Commission Regulation (EC) No 1722/2005 of 20 October 2005 on the principles for estimating dwelling services for the purpose of Council Regulation (EC, Euratom) No 1287/2003 on the harmonisation of gross national income at market prices   (Text with EEA relevance)
Date: 2005-10-20
Institutions: European Commission
Subjects: EU statistics, European accounting system, data transmission, gross national product, own resources, property leasing

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COMMISSION REGULATION (EC) No 1722/2005

of 20 October 2005

on the principles for estimating dwelling services for the purpose of Council Regulation
(EC, Euratom) No 1287/2003 on the harmonisation of gross national income at market prices

(Text with EEA relevance)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

HAS ADOPTED THIS REGULATION:

Having regard to the Treaty
Community,

establishing the European

Article 1

Having regard to Treaty establishing the European Atomic
Energy Community,

For the purposes of Regulation (EC, Euratom) No 1287/2003
the following principles for the estimation of dwelling services
as set out in this Regulation shall apply.

Having regard to Council Regulation (EC, Euratom) No
1287/2003 of 15 July 2003 on the harmonisation of gross
income at market prices (GNI Regulation) (1), and in
national
particular Article 5(1) thereof,

Whereas:

Article 2

1. Member States shall apply the stratification method based
on actual rentals in order to compile the output of dwelling
services.

(1)

(2)

Article 2(7) of Council Decision 2000/597/EC, Euratom
of 29 September 2000 on the system of the Commu-
nities’ own resources (2)
lays down that gross national
product at market prices (GNP)
is to be considered
equal to gross national
income at market prices (GNI)
as provided by the Commission in accordance with the
European System of Accounts (ESA). The ESA of 1995
(ESA95), superseding two earlier systems of 1970 and
1979 respectively, was established by Council Regulation
(EC) No 2223/96 of 25 June 1996 on the European
in the
system of national
Community (3), and was set out in the Annex thereto.
GNI, as used in ESA95, replaced GNP as a criterion for
own resource purposes, with effect from budget year
2002.

and regional

accounts

For the purpose of the implementation of Article 1 of
Council Directive 89/130/EEC, Euratom on the harmoni-
sation of the compilation of gross national product at
market prices (4),
the principles for the estimation of
dwelling services have been set out by Commission
Decision 95/309/EC, Euratom (5). For the purposes of
Article 1 of Regulation (EC, Euratom) No 1287/2003,
the equivalent set of principles should now be provided
in respect of GNI.

Member States shall use tabular analyses or statistical techniques
to derive significant stratification criteria.

2. Member States shall make use of actual rentals due for the
right to use an unfurnished dwelling under all contracts relating
to compile imputed
to privately-owned dwellings in order
rentals.

Rentals for furnished dwellings may also be used if scaled down
so as to exclude payment for the use of the furniture.

In countries where the privately rented sector is small, excep-
tionally, duly increased public rentals may be used to enlarge
the basis for imputed rentals.

Article 3

1.
In exceptional and duly justified cases, Member States may
apply other objective methods, such as the user-cost method.

(3)

The measures provided for in this Regulation are in
accordance with the opinion of the GNI Committee set
up by Regulation (EC, Euratom) No 1287/2003,

No justification shall be required for use of
the user-cost
method in compiling the output of owner-occupied dwellings,
provided that both of the following conditions are met:

(1) OJ L 181, 19.7.2003, p. 1.
(2) OJ L 253, 7.10.2000, p. 42.
(3) OJ L 310, 30.11.1996, p. 1. Regulation as last amended by Regu-
lation (EC) No 1267/2003 of the European Parliament and of the
Council (OJ L 180, 18.7.2003, p. 1).

(4) OJ L 49, 21.2.1989, p. 26. Directive as amended by Regulation (EC)
No 1882/2003 of the European Parliament and of the Council (OJ
L 284, 31.10.2003, p. 1).
(5) OJ L 186, 5.8.1995, p. 59.

(a) privately rented dwellings must represent less than 10 % of

the dwelling stock; and

(b) the disparity between private and other paid rentals must

exceed a factor of three.

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2. Within three years of the date of adoption of this Regu-
lation the GNI Committee shall review the functioning of the
user-cost method.

Article 5

The further and more detailed principles for the estimation of
output, intermediate consumption and transactions with the rest
of the world,
in the context of dwelling services, shall be as
contained in the Annex.

Article 4

Member States using a base year approach shall extrapolate a
given base year figure using appropriate quantity, price and
quality indicators.

Article 6

This Regulation shall enter into force on the 20th day following
its publication in the Official Journal of the European Union.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels, 20 October 2005.

For the Commission

Joaquín ALMUNIA
Member of the Commission

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ANNEX

For the purpose of Regulation (EC, Euratom) No 1287/2003, the following points aim to clarify the principles for the
estimation of output, intermediate consumption and transactions with the rest of the world, regarding dwelling services.

1.

OUTPUT OF DWELLING SERVICES

1.1.

