Housing Wealth and the Measurement of Economic Well-Being
Murdoch University Working Paper 146
Posted: 9 Sep 1996
Date Written: April 1996
Abstract
Cash income is widely recognized as a deficient measure of economic well-being, as it takes no account of the contribution of in-kind benefits and net worth to consumption potential. Housing equity is a particularly important component of net worth. Comprehensive income measures incorporate housing equity by adding its annuitized value to cash income. This adjustment has been shown in previous studies to have a significant impact on estimates of the incidence of poverty. This paper argues that the failure of comprehensive income measures to take tax and benefit effects into account exaggerates the contribution of housing equity to potential consumption. Simulation exercises are conducted, to demonstrate the importance of taking tax and benefit effects into account, when measuring the economic well-being of those income units who are particularly vulnerable to poverty.
JEL Classification: I32, R31
Suggested Citation: Suggested Citation