First Quarter 2014: Housing Share of the Economy at 15.5%

Housing is an important source of economic growth. As of the first quarter of 2014, housing’s share of gross domestic product (GDP) was 15.5%, with home building yielding 3 percentage points of that total.

housing share of GDP_1q14

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 fourth quarter, RFI was 3% of the economy.

While the first quarter of 2014 was the fourth strongest level of RFI after the Great Recession ($482 billion annualized pace), the slowing of the rate of growth for home building was a drag on quarterly GDP growth.  This was the second consecutive quarter of drag after 12 straight quarters of boosting economic growth. Nonetheless, the trend in recent quarters indicates that RFI is growing faster than the economy as a whole. For example, over the last two years, the quarterly annualized measure of GDP has grown about 3.7%, while RFI is up 15.5%.

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 fourth quarter, housing services was 12.5% 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.



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10 replies

  1. Informative article. The last sentence, about these shares varying over the business cycle begs the question: should/can we expect growth in RFI and general Housing GDP share over the next three quarters?

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  3. Reblogged this on CraftPro Home Improvements and commented:
    Housing Share of GDP: 15.5%, but Historic Average is Roughly 17% to 18%

    Housing activities contribute to the economy in two ways:

    The first is the #RFI (residential fixed investment), things like new home construction, remodeling and home improvement activity. “…the trend in recent quarters indicates that RFI is growing faster than the economy as a whole,” says Robert Dietz.

    But…

    RFI was 3% of the GDP this quarter, and even though that is its fourth strongest level “since after the Great Recession”, its historical average is roughly 5%, and that 15.5% share historically contributed about “17% to 18% of the GDP”. But “these shares tend to vary over the business cycle”. (All quotes per the NAHB’s ‘Eye On Housing’ article below).

    So I asked Mr. Dietz:
    “The last sentence, about these shares varying over the business cycle begs the question: should/can we expect growth in RFI and general Housing GDP share over the next three quarters?”

    And he replied:
    “Yes – expect growth in 2014. NAHB is forecasting housing starts will eclipse one million starts for the year for the first time since the Great Recession, which will boost RFI and housing’s share of GDP.”

    You can see the sharp drop in RFI and Housing’s GDP share in general, starting between 2004 and 2006 and continuously declining until the last couple years: in the last couple years it has been growing and, according to expert Robert Dietz, it will continue to grow. Great news for homeowners, contractors, home-buyers… Everyone!

Trackbacks

  1. Real Estate News – April 30, 2014
  2. http://eyeonhousing.org/2014/04/30/first-quarter-2014-housing-share-of-the-economy-at-15-5/ | Giro Katsimbrakis
  3. Housing, RFI Contribution to GDP Grows in 1st Quarter of 2014 per NAHB
  4. Housing as a Job Creator – Congressional Testimony | Eye on Housing
  5. Eye on the Economy: Home Improvement Season | Eye on Housing

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