Basic methods

In national accounts, by convention, the output of dwelling services comprises not only the services produced by
rented dwellings but also those provided by owner-occupied dwellings. With regard to the valuation of output of
dwelling services, the European System of National and Regional Accounts (ESA95) stipulates in paragraph 3.64,
that ‘the output of services of owner-occupied dwellings should be valued at the estimated value of rental (1) that a
tenant would pay for the same accommodation, taking into account factors such as location, neighbourhood
amenities, etc. as well as the size and quality of the dwelling itself’. In principle, several methods are available for
estimating the value of services produced by owner-occupied dwellings:

— the stratification method based on actual rentals, which combines information on the housing stock, broken

down by various strata, with information on actual rentals paid in each stratum,

— the user-cost method, where separate estimates are made of intermediate consumption, consumption of fixed
capital, other taxes less subsidies on production and net operating surplus. The output of dwelling services is
the sum of these components,

— the self-assessment method, where owner-occupiers are asked to estimate a potential rental for their property,

— administrative assessment methods, where a potential rental is determined by third parties, e.g. by government

for fiscal purposes.

The stratification method based on actual rentals is the preferred method. This method can also be used for
estimating the value of all actual rentals from a sample of actual rentals and for estimating the value of dwelling
services from dwellings let at a zero or low rental (see section 1.4.1 for detail).

The user-cost method should be applied only under certain conditions and only for those strata of the housing
stock where actual rentals are missing or statistically unreliable.

The self-assessment method should not be used due to a largely subjective influence on the estimate which leads to
substantial uncertainties in the results.

Administrative assessment methods, especially when related to taxation, may produce biased results. However,
sometimes results from objective assessment methods may be available for some strata. It is acceptable to use the
results when the objectivity of the method and the comparability of the results can be demonstrated.

The stratification method uses information about actual rentals from rented dwellings to obtain an estimate of the
rental value of the stock of dwellings. This may be interpreted as a grossing-up procedure based on a price times
quantity approach. A stratification of the housing stock is required to obtain a reliable estimate and to include
relative price differences properly. Subsequently, the average actual rental per stratum is applied to all dwellings in
that particular stratum. If the available information is derived from sample surveys, this grossing-up relates to both
a part of the rented and all owner-occupied dwellings. The detailed procedure to determine a rental per stratum is
usually carried out for a base year and is then extrapolated to the current years.

The rental to be applied to owner-occupied dwellings in the stratification method is defined as the private market
rental due for the right to use an unfurnished dwelling. The rentals for unfurnished dwellings from all private
market contracts should be used to determine imputed rentals. Private market rentals that are at a low level due to
government regulation should be included.

(1) For consistency with ESA95 the term ‘rental’ is used throughout this text.

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If the information source is the tenant, it may be necessary to correct the observed rental by adding any specific
rental allowance, which is paid directly to the landlord. If the sample size for the observed rentals as defined above
is not large enough, also observed rentals for furnished dwellings may be used for imputation purposes, provided
they are adjusted for the furniture element. Exceptionally, also increased rentals for public-owned dwellings may be
used. Low rentals for dwellings let to relatives or to employees should not be used (see sections 1.2.3 and 1.4.1 for
details).

The stratification method may be used also for grossing up to all rented dwellings. The average rental for
imputation as described above may not be suitable for some segments of the rental market. For example,
scaled-down rentals for furnished dwellings or increased public rentals may not be appropriate for the respective
actually rented dwellings. Separate strata for actually rented furnished or social dwellings combined with appro-
priate average rentals can overcome this problem.

In principle, the rental should exclude charges for heating, water, electricity etc. Where the data sources do not
allow this, coherence between the rentals and intermediate consumption must be ensured (see section 2 for
details).

Where for certain strata of owner-occupied dwellings a representative actual rental
overcome in most cases by applying extrapolation or regression techniques.

is missing, this can be

An alternative to the standard stratification method which relies on extrapolating average rentals per stratum is the
use of hedonic regression methods. Briefly, such methods use the sample data for rented dwellings to determine a
price of each dwelling characteristic (size, location, presence of a balcony, etc.). Output is obtained by multiplying
each characteristic of (a representative sample of) the dwelling stock with the hedonic price of this characteristic.
Regression methods permit an enlarged number of variables to be taken into account and can be particularly
effective when for some strata observed rentals are missing.

Obviously this does not solve the problem in the extreme case of all dwellings being owner-occupied or in the
absence of a developed rental market. As an objective assessment for such cases the user-cost method should be
applied. The user-cost method should only be applied to owner-occupied dwellings.

Details of the user-cost method

The user-cost method should only be applied when the stratification method based on actual rentals cannot be
used because the rental market is unrepresentative.

By convention, this is considered to be the case when the two following conditions are met simultaneously: (1) the
number of privately rented dwellings represents less than 10 % of the total number of dwellings and (2) the
disparity between private and other paid rentals exceeds a factor of three. Even when both conditions apply, a
country may still choose to use the stratification method provided that the results are of sufficient quality. When
one or both of the conditions are not met, the stratification method should be used unless it can be demonstrated
that the user-cost method produces more comparable results.

