**1990** ). The rents paid in the city are well below the cost of construction as well as comprise a small percentage of household expenditures. In India, some form of rental regulation was in in place in all states by 1975 ( **Tewari and Kumar, 1986** ). Even though some attempt was made to reform the rent regulation by the central government through the Model Rent Bill of 1992, no changes have been made in implementation ( **Dev, 2006).** Countries like the United Kingdom, Sweden, and Israel have also implemented their own versions of rent controls over extended periods of time ( **Arnott, 1995).**

Over time, some countries have abolished or modified rental regulation to better address the needs of the current housing market and to erase the distortionary effects of rent controls, among other reasons. The case of Egypt is unique, in that a large share of households continues to live in rent controlled dwellings until today and pay rents that have been set before 1996. For example, almost a third of all households lived in regulated housing units in 2012/13. It, thus, provides an interesting case to study the potential effect regulation might have in the way poverty and other measures of welfare are calculated.

# **3. Accounting for Regulation in the Egyptian Context**

Estimates of housing services should be obtained in a way that is fully comparable across households. In the Egyptian context, two important characterizations that determine the value assigned to the flow of housing services are the living situation of the household (tenant, owner or rent‐free tenant) and the existence of regulated housing. Recognizing that the dwelling occupied by the households is a major durable good, it is not the purchase price that is relevant as an estimate of the services the household receives at any point in time. On the other hand, the rent paid by tenants arguably provides a value to the flow of housing services. For owner‐occupied dwellings and rent‐free tenants, on the other hand, literature has relied on the use of hedonic models to impute rents.

The Hedonic Theory of Consumption establishes that in equilibrium, hedonic prices are defined as the implicit prices of the goods’ attributes. **Rosen (1974)** highlights the hedonic hypothesis that goods are valued for their utility‐bearing characteristics. In this specific case, the characteristics of housing (such as roof type, floor type etc.) occupied by tenants that report rental payment in a survey can be used to estimate the coefficients of a hedonic index, which can then be applied to corresponding characteristics of individual owner‐occupied units to impute rent.<sup>7</sup>

**Frick et al. (2010)** impute rent for owner‐occupied and subsidized dwellings in five European countries (Belgium, Germany, Greece, Italy and the UK) and show that the inclusion of imputed rents has consequences for measurement of welfare. In particular, they find a decline in measured levels of inequality and poverty as a result of using imputed rents derived from a hedonic model. Similarly, using data from EUSILC 2004, **D’Ambrosio and Gigliarano (2007)** find that using imputed rent to adjust for income, leads to a decline in relative inequality and relative poverty in Italy. Others also find a reduction in inequality in Madagascar ( **Guenard and Mesple‐Somps, 2010** ), the Russian Federation ( **Buckley and Gurenko, 1997** ), Australia ( **Saunders and Siminski, 2005** ), Canada ( **Crossley and Curtis, 2006** ) and Argentina ( **Gasparini and Escudero, 2004** ).

> 7 Malpezzi (2003) notes that a certain level of dynamism is necessary to obtain reliable information from a hedonic model. For instance, to apply econometric methods for imputation, the share of free‐market tenants should be about 10 percent.

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