Estimating Imputed Rent for Owner-occupied Dwellings in the Japanese System of National Accounts

This paper analyses possible causes of large discrepancies among official data for imputed rent for owner-occupied dwellings in Japan, those including National Accounts, Regional Accounts, Input-output Table, and National Survey on Family Income Expenditure. By reviewing the methodologies used by each statistical agency in the light of academic researches on imputed rent and rent functions, this paper finds that imputed rent for owner-occupied dwellings is likely to be overestimated when average unit rent which reflects high unit rent for small dwellings in downtown is used to calculate imputed rent for large owner-occupied dwellings mainly located in the suburbs, and conversely, that imputed rent for owner-occupied dwellings is likely to be underestimated if rent function is used to calculate imputed rent for owner-occupied dwellings, and if the function faultily captures an apparent negative correlation between unit rent and floor space when location differences are not fully controlled for. This paper, using over 200 thousand realty rental advertisements in Metropolitan Tokyo, downloaded via Internet, then, examines the effectiveness of various estimation techniques used to control for location differences in estimating rent equations. Major findings include; i) stratification by area may not improve the performance of the set of area-wise rent functions; ii) use of area dummies in pooled estimate may not improve much the performance of the estimated rent function, either; and iii) alternative specifications can significantly improve the performance of rent functions, regardless of whether samples are stratified by area or not. To conclude, this paper proposes that i) National Accounts estimates of imputed rent for owner-occupied dwellings are calculated based on regional estimates, ii) in both National and Regional Accounts, imputed rent is calculated for each category of building structures, iii) National Survey of Family Income and Expenditure utilizes detailed information on housing location already available in Housing and Land Survey, or employs alternative specifications of rent function. Large discrepancies among official data for imputed rent for owner-occupied dwellings in Japan are expected to narrow significantly if these proposals are adopted by statistical agencies. The final goal is that one single estimate of imputed rent for owner-occupied dwellings which utilize best available information provide the common benchmark for all other statistics.