Economic growth in the third quarter was certainly good news for housing and the overall economy. The final estimate of GDP growth from the Bureau of Economic Analysis (BEA) was a 5 percent seasonally adjusted annual growth rate, up from 3.5 percent and 3.9 percent in the first and second estimates respectively.
As of the third quarter of 2014, housing’s share of gross domestic product (GDP) was 15.24 percent, with home building and remodeling yielding 3.08 percentage points of that total.
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 and remodeling contribution 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 3.08 percent of the economy.
The RFI component reached a $500 billion annualized pace during the second quarter. This is the second highest quarterly total for RFI since the middle of 2008.
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 was 12.16 percent of the economy.
Historically, RFI has averaged roughly 5 percent of GDP while housing services have averaged between 12 percent and 13 percent, for a combined 17 percent to 18 percent of GDP. These shares tend to vary over the business cycle.
This post was originally published on NAHB’s blog, Eye on Housing.