Under the user-cost method, the output of dwelling services is the sum of intermediate consumption, consumption
of fixed capital (CFC), other taxes less subsidies on production and net operating surplus (NOS). For owner-
occupied dwellings, no labour input is recorded for work done by the owners (1). Experience suggests that CFC and
NOS are the two largest items, each representing 30 to 40 % of output.

CFC should be calculated based on a perpetual inventory model (PIM) or other approved methods. A separate
estimate for the owner-occupied residential buildings should be available.

The net operating surplus should be measured by applying a constant real annual rate of return of 2,5 % to the net
value of the stock of owner-occupied dwellings at current prices (replacement costs). The real rate of return of
2,5 % is applied to the value of the stock at current prices since the increase in current value of dwellings is already
taken account of in the PIM. The same rate of return should be applied to the value of the land at current prices
on which the owner-occupied dwellings are located.

The value of land at current prices may be difficult to observe annually. Ratios of land value to the value of
buildings in different strata may be derived from an analysis of the composition of the costs of new houses and
associated land.

(1) It is conceptually possible that owner-occupiers, individually or collectively, employ housekeepers without involving other statistical
units such as housing corporations or management service companies. Where this situation occurs, output according to the user-cost
method should include an allowance for compensation of employees.

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The GNI Committee should review the above detail on the user-cost method based on the experience in Member
States within three years of the date of adoption of this Commission Regulation.

P r i n c i p l e 1 :

To compile the output of dwelling services Member States shall apply the stratification method based on actual
rentals, either by direct extrapolation or by means of econometric regression.
In respect of owner-occupied
dwellings, this implies the use of actual rentals for similar rented dwellings. In the justified and exceptional
case where actual rentals are missing or statistically unreliable, other objective methods,
like the user-cost
method, may be employed. No additional justification is required for compiling the output of owner-occupied
dwellings with the user-cost method provided that two conditions are met simultaneously: privately rented
dwellings represent less than 10 % of the dwelling stock and the disparity between private and other paid
rentals exceeds a factor of three.

1.2.

Stratification of the housing stock

1.2.1. Factors affecting the rental level

A first set of variables determining the level of rentals concern the characteristics of the dwelling and the building.
To start with, the size of a dwelling will be important, both in terms to the area and the number of rooms. The
bigger the dwelling, the higher will be the rental. At the same time, the rental per square metre tends to fall with
the size of a dwelling. However, for some categories of dwellings (e.g. flats in capital cities) there may be a U-
shaped relation between the price per square metre and the size of the dwelling. Another important factor will
concern the amenities of a dwelling. These may cover variables like the existence of a bathroom, a balcony/terrace,
special flooring or wall covering, an open fire, central heating, air-conditioning, special glazing and other noise or
thermal
insulation measures; the layout of the dwelling is also relevant. With regard to the building, certain
facilities may have an influence like a garage, a lift, a swimming-pool, a (roof-) garden or the position of a
dwelling within the building. The type of the building (detached, semi-detached house, flat), the architecture, the
age, or the number of dwellings in a building may also affect the rental.

A second set of variables relate to environmental characteristics. A well-known factor is the rental difference
between a comparable dwelling in a city and a remote location. The distance to an economic centre or the form of
the landscape (flat land, mountainous) may not be negligible factors. In addition, neighbourhood factors like the
view, surrounding green areas, transport facilities and access, shops and schools or the reputation and security of a
district tend to have an influence on the actual rental.

Another set of variables may be summarized as socio-economic factors. For instance, in most countries rentals are
influenced by general government regulations like rental restrictions or subsidies. Further, the age of the tenancy
agreement, the type of contract (temporary, permanent), the number of inhabitants per dwelling (flat-sharing
community), the type of owner (government, housing association, private, employer) or the rental policy of the
landlord may also affect the rental.

Obviously, several additional variables may have an influence on rentals. But to collect all the abovementioned
factors could lead to overburdened questionnaires. Therefore the use of capital values for stratification purposes
may be considered. The rationale behind the use of the capital value of a dwelling is that it reflects all its important
characteristics. The capital value can thus be considered as an implicit stratification factor. Using the ratio of the
capital value to actual rental may be regarded as a feasible approach, especially in those countries where the rented
dwellings represent a minor part of the housing stock. Provided the ratio is stable, such a method would enable the
rental value to be determined for those dwellings which only feature in the owner-occupied sector. In addition,
capital values do not exclude the use of ‘physical’ stratification criteria; they may be combined. In this situation,
capital values are assumed to reflect the missing ‘physical’ stratification criteria. In any case, capital values to be
used in the rentals calculation have to be based on an objective assessment established for an up-to-date reference
year.

In practice the stratification differs from one Member State to another in respect of both the number of strata and
the precise criteria used to define them. Although at first sight this may cause some concern, it should be stressed
that certain basic criteria, like the size and the (geographical) location of a dwelling are used almost everywhere.
Moreover, the aptness of other features will vary between countries and Member States themselves are in the best
position to determine significant criteria.

P r i n c i p l e 2 :

For stratification purposes, Member States shall use important features of the dwellings. These may relate to the
characteristics of the dwelling and the building, to environmental characteristics of the dwelling or to socio-
economic factors. In addition, the use of up-to-date capital values is acceptable for stratification purposes,
if
these are based on an objective assessment.

