Housing made up 16.9% of the country’s GDP during the second quarter of 2021, only slightly off a 14-year high. As the economy continues to recover, housing’s share is expected to taper, says the National Association of Home Builders. Housing’s share of the GDP increased 6.5% at a seasonally adjusted annual rate during the second quarter of 2021, but residential fixed investment declined at a 9.8% annualized rate after three quarters of strong growth.
For the second quarter, the more cyclical home building and remodeling component – residential fixed investment – was effectively unchanged at 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 second quarter, RFI was 4.7% of the economy, recording a $1.07 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.