Housing Share of GDP: Housing Services Offsets Slight RFI Decline

With the release of the final estimates of second quarter 2016 GDP growth (revised up three-tenths to a 1.4% growth rate), housing’s share of gross domestic product (GDP) held steady at 15.7%. The home building and remodeling component—residential fixed investment—as a share of GDP declined slightly to 3.5%.

housing-percent-gdp_2016q2

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 second quarter, RFI was 3.5% of the economy, shrinking from a $601 billion seasonally adjusted annual rate (SAAR) to $589 billion in inflation-adjusted 2009 dollars.  The second quarter contraction of RFI subtracted 0.3 points from the headline GDP growth rate (i.e. GDP would have expanded 1.7% had RFI remained unchanged). The decline represents the first time RFI has had a negative effect on GDP growth since the first quarter of 2014.

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 second quarter, housing services comprised 12.2% of the economy or $2.02 trillion (SAAR).

Taken together, housing’s share of GDP was 15.7% for the second 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 as a share of the economy, for instance, has risen 35% (from 2.6% to 3.5%) since the end of the Great Recession.



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