With the release of the final estimates of first quarter 2016 GDP growth (revised up two-tenths to a 1.1% growth rate), housing’s share of gross domestic product (GDP) ticked up slightly to 15.4%. The home building and remodeling component – residential fixed investment – as a share of GDP expanded to 3.4%.
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 first quarter, RFI was 3.4% of the economy, reaching a $568 billion seasonally adjusted annual rate (SAAR) in inflation-adjusted 2009 dollars. This is the highest quarterly rate for RFI in more than eight years. The first quarter growth for RFI added 0.5 points to the headline GDP growth rate (i.e. GDP would have only expanded 0.6% absent the RFI contribution), the largest contribution since 2012.
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 first quarter, housing services was 12.0% of the economy or $1.98 trillion (SAAR).
Taken together, housing’s share of GDP was 15.4% for the first quarter.
RFI has averaged 4.7% of GDP over the past 35 years while housing services have averaged 13.3%, for a combined 18% of GDP. These shares tend to vary over the business cycle; RFI and combined housing have grown by 31% and 17%, respectively, as a share of the economy since the end of the Great Recession.