Thanks to a surge in residential investment during 2020, housing’s share of GDP has returned and remains near historic norms. Last year’s market conditions involved a renewed focus on the importance of home, an evolving geography of housing demand, and a lack of for-sale inventory. Housing should continue to expand in 2021.
For the first quarter of 2021, overall GDP growth continued the recovery at a strong 6.4% seasonally adjusted annual rate. Residential fixed investment (home building and remodeling) expanded at a 10.8% annualized rate, after a nearly 33% rate of growth for the last quarter of 2020.
During the first quarter of 2021, housing’s share of GDP stood at 17.6%, near a 14-year high.
For the first quarter, the more cyclical home building and remodeling component – residential fixed investment – increased to 4.7% of GDP. Home construction will continue to expand as the consequences of the virus crisis are likely to lead to a reversal for declining home size trends, a greater need for additional home office space, and more working from home. Moreover, the U.S. continues to experience a deficit of single-family housing.
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 4.7% of the economy, recording a $1.04 trillion seasonally adjusted annual pace.
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 represented 12.9% of the economy or $2.8 trillion on seasonally adjusted annual basis.
Taken together, housing’s share of GDP was 17.6% 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. However, the housing share of GDP lagged during the post-Great Recession period due to underbuilding, particularly for the single-family sector. The recent expansion in housing activity has increased these shares to near historic norms.
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