumption Expenditures, minus Personal Interest Payments, minus Personal Current Transfer Payments -- and after that, what's left over is our Personal Saving.

So I checked the tables and gathered the data I should have been using. Then I had to go back and make sure that when they use a data series in more than one table, it is always the same dataset, not just the same description. Yup. I guess it has to be, or the tables would be more trouble than they are worth.

One of the things they subtract to get from DPI to personal saving is "Personal Interest Payments". I looked at the data: Personal interest payments are always less than 3% of Disposable Personal Income. I wish! If our interest costs were really that low, our economy would be healthy and vigorous. "Monetary Interest Paid: Households" hasn't been that low since the 1950s!

The interest cost measures I usually use are all subsets of "Monetary Interest Paid". The "Household" subset has two parts: the mortgage interest part, and the non-mortgage part. The non-mortgage part runs close to the the "personal interest payments" number, for some reason averaging roughly a quarter-point higher. But the two series follow the same path. I figure those two are the same.

That leaves the mortgage interest. Who pays that? We do -- but it's not counted as part of Personal Consumption Expenditures or Personal Outlays. Where is is counted? And why is it not counted as part of personal spending?

Well, I rummaged around the internet for half an hour before I found anything worth noting. In the glossary at BEA, "Personal interest payments" is defined as "Non-mortgage interest paid by persons." So I got that right. 

But to answer the question where is my mortgage interest counted? took another hour or more of rummaging.

I searched BEA for mortgage interest. There seemed to be a lot on "rental income of owner-occupied property" in the search results. That stood out when I saw it, because I remember Oilfield Trash telling me about it a while back. Finally, somewhere in the search results I found this:

"Note that mortgage interest paid by households is an expense item in the calculation of rental income of persons."

So, my mortgage payment comes out of the money I pay myself for renting my house to me.

After that, I searched BEA for rental income of persons, and then I started making progress.

From page 5 in CHAPTER 12: RENTAL INCOME OF PERSONS:

As noted in “Chapter 2: Fundamental Concepts,” purchases of newly constructed housing are treated as private fixed investment rather than as consumption expenditures in the NIPAs, and the stock of housing is treated as fixed assets. The housing stock provides a flow of housing services that are consumed by persons who rent their housing and by persons who own the housing they occupy (referred to as “owner-occupiers”). In the NIPAs, owner-occupiers are treated as owning unincorporated enterprises that provide housing services to themselves in the form of the rental value of their dwellings.⁸ Thus, personal consumption expenditures (PCE) for housing services includes both the monetary rents paid by tenants and an imputed rental value for owner-occupied dwellings (measured as the income the homeowner could have received if the house had been rented to a tenant), and rental income of persons includes the monetary income earned by landlords and an imputed rental income earned by owner-occupiers.

Emphasis added. Their thought continues:

This treatment is designed to make PCE, GDP, and the incomes associated with them invariant to whether the house is rented by a landlord to a tenant or is lived in by the homeowner.

What, they do all this imputed-rent stuff to make life easier for the stats guys? Really? Or maybe, as footnote 8 says, they do it to be "consistent"  with the SNA. Footnote 8:

This treatment is consistent with that of the international System of International Accounts (SNA): “Households that own the dwellings they occupy are formally treated as owners of unincorporated enterprises that produce housing services consumed by those same households” (SNA 2008: 6.117).

Yup: My mortgage payment comes out of the money I pay myself for renting my house to me. It's like something out of Alice in Wonderland.

And what was it Arnold Katz said? "The rental value of owner‐occupied housing ... accounts for about 8 percent of GDP".