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COMMENTARY: Imputed rent: the elephant in P.E.I.'s economy

Gross domestic product (GDP) is the total market value of all goods and services produced within a country or province in a year. It is calculated using the value-added, income and expenditure approaches. The expenditure method adds household final consumption, business investment, government spending and net exports.

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Household final consumption expenditure is the largest component of GDP. It covers durable and nondurable goods and services involving market transactions. It also includes gross imputed rent for owner-occupied dwellings, which involves no market transactions. Mortgage payments are not part of household consumption expenditure.

What is imputed rent? Statistics Canada (2006), in its methodology document on its GDP by industry page for owner-occupied dwellings, states that “to make value added arising from the use of residential real estate invariant to changes in ownership, homeowners are considered landlords renting houses to themselves. This fictitious industry captures the imputed amount of such rents.”

Household expenditure

It is worth noting that Statistics Canada explicitly labels “owner-occupied dwellings” as a fictitious industry. It generates imputed rent and exists strictly on paper. No market transactions or cash are exchanged.

Detailed household final consumption........

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