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1.2.2. Selection of stratification criteria

Given the various characteristics affecting the rental of a dwelling, the first task is to investigate those variables
having a significant impact. One way of detecting significant variables is to produce a tabular analysis of the
statistical information available. To obtain an objective measure of assessment, the variance of the actual rentals
within a stratum would seem to be useful. This would create an incentive for possible improvements to the
stratification by choosing strata in order to minimise the within-stratum variance. It is therefore recommended that
the variance per stratum is calculated at least in those cases where the stratification affects the level of both actual
and imputed rentals.

A more sophisticated approach is offered by advanced statistical techniques like (multiple) regression analysis. Such
a technique allows the influence of individual variables to be assessed, so that the variation in rentals can be
assigned to certain characteristics. Briefly, the explanatory power of a variable can be quantified via the correlation
coefficient. As a by-product, it enables the characteristics to be ranked according to their importance. This helps to
determine where to stratify in greater detail. Combining the most important variables, using multiple regression
techniques, shows their overall explanatory power. The use of advanced statistical techniques to select important
variables is considered to be an efficient way of stratifying the housing stock. In addition, regression analysis can
be used directly for estimating the rentals, e.g. in the form of hedonic models. The technique is also a useful tool
for estimating the average rental for strata where there are no corresponding observations in the rented sector
(empty strata).

A further advantage of selecting stratification criteria on the basis of an advanced statistical technique is that it
avoids the need to prescribe uniform criteria for all countries. To obtain a comparable result, it is sufficient to
establish a ranking of the most important criteria in each country and to stipulate the required overall level of
explanatory power. Obviously, such a regression analysis depends largely on the available statistical information.
However, even in a situation of
future
improvements.

this could be an incentive for

restricted statistical

information,

Given that the information about the different variables affecting rentals mainly depends on the development of
basic statistics, the possibility of using advanced statistical techniques may be restricted at present. Therefore a
standard method is recommended, i.e. Member States shall apply all significant criteria as derived from tabular
analyses. As a minimum, the size, the location and at least one other important feature of a dwelling have to be
used to stratify the housing stock; this stratification should produce a minimum of 30 cells. The breakdown of the
housing stock has to be meaningful and representative of the total stock of dwellings. An advanced statistical
technique may be used to determine the important explanatory variable(s) for selecting the strata.

In practice, however, a Member State may prefer to use fewer variables, or variables other than those prescribed by
the standard method. This is acceptable, as long as a (multiple) regression analysis proves an acceptable level of
explanatory power. To guarantee comparable results, a correlation coefficient of at least 70 % is recommended as a
threshold. This threshold value would be acceptable in the context of a large sample, with zero and cheap rentals
as well as outliers having been removed.

P r i n c i p l e 3 :

Member States shall use tabular analyses or statistical techniques to derive significant stratification criteria. As a
minimum, the size, the location and at least one other important feature of a dwelling have to be used. A
minimum of 30 cells are to be produced and at least three size classes and two types of location shall be
the
distinguished. The use of
(multiple) correlation coefficient reaches 70 %.

fewer or other variables is acceptable if

it has been proved previously that

1.2.3. Actual and imputed rentals

Imputed rentals are determined based on observed actual rentals. For imputation purposes, the rental is defined as
the price due for the right to use an unfurnished dwelling. In order to meet this definition, observed rentals may
have to be adjusted.

Charges for heating, water, electricity etc. should be excluded from the rentals, although it may sometimes be
difficult to separate them out in practice. To be in line with the valuation rules of the ESA, the output of dwelling
services should be at basic prices.

With regard to observed rentals, certain public supports are probably important. For instance, a specific household
as a consumer is entitled to a general government transfer (e.g. housing benefit) but which, for administrative
reasons, is paid directly to the landlord. Depending on the information source, the observed rental may differ. If
the information source is the tenant, it may be necessary to correct the observed rental by adding back any specific
rental allowance.

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In addition, the use of actual rentals for imputation purposes requires the clarification of several fundamental
questions having an impact on the harmonisation of the data. The first point relates to the question of whether use
should be made of all actual rentals or only those from new contracts, for the imputation procedure. Depending
on the purpose, different theoretical arguments can be put forward supporting actual rentals paid according to new
contracts, contracts signed in the construction year or ‘average’ contracts. Applying the general rule, i.e. to use
rentals of similar dwellings, it does not seem acceptable to limit the basis of imputation to rentals from new
contracts. Given that ‘average’ rentals are used for the rented sector, the same should apply for owner-occupied
dwellings. In addition, a different solution would probably pose great difficulties in many countries when applying
the stratification method. Briefly, the conclusion is that the average actual rentals from all contracts should be used
to calculate imputed rentals. Consequently, private market rentals that are at a low level due to government
regulation should also be included when calculating the average rentals.

The second question concerns the problem as to whether rentals of public-owned dwellings can be used for
imputation purposes. Given that owner-occupied dwellings are mostly privately owned, in principle, only actual
rentals from the private sector should be used for imputation purposes. However, if not enough observations of
actual rentals of privately-owned dwellings are available to constitute a sufficient basis for the imputation,
exceptionally, rentals of public-owned dwellings may be used, provided they are appropriately increased to
serve as proxies for private market rentals.

