The influence of housing on inequality, poverty and individuals’ income rankings in EU-27 countries

The standard definition of disposable income used in comparisons of inequality and poverty does not consider costs and benefits from housing. Such exclusion might bias comparisons of the features of the income distribution across countries. Against this background, the contribution of this article is twofold. First, it reviews the methods proposed to take account of the advantages coming from home ownership, assessing pros and cons of the imputed rent and the out-of-pocket approaches. Second, making use of the EU-SILC, it presents empirical evidence for EU-27 countries aimed at investigating whether: (i) cross-country comparisons of inequality and poverty levels are robust with respect to the approach used to consider housing; ii) individuals’ income rankings and poverty status dramatically change according to the approach to consider housing. We find that the inclusion of imputed rents engenders a non-negligible reduction in inequality and poverty in almost all countries, while both indices largely increase everywhere when housing costs are deducted from income. Furthermore, the extent of individuals’ re-ranking when different distributions are compared is impressive everywhere. We also find that countries characterised by a ‘unitary’ rental system are among those where the impact of housing on inequality and poverty reduction is the lowest.