Housing Share of GDP Rises in 3Q19

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After declines for six consecutive quarters, the home building component of gross domestic product (GDP) increased during the third quarter of 2019. This gain was due to the housing rebound that has taken hold since the spring, with the pace of single-family permits rising since April and the rate of single-family starts increasing since May.

The overall housing share of GDP increased to 14.6% during the third quarter, as GDP growth slowed to a 1.9% rate. The home building and remodeling component – residential fixed investment – increased modestly to 3.11% of total GDP and added 0.18 basis points to the headline GDP growth rate.

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 third quarter of 2019, RFI was 3.1% of the economy, reaching a $594 billion seasonally adjusted annual pace (measured in inflation adjusted 2012 dollars).

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 11.5% of the economy or $2.18 trillion on seasonally adjusted annual basis.

Taken together, housing’s share of GDP was 14.6% for the 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.



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