The measurement of housing costs is an important precursor to research in public policy and discussions on the consumption patterns of low-income individuals. This paper analyses the two primary housing-cost measurements currently used in the UK: before deduction of housing costs (BHC) and after deduction of housing costs (AHC). BHC treats housing-costs as on par with everyday expenditures, whereas AHC distinguishes between housing expenditures and other general consumption goods. UK and EU researchers have shown a preference for the BHC method, however this paper argues that a wider acceptance of AHC allows for a more accurate statistical understanding of housing costs. The BHC is limited by its assumptions that housing costs are a reflection of an individual’s chosen standard of living, while the AHC allows for adjustments such as regional price differences, life-cycle variations, and interest rate fluctuations. The paper also introduces alternative measures including imputed rent and decile-specific price indices that can be used to supplement BHC and AHC and produce more robust measures of housing costs.
How to Cite:
Mao, A.Y., 2012. Treatment of Housing Costs in the UK Income Statistics. The Public Sphere: Journal of Public Policy, 1(1), pp.73–79.