A further question relates to the use of rentals from furnished dwellings to enlarge the basis for imputed rentals. In
principle, the basis for imputing a rental value for owner-occupied dwellings is unfurnished rentals. Therefore,
rentals for furnished dwellings cannot be used directly. In order to avoid imputing the wrong level of rental, they
should be scaled down to exclude the payment for the use of the furniture.

P r i n c i p l e 4 :

For imputation purposes, the rental shall be understood as the rental due for the right to use an unfurnished
dwelling. If the information source is the tenant, it may therefore be necessary to correct the observed rental by
adding back any specific rental allowance, which for administrative reasons is paid directly to the landlord. To
compile imputed rentals, actual rentals from all contracts shall be exploited relating to privately-owned unfurnished
dwellings.
If necessary for statistical reasons, rentals of public-owned dwellings may, exceptionally, be used,
provided they are appropriately increased to serve as proxies for private market rentals. Similarly, rentals from
furnished dwellings may be included in the imputation basis after deduction of the rental differential between
furnished and unfurnished dwellings.

1.3.

Sources for the base year estimate and methods of extrapolation

1.3.1. Housing stock

An essential element of the calculation according to the stratification method is the information on the stock of
dwellings. This information serves as a reference universe for extrapolation procedures. In general terms, the
housing stock consists of all buildings or parts thereof which are used as dwellings. More details are given in
the section on special problems. The major sources used to establish such a housing stock are building censuses,
administrative building registers or population censuses. The base year figure is then updated to arrive at the
current year estimate.

With regard to the base year housing stock, building censuses seem to be the least problematic and the most
complete, especially when carried out together with a population census. Administrative building registers depend
largely on legal procedures, which may cause uncertainties, for instance, about whether extensions, improvements,
conversions and demolitions of dwellings are recorded properly. Using the information provided by households in
a population census as the basis of the housing stock may cause problems because the results tend to under-
estimate second homes which are not occupied at the census date.

P r i n c i p l e 5 :

For the compilation of the base year housing stock, Member States shall exploit either a building census or a
population census or an administrative building register as an initial basis. Since a building census usually provides
the highest degree of completeness, the use of administrative building registers and population censuses requires
intensive and thorough checks to obtain exhaustiveness.

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1.3.2. Actual rentals

The second fundamental element for the calculation of the output of dwelling services, according to the stratifi-
cation method, concerns the actual rentals paid in the rented sector. Information on actual rentals in the base year
may be derived from a census (e.g. population census) or from a sample survey such as a household budget survey
or a specific rental survey. In the first case, actual rentals are probably covered in total and the calculations only
have an impact on the level of imputed rentals. In the case of sample surveys, the calculations affect the level of
both actual and imputed rentals. Obviously a census gives a broad basis for reliable information. But household
budget surveys are normally also considered as fairly reliable, especially with regard to essential goods. However,
differential non-response is known to be a general problem with this type of survey. If housing is considered as
more of a luxury than as an essential item, this problem would have an undesirable impact on the results of the
calculation, and should be offset. Another problem of a household budget survey, at least in some countries,
concerns its small sample size that may restrict the possibility of stratifying the rentals. In any case, available
supplementary sources should be exploited as far as possible. This may, for instance, be the case in countries where
a high proportion of housing is under public control and housing agencies have to present accounts. Further, as an
on-going task to improve the results, alternative sources, like specialised rental surveys, should be investigated.

P r i n c i p l e 6 :

Member States shall exploit the broadest and most reliable sources to derive actual rentals per stratum, for example
a population census or a household survey. Alternative sources should be assessed to improve the reliability and
exhaustiveness, and particularly the stratification.

1.3.3. Extrapolation of base year results

Only few Member States have the annual information needed to carry out a full recalculation of the output of
owner-occupied dwellings each year afresh. In most countries the results for a given year are taken as the
benchmark and subsequently updated to estimate the current year figure by means of indicators. The update
may be made by applying a combined indicator to the (total) base year output, or by separately extrapolating the
housing stock and the rental per stratum. Although similar results could be expected in general, structural shifts,
e.g. in the relationship between rented and owner-occupied dwellings, may cause differences. In addition, a separate
calculation would permit plausibility checks.

With regard to the indicators used, the quantity index is mostly derived from the output of the construction
industry. The price indicator, on the other hand,
is often based on the price index of rentals paid from the
consumer price index. This may cause distortions in those cases where the assumption that imputed rentals follow
the movement of the total is not justified, for instance, due to public rental controls. For the extrapolation of
imputed rentals, it therefore seems preferable to use, as in the base year, a price index reflecting the movement of
privately rented dwellings. Further, attention has to be drawn to the fact that price indices will normally exclude
price increases due to quality changes. The price indices therefore have to be supplemented by a quality indicator
reflecting improvements.

