With the release of the final estimates of fourth quarter 2015 GDP (a 1.4% annual growth rate), housing’s share of gross domestic product (GDP) was effectively unchanged at 15.30%. However, the home building and remodeling component – residential fixed investment – expanded for the fifth consecutive quarter to 3.32% of total GDP.
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, multifamily development, and remodeling contributions 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 3.32% of the economy, reaching a $547 billion seasonally adjusted annual pace (measured in inflation adjusted 2009 dollars), an 2.42% improvement over the third quarter. RFI is currently at the highest quarterly rate since the first quarter of 2008. The fourth quarter growth for RFI added 0.33 points to the headline GDP growth rate (i.e. GDP would have expanded 1.07% absent the RFI contribution).
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 were 11.98% of the economy or $1.97 trillion on a seasonally adjusted annual basis.
Taken together, housing’s share of GDP was 15.30% for the fourth quarter.
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.