Research

Comments on Chapter 12 “Dwellings” of the World Bank ICP Handbook

1. This chapter deals with the range of methodological and practical issues of comparison of dwelling services. In accordance with the provisions of the SNA 93 dwelling services are subdivided into dwelling services which are i) actually are paid for and ii) imputed ones. The latter pertain to the services which are rendered by the owners of dwellings for own consumption. Imputed value of these services is determined on the basis of market rent for similar dwellings rented out by their owners or if it is not feasible at cost of production. The data on dwelling services computed in current prices on the basis of the above approach are used as a basis for international comparison with the help of purchasing power parities, which reflect the ratio of rents for similar dwellings in different countries. For the regions where market of dwelling services is not yet properly developed, it is recommended to use for comparison so called quantity method. In accordance with this method the data on quantitative and qualitative characteristics of dwellings in different countries are used to compute the volume index of dwelling services and the latter with the appropriate weight is entered in calculation of the volume index of GDP .This method implies that PPP for dwelling services is derived indirectly by dividing the value index by the volume index. Thus, in brief basic principles of the methodology of comparison of dwelling services recommended in the chapter. These principles were used in the previous rounds of the ICP.
   
   
2. At the same time the chapter contains some proposals intended to improve the methodology of comparison of dwelling services. First of all, the proposal to draw a distinction between the modern and traditional dwellings built from local materials by the members of the households is put forward. In this context it is suggested to subdivide in the classification of expenditures on GDP the basic heading usually provided for dwelling services (actually paid for and imputed) into two separate basic headings pertaining to dwellings services (actually paid for and imputed ones) rendered in modern and in traditional dwellings respectively. Such a breakdown should in principle secure more reliable estimates of PPP, since it enables to compare the rents for similar types of dwellings. Another new feature of the methodology suggested in the chapter pertains to the formula of calculation of cost of production of dwelling services, rendered by homeowners for own consumption. The new formula includes in addition to traditional components (compensation of employees, intermediate consumption, consumption of fixed capital, net other taxes on production) imputed operating surplus as a measure of profit on capital. It should be noted that in the SNA93 this imputed operating surplus is not explicitly recommended; the issue of inclusion of imputed operating surplus in calculation of value of non-market services is being discussed in the context of general discussion on updating the SNA 93 but the definite decision on it has not been made yet.
   
   
3. If we put aside the question on theoretical soundness of the above proposals intended to improve the methodology, it should be noted that their implementation in the CIS region is very problematic. Thus, data needed to subdivide the dwelling services into those rendered in modern and traditional dwellings are not immediately available. Also missing are the reliable data on market value dwellings occupied by homeowners needed for imputation of the operating surplus. It is also not entirely clear what rate of profit on capital can be used to derive imputed operating surplus, as a component of cost on production of dwelling services.
   
   
4. Some provisions of the chapter do not appear very clear. For example it refers to discussion of the treatment of subsidies on dwellings. In particular, it is noted that according to the SNA 93 the dwelling subsidies paid to the low income groups of households are recorded as social transfers in kind and therefore as an element of final consumption expenditure of general government. It appears, first of all, that the term “subsidy” is reserved in the SNA 93 to denote the payments from the state budget to market producers rather that to households and therefore the subsidy cannot be a part of general government final consumption expenditure and social transfer in kind. It should be noted that treatment of dwelling benefits provided to individual groups of households depends on the mechanism of rendering such benefits. For example, if the persons have the right to pay only a fraction of the rent while the other part is financed by the government, then the subsidy from government to the enterprises providing dwelling services should be recorded and this subsidy can not be included in final consumption expenditure of the general government. If the dwelling benefits (which are sometimes referred to in everyday life as subsides) are provided to specific households in cash, then such payments are not classed as social transfers in kind but are treated as current transfers to households and finally as payments by households for dwelling services.

Youri Ivanov
Doctor of Economics

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