Finally it seems useful to minimise the impact of structural changes on the results by restricting the extrapolation
period. Taking account in this respect of the periodicity of the relevant basic statistics, it seems appropriate to carry
out a benchmarking of the housing stock every 10 years, i.e., the normal interval for population censuses. In
addition, the benchmarking of the price element (rental per stratum) should be carried out at least every five years,
i.e., the usual periodicity for household budget surveys.

P r i n c i p l e 7 :

If it is not possible to carry out complete re-estimation of the output of dwelling services annually, Member States
may extrapolate a given base year figure using appropriate quantity, price and quality indicators. The extrapolation
of the housing stock and the average rental shall be carried out separately for each stratum. The extrapolation
procedure shall distinguish between the calculations for actual and for imputed rentals. If necessary, the number of
strata used for extrapolation may be less than that used for the base year calculation. To extrapolate the imputed
rental for owner-occupied dwellings, in general, a price index reflecting private rentals shall be applied. In any case,
the benchmarking of the housing stock should not exceed 10 years and that of the price element should not
exceed five years, or similar quality should be achieved by appropriate other methods.

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1.4.

Special problems

1.4.1. Rental-free and cheap dwellings

When collecting data on actual rentals, sometimes zero or very low values will be observed. In the case of rental-
free dwellings this leads to the strange situation that the dwelling service is actually provided but without a (visible)
payment. It seems appropriate in such cases to adopt the solution that the observed actual zero rental be corrected.
An analogous solution would appear logical for cheap dwellings.

Apart from interventions by general government, there are other reasons why rental-free or cheap dwellings may
be observed. One example is an employee occupying an employer-owned dwelling at a reduced or zero rental. This
may concern all kinds of employees, including housekeepers or guardians. In this case the actual rental has to be
corrected and the difference between the actual and comparable rental will be treated as remuneration in kind (see
ESA95 paragraphs 4.04 to 4.06). Another possibility is that dwellings are let at a zero or very low rental to
relatives or friends. In this case the correction may be obtained by simply reclassifying those dwellings from the
rented to the owner-occupied sector. Further, a similar correction seems appropriate in the case of lump sum
payments by tenants, i.e., where the tenant makes a pre-payment of the rental for a longer than normal period.

P r i n c i p l e 8 :

The actual rental observed in the case of rental-free and cheap dwellings shall be corrected to include the full
dwelling service. Neither zero rentals nor cheap rentals shall be used to calculate imputed rentals, on an uncor-
rected basis.

1.4.2. Holiday homes

Holiday homes cover all kinds of leisure-time dwellings like the nearby weekend-house which is used for short
periods many times a year or the more distant resort-home which is used for longer periods but only few times a
year. At first sight the case of rented holiday homes seems no problem, since the actual rental paid is taken as a
measure for output. However, if the actual rentals collected are on a monthly basis, the extrapolation to the yearly
total may lead to over-estimates if no supplementary information on the average occupation time is included.

To calculate an imputed rental for owner-occupied holiday homes, the most logical approach is to stratify these
properties and to apply the appropriate average annual rental for actually rented similar accommodation. The
annual rental implicitly reflects the average occupation time. In the case of difficulties, a substitute method may be
applied, i.e., to collect information on holiday homes in one stratum and to apply the average annual rental for
actually rented holiday homes to the owner-occupied ones. Thirdly, it is acceptable to use the full annual rental for
ordinary dwellings, in the same stratum of location, where holiday homes account for a very minor part of the
housing stock or where they cannot be separated from other dwellings. Even in the case of resort homes these
procedures seem reasonable when taking into account that they are always available to the owner and will also be
used free of charge by his or her friends or relatives.

P r i n c i p l e 9 :

Holiday homes cover all kinds of leisure-time dwellings like the nearby weekend-house or the more distant resort-
home. To estimate the output of holiday homes the annual average rentals of similar facilities shall preferably be
used. The annual rental
implicitly reflects the average occupation time. Although stratification would seem
desirable, holiday homes may be grouped in one stratum. If holiday homes account for a very minor part of
the housing stock, the full annual rental of ordinary dwellings, in the same stratum of location, may be used. In
the justified exceptional case of missing or statistically unreliable actual rentals for certain strata of holiday homes,
other objective methods, like the user-cost method, may be employed.

1.4.3. Time-sharing accommodation

In the case of time-share, a real estate agent sells the right to stay for a fixed period each year in a certain dwelling
located in a tourist area and takes care of the administration of this property. The right is guaranteed by a
certificate, which is issued after the initial payment. This certificate may be traded at the current price. Periodic
payments are further due to cover administrative costs.

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From this description it follows that the initial payment should be treated as an investment since the certificate
issued is similar to a share. This is supported by the fact that at least in one Member State’s law the purchaser
acquires a real right. Thus it would seem useful to include the initial payment under intangible assets in the
national accounts. Further, it would seem logical to consider the rental-free accommodation service as a dividend
in kind paid by the real estate agent.

The fundamental problem is that a service is actually provided by the time-share accommodation which is not
included in the output of the economy. Logically this requires a correction. To start with, the proposal to accept
the periodic payment as a proxy implicitly means that no correction is made for the accommodation service, since
the periodic payment covers a different service, namely management costs. Another theoretical possibility would
be to consider the initial payment as a prepayment of the service provided and to distribute it over the relevant
periods of occupation. Apart from the statistical problems of putting this model into practice, there seems to be a
contradiction in legal terms since the implicit interpretation is a purchase of a service and not the acquisition of an
asset.

