On Nov 7, 2007, at 11:57 AM, Carl Remick wrote:
> Hmm, I would argue that these expenditures in household improvement
> *are* consumption, not capital investment, since they have been made
> prior to a collapse in housing values, thus do not now add to the
> owners' equity.
That's not the way national income accountants see it. This gets arcane, but here it is. Building a house, or adding onto or remodeling an existing one, is residential investment. It's an investment because it lasts for a very long time. (The Fed's flow of funds accountants even classify the purchase of consumer durables as an investment - the national income accounts don't do that.) Equity doesn't matter in the accounts at all. Neither does the purchase or sale of an existing house (or any other asset, like a stock). Owner- occupied housing enters the national income accounts as the consumption of housing services. The concept is that owner-occupants are both landlords and tenants, who enjoy that stream of housing services in exchange for...imputed rent they pay themselves. For the full story, see:
<http://bea.gov/papers/pdf/RIPfactsheet.pdf>.
Now I know this sounds crazy, but the point is, as they say, to separate the investment and consumption aspects of housing.
Doug