ESTIMATING IMPUTED RENT
This study uses hedonic regression to estimate the market value of the rental equivalent of an owner-occupied dwelling. Data from the SIH on reported rents paid by private market renters is regressed on the characteristics of their rented dwellings e.g. location and dwelling structure. The estimated coefficients are then applied to the corresponding characteristics of owner-occupied and other dwellings to produce imputed values of the rental equivalence for these dwellings.
Net imputed rent is estimated as gross imputed rent less reported housing costs. For owner-occupiers, the housing costs subtracted are those which would normally be paid by landlords i.e. rates, mortgage interest, insurance, repairs and maintenance. For other housing tenures for which net imputed rent is being estimated, the housing costs that are subtracted are largely made up of the reported rent paid, but other housing costs incurred, such as rates, are also subtracted for some tenure types. In the case of tenants of state/territory housing authorities, the net imputed rent estimates have been benchmarked to administrative data published in the national data reports produced under the Commonwealth-State Housing Agreement (CSHA).
Appendix 1 describes in more detail the methods used to construct experimental estimates of imputed rent at the household level. The four main steps involved in the imputation are summarised below.
Step 1. Build a model for gross imputed rent based on renters
A hedonic regression model was applied to quantify the relationship between certain reported characteristics of the dwelling and the reported rent paid by private market renters using data from the SIH. Private market renters were defined as those tenants who rent an unfurnished dwelling privately or through a real estate agent. The rent paid by renters with landlord types that might potentially subsidise rents were excluded from the model. This included tenants of: state/territory housing authorities; employers; church/community groups; and parents (or other relatives).
The log of weekly rent paid for private unfurnished dwellings (gross, before any deductions for refunds or subsidies received from outside the household) was regressed against location and dwelling characteristics considered important in determining the market rent paid (see Appendix 1 for a list of variables used in the model).
Step 2. Estimate gross imputed rent for owner-occupiers
After estimating the rent model for private market renters, experimental estimates of the gross imputed rent for owner-occupied and other dwellings were predicted by applying the estimated coefficients from Step 1 to the characteristics of these dwellings. An adjustment was made for high value dwellings as the available characteristics could not fully explain variations in rent for these dwellings.
Step 3. Estimate net imputed rent for owner-occupiers
To calculate the net imputed rent for owner-occupied dwellings, the following housing costs normally paid by landlords were subtracted from gross imputed rent: body corporate payments; general and water rates; the interest component of repayments of loans that were obtained for the purposes of purchasing or building; house insurance; and repair and maintenance costs. All housing costs were net of refunds or subsidies received from outside the household.
The SIH contains information on all the relevant housing cost items except house insurance and repairs and maintenance. Expenditure information on house insurance and repairs and maintenance is only available for the HES subsample in 2003-04. The HES data were used to estimate expenditures on these items for the entire SIH sample in 2003-04, and to enable imputation in 2005-06 when this information was not collected. See Appendix 1 for details of the methods used for the estimation of these items.
Step 4. Estimate net imputed rent for other housing tenures
For other housing tenures, the housing costs subtracted from gross imputed rent to derive net imputed rent are outlined in table 3.1.
For each of the housing tenures described in table 3.1, any refunds or subsidies received for rent payments were implicitly accounted for in the estimation of net imputed rent. For consistency across all housing tenures, the reported values of any rental refunds or subsidies received by private market renters have been included in the experimental estimates of net imputed rent.
For tenants of state/territory housing authorities, the mean difference between the initial gross imputed rent estimates and the reported rent paid were compared by state with the mean weekly rental subsidy published in the public rental housing CSHA National Data Reports (AIHW 2005 and 2006). It was found that the initial net imputed rent estimates from this study overstated the mean benefit in all states. This outcome was probably due to overstatement in gross imputed rent estimates due to differences in the private and public rental markets that could not be captured by the imputation model.
Therefore, the net imputed rent for public tenants was benchmarked to the CSHA published state mean weekly rental subsidies using a multiplicative adjustment (described in Appendix 1).
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