A further possibility consists of deriving a proxy from annual actual rentals for similar (self-catering) accommo-
dation facilities. This solution is supported by the fact that time-share accommodations are located in tourist areas
and coexist with actually rented holiday apartments. In the case of difficulties, the two other methods proposed for
holiday homes are also acceptable for time-share properties. The imputed rental should be on a net basis, to avoid
double-counting charges covered by the periodic payment.

P r i n c i p l e 1 0 :

With regard to time-share accommodation, the same procedures shall be applied as for holiday homes.

1.4.4. Spare room lodgers

In most countries a large number of students are accommodated in spare rooms. Often this extends to other
younger people or those who are employed in a job which involves being away from home. If the room is a part
of a rented dwelling, i.e. is sublet, no major problems seem to exist. The spare room rental can be considered as a
contribution to the actual main rental, i.e., a transfer between households. However, if the room is a part of an
owner-occupied dwelling it would be double counting to include both the rental that the lodger pays as well as the
imputed rental in its entirety. Probably the correct solution would be to take the actual rental paid by the lodger
for the percentage of the dwelling he or she occupies and to impute a rental for the rest. However, this may not be
practicable to implement. Instead one could consider the rental as a transfer involving the sharing of the expenses
of the dwelling. This would be similar to the first case in so far as the actual spare room rental is considered as a
contribution to the imputed main rental. As a consequence of this treatment, a correction will be due if the
household sector is broken down by groups.

A further point is how to deal with subletting various rooms. In this case, it is suggested that the term spare room
lodgers only applies when the owner or the main tenant him/herself also continues to occupy the dwelling.
Otherwise, the subletting should be considered as a separate economic activity (dwelling service or pension).

P r i n c i p l e 1 1 :

Rentals paid for spare rooms within a dwelling shall be considered as a contribution to the main rental as long as
the owner or the main tenant continues to occupy the dwelling.

1.4.5. Empty dwellings

First, a rented dwelling is always considered as occupied even if the tenant chooses to live elsewhere. Secondly, in
line with the general solution agreed for holiday homes and time-share accommodation, the annual rental
implicitly reflects the average time of occupancy. The problem of empty dwellings is therefore restricted to
non-rented dwellings which are not used by the owner i.e., which are available to be sold or rented. In such
cases no dwelling service is provided, so a zero rental should be inserted.

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Official Journal of the European Union

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The necessary information to determine whether a non-rented property is empty or not can be based on the
declaration of the owner or neighbours. In the absence of such information, the existence of furniture may be used
as an indication that the property is occupied. In contrast, unfurnished dwellings can be considered as empty, since
it is difficult to imagine that a dwelling service is being provided. Empty dwellings should also include dwellings
which are repossessed following defaults of payments, or which are empty for a short period because a housing
agency does not immediately find a new tenant. A borderline case is an empty dwelling which is fully furnished
and can be used by the owner immediately. Here one might argue that no dwelling service is provided as long as it
is not actually occupied by the owner. But since it is comparable to the case of a rented but empty dwelling, it
seems appropriate to insert a rental. Therefore, furnished owner-occupied dwellings are generally regarded as
occupied.

An empty dwelling may still incur costs, like current expenditure on maintenance, electricity, insurance premiums,
taxes etc. These should be included under intermediate consumption, other taxes on production, etc. As in the case
of an enterprise not producing any services, this may lead to a negative value added.

P r i n c i p l e 1 2 :

For a non-rented dwelling, which is available to be sold or rented, a zero rental shall be inserted. A furnished
owner-occupied dwelling in general shall be treated as an occupied dwelling.

1.4.6. Garages

Since garages are a part of gross fixed capital formation, it is appropriate not only to include the service of the
rented ones in the output of the economy but also to calculate an imputed output for owner-occupied garages. In
both cases the garage represents an element of comfort of the dwelling like any other facility. This should include
car ports and parking places since they probably have the same function.

ESA95 paragraph 3.64 states that ‘for garages located separately from dwellings, which are used by the owner for
final consumption purposes in connection with using the dwelling, a similar imputation is to be made. No
imputation is to be made for garages used by their private owner only for the purpose of parking near the
workplace.’

Usually there are more owner-occupied dwellings than rented dwellings with a garage. To include this structural
difference properly, the best way seems to use the existence of a garage as a stratification criterion.

P r i n c i p l e 1 3 :

Garages and parking places used for final consumption purposes provide services to be included in dwelling
services.

2.

INTERMEDIATE CONSUMPTION

Intermediate consumption has to be consistent with output.
individual
consumption according to purpose (COICOP), charges for heating, water, electricity, etc. as well as most of the
maintenance and repair associated to housing should be recorded separately and hence excluded from output of
dwelling services.

In line with the classification of

In practice, however, various charges as well as maintenance and repair may have to be considered to be part of
the rental service on the ground that they cannot be separated out. The level of GNI should not be affected, if a
gross treatment is carried out consistently for intermediate consumption and output.

