Real Estate Economics 156 Foldvary

How much is rent?

GDP accounts: GDP $10.5 trillion

Rental income of persons: $132 billion, 4th quarter 2002. 1.25% of GDP

Explicit rent from tenants plus imputed rent from owner-occupied housing.

Includes both land rent and the rental of buildings and other improvements.

In 1929, the national income accounts put rent at 6% of national income.

In 1987, it was recorded as .5% of national income!

Why so low?

Excludes rent in land owned by corporations. Excludes rent on government land.

Excludes real estate taxes. Excludes capital gains.

"Rental income of persons" is what is left after deducting taxes, mortgages (amortization and interest), depreciation.

If we include these, we get about a trillion dollars of rental income, only of natural persons.

Half of this is land rent. If we add about a trillion dollars of capital gains, land rent is $1.5 trillion.

Add corporate rent and government rent, and we get about $2.5 trillion.

Steven Cord, 1991, economic rent of US land is 20% of national income.

Michael Hudson, 1997, puts rent at 25%.

Data published by the Federal Reserve Board in 1991 put U.S. land at $3.7 trillion.

Bureau of Economic Analysis put real estate in 1988 at $10 trillion.

Federal Reserve Board estimate for real estate: $13.4 trillion in 1994.

That is 2/3 of the economy's total assets of $20 trillion.

Prof. Mason Gaffney's studies conclude that land value is at least half of real estate value.

Michael Hudson estimates US land value at $9 trillion.

A study by Michael Hudson and Richard Noyes in 1997:

rental income for the U.S. real estate industry is $800 billion per year. 14% of national income.

Does not include rent on oil, gas, forestry, farming, ranching, fishing, electromagnetic spectrum.

That income is counted as profit.

Does not include implicit rent and capital gains (land-value gains).

There is also $300 billion in mortgage interest.

And $225 billion paid in local real estate taxes.

So rent goes to interest, profits, insurance companies, real estate investment trusts, money market funds, taxes.

Most savings in the US is recycled by the banking and insurance systems into mortgage lending.

It is counted as interest, but it is really rent.

Most commercial real estate in the U.S. reports annual losses.

Capital consumption, interest, and taxes eat up the rental revenue.

Real estate investors and speculators often try to borrow as much of the purchase price as possible. The rental pays the interest. Their net income is zero, and they hope for capital gains.

Taxes are therefore zero on rental income, and reduced on capital gains such as at 20%.