Final estimates of fourth quarter 2016 GDP growth (revised up two-tenths of a percentage point to 2.1%), show that housing’s share of gross domestic product (GDP) was unchanged at 15.6%.
The home building and remodeling component—residential fixed investment (RFI)—also held steady at 3.5% as a share of GDP. The fourth-quarter expansion of RFI added 0.35 percentage points to the headline GDP growth rate (i.e. GDP would have expanded only 1.7% had RFI remained unchanged). Residential fixed investment has added an average 0.25 percentage points to quarterly GDP growth since 2012.
Housing-related activities contribute to GDP in two basic ways.
The first is through RFI—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.
RFI comprised 3.5% of the economy in the fourth quarter of 2016. In nominal terms, RFI rose from a $583 billion seasonally adjusted annual rate (SAAR) to $596 billion in inflation-adjusted 2009 dollars—a 2.3% increase.
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. In the fourth quarter, housing services comprised 12.1% of the economy or $2.03 trillion (SAAR).
Taken together, housing’s share of GDP was 15.6% in the fourth quarter.
RFI and housing services have averaged 4.7% and 13.3% of GDP, respectively, over the past 35 years 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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