With respect to repair and maintenance, three categories should be distinguished. First, improvements to existing
fixed assets that go well beyond the requirements of ordinary maintenance and repairs are included in gross fixed
capital formation (ESA95 paragraph 3.107).

Second, expenditure on ordinary maintenance and repairs that an owner-occupier incurs on the decoration,
maintenance and repair of the dwelling not typically carried out by tenants is treated as intermediate consumption
in producing dwelling services (ESA95 paragraph 3.77).

Finally, cleaning, decoration and maintenance of the dwelling as far as these activities are also common for tenants
are excluded from production (ESA95 paragraph 3.09). Expenses related to these activities should be recorded
directly as final consumption of households. ESA95 states in paragraph 3.76 that household final consumption
expenditure includes the materials for small repairs to and interior decoration of dwellings of a kind typically
carried out by tenants as well as owners.

This means that, for owner-occupied dwellings, intermediate consumption should cover the same types of ordinary
maintenance and repairs as would normally be regarded as intermediate consumption by the landlord for similar
rented dwellings. Expenditure on repairs and maintenance of a type typically undertaken by tenants rather than
landlords should be treated as household final consumption expenditure for both tenants and owner-occupiers.

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Intermediate consumption of ordinary maintenance and repairs related to owner-occupied dwellings may be
derived from direct statistical sources such as household budget surveys. When the ratio of
intermediate
consumption to output for owner-occupied dwellings is very different from the ratio for the rented sector, the
reasons for this should be investigated. When the difference is caused by differences in quality, for example a
different level of ordinary maintenance for otherwise similar dwellings,
imputed rentals should be adjusted
accordingly.

Intermediate consumption should include financial
in
accordance with Council Regulation (EC) No 448/98 (1). This includes intermediate consumption of households
in their capacity as owners of dwellings in relation to dwelling loans.

indirectly measured (FISIM)

intermediation services

As stated in section 1.4.5, empty dwellings can lead to intermediate consumption. As a general point, it is stressed
that double-counting of intermediate consumption in the case of employer-owned dwellings should be avoided.

P r i n c i p l e 1 4 :

Intermediate consumption shall be established in line with the definition of output of dwelling services. In general
both items should exclude charges for heating, water, electricity etc. If for practical reasons a different treatment is
preferred, this is acceptable as long as the levels of GDP and GNI are not affected.

3.

TRANSACTIONS WITH THE REST OF THE WORLD

According to ESA95 (paragraphs 1.30 and 2.15) non-resident units are considered as notional resident units in
their capacity as owners of land or buildings on the economic territory of the country, but only in respect of
transactions affecting such land or buildings.

This means that the service provided by a dwelling owned by a non-resident is included in the output of the
economy where the dwelling is located. In the case of an owner-occupied dwelling of a non-resident, an export of
dwelling services is then to be recorded, and the corresponding net operating surplus is recorded as primary
income paid to the rest of the world (ESA95 paragraphs 3.142 and 4.60).

With regard to residents owning dwellings abroad, ESA95 paragraph 3.64 states that ‘the rental value of owner-
occupied dwellings abroad, e.g. holiday homes, should not be recorded as part of domestic production, but as
imports of services and the corresponding net operating surplus as primary income received from the Rest of the
World.’

In general few problems arise if the property owned by a non-resident is actually rented to a resident, since a
monetary flow will be observed and included in the balance of payments. Dwellings owned and occupied by
foreign residents would have to be identified separately. The nationality of an owner-occupier is not sufficient to
separate a resident from a non-resident. Holiday homes owned by foreign residents will probably matter most and
it would be useful to obtain an agreement about the number of non-resident owners between the Member States
concerned. However, there is a general lack of information on non-resident owner-occupiers. Information about
residents owning holiday homes abroad is even scarcer. To avoid inconsistencies, a Member State deducting a
primary income for dwellings occupied by non-resident owners should at the same time add a primary income for
dwellings abroad owned and occupied by residents.

A special issue in this regard relates to time-share properties. Since for the same accounting period such a property
may be occupied by residents of different countries, a direct allocation to the country of origin seems almost
impossible. Comparable results may be obtained using a more feasible approach. First, the (imputed) value added
generated by time-share accommodation is allocated to the country of origin of the owning company. Subse-
quently the owning company may be asked to provide information on the countries of origin of the time-share
owners, which may serve as a distribution key.

P r i n c i p l e 1 5 :

According to ESA95, all dwellings on the economic territory of a Member State contribute to its GDP. The net
operating surplus received by non-residents as owners of land and buildings in that country is to be recorded as
property income to the rest of the world and therefore to be deducted from GDP during the transition to GNI (and
vice versa). This net operating surplus shall be understood as the net operating surplus from actual and imputed
renting of dwellings. A Member State deducting a property income for dwellings occupied by non-resident owners
should at the same time add a property income for dwellings abroad owned and occupied by residents.

(1) OJ L 58, 27.2.1998, p. 1. Regulation as amended by Regulation (EC) No 1882/2003 of the European Parliament and of the Council.