Housing Share of GDP Edges Lower in the Second Quarter of 2022

Housing’s share of the economy edged lower at the end of the first half of 2022. For the second quarter of 2022, overall GDP declined at a 0.9% annual rate, following a 1.6% decrease in the first quarter. Housing’s share of GDP decreased to 16.6%, slightly below the first quarter share of 16.7%.

In the second quarter, the more cyclical home building and remodeling component – residential fixed investment (RFI) – decreased to 4.7% of GDP. Home construction will face growing challenges as higher interest rates due to tightening monetary policy increase housing affordability challenges. RFI subtracted 71 basis points from the headline GDP growth rate in the second quarter of 2022.

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 4.7% of the economy, recording a $1.2 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 second quarter, housing services represented 11.9% of the economy or $3.0 trillion on seasonally adjusted annual basis.

Taken together, housing’s share of GDP was 16.6% 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.