In a previous post I mentioned the following:

The national accounts imputes the rising value of the houses we live in as a real increase in GDP so that we home owners are contributing to GDP by simply living in the places we bought years ago whose value has now gone up.

This seemed to come as a revelation to some. But it is worth dwelling on this along with much else that is faulty about the national accounts as a measure of anything. This is from a U.S. Bureau of Economic Analysis paper, Housing Services in the National Economic Accounts:

Housing services are a component of personal consumption expenditures (PCE), and consequently part of GDP, in the national income and product accounts (NIPAs). The rental value of tenant-occupied housing and the imputed rental value of owner-occupied housing are both part of PCE housing services, reflecting the amount of money tenants spend for the service of shelter and the amount of money owner occupants would have spent had they been renting. Owner-occupied housing is included in PCE because the NIPAs treat the owner-occupant as if it were a rental business, or in other words, a landlord renting to him or herself. That is, BEA imputes a value for the services of owner-occupied housing (space rent) based on the rents charged for similar tenant-occupied housing, and this value is included in GDP as part of personal consumption expenditures. This imputation is necessary in order for GDP to be invariant when housing units shift between tenant occupancy and owner occupancy.

Everybody does it the same (here is the Australian version although I don’t think it’s as clear). How the statistician adjusts the value of the houses we live in for national accounting purposes as its real value rises I am less sure about and would have been happy for some guidance. But if the rental-equivalent value of a house rises by 20%, it does seem that merely living in the place must show an upturn in the real value of consumption irrespective of whether anything at all has changed. Or so I understand. Something to keep in mind the next time you hear that consumption expenditure has gone up.