Housing is an important source of economic growth. As of the third quarter of 2013, housing’s share of gross domestic product (GDP) was 15.6%, with home building yielding 3.2 percentage points of that total.
Housing-related activities contribute to GDP in two basic ways.
The first is through residential fixed investment (RFI). RFI is effectively the measure of the home building and remodeling contribution to GDP. It includes construction of new single-family and multifamily structures, residential remodeling, production of manufactured homes and brokers’ fees. For the third quarter, RFI was 3.2% of the economy.
Over the last two years, the pace of RFI has grown by $119 billion while GDP has grown by $728 billion (as measured in 2009 dollars). Thus, home building growth has been equal to more than 16% of GDP growth. Over just the last year, the figure is even larger: 26% of GDP growth. It should be noted that GDP is a measure which includes both positive and negative contributions, but these numbers nonetheless indicate the role that housing can play in expanding growth.
The second impact of housing on GDP is the measure of housing services, which includes gross rents (including utilities) paid by renters, and owners’ imputed rent (an estimate of how much it would cost to rent owner-occupied units) and utility payments. The inclusion of owners’ imputed rent is necessary from a national income accounting approach because without this measure increases in homeownership would result in declines for GDP. For the third quarter, housing services was 12.4% of the economy.
Historically, RFI has averaged roughly 5% of GDP while housing services have averaged between 12% and 13%, for a combined 17% to 18% of GDP. These shares tend to vary over the business cycle.