Home Ownership and Inequality: Imputed Rent and Income Distribution in Australia

Abstract

This paper examines the impact of home ownership on income distribution and the incidence of low-income using data from the Household Expenditure Surveys conducted in 1993-94 and 1998-99. The market value approach is used to derive an estimate of imputed rental income, which is added to disposable income. The results indicate that in 1998-99, imputed rent had an equalising distributional impact, except at the very top of the distribution. This finding is robust with respect to changes in some of the assumptions that underlie it. Comparisons of low-income rates by housing tenure and age are very sensitive to the inclusion of imputed rent as part of income, and to the deduction of housing costs from income. Analysis of the changing distributional impact of imputed rent between 1993-94 and 1998-99 indicates that while the effect was equalising in both years, it is not possible to determine whether the impact became more or less equalising over the period. Simulation results indicate that the disequalising impact of changes in gross housing equity (which incorporates the effect of increased house prices) explain much of the observed change in the distribution of income plus imputed rent, and accounted for much of the changed distributional impact of imputed rent itself. Overall, the results highlight the importance of taking account of imputed rent when analysing the structure and distribution of Australian living standards.