US Housing Share of GDP Remains Above 16% Despite Declines in Residential Investment

A closer look at the recent Bureau of Economic Analysis (BEA) Q2 US real GDP “advance” estimate, with a focus on residential investment and additional analysis by the National Association of Home Builders (NAHB), reveals that housing’s share of the economy stayed level at 16.1% in Q2. The share remained above 16% after staying constant at 15.9% for all of 2023.

The more cyclical home building and remodeling component—residential fixed investment (RFI)—was 4.0% of GDP, unchanged from Q1. RFI subtracted 5 basis points from the headline GDP growth rate in Q2, marking the first negative contributions since 2023Q2.

In Q2, housing services added 18 basis points (bps) to GDP growth while the share remained at 12.1% of GDP. Among household expenditures for services, housing services contributions were second only to health care (45 bps), while above recreation services (11 bps) and transportation services (9 bps).

The NAHB points out that housing-related activities contribute to GDP in two basic ways:

The first is through residential fixed investment (RFI). RFI is effectively the measure of 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 Q2, the RFI was 4.0% of the economy, recording a $1.1 trillion seasonally adjusted annual pace. RFI shrank 1.4% at an annual rate in the quarter after increasing at 16.0% in Q1. This decline is consistent with the overall decline in housing construction over the past few months, as higher interest rates continue to drag down single-family starts.

The second impact of housing on GDP is the measure of housing services, which includes gross rents (including utilities) paid by renters, owners’ imputed rent (an estimate of how much it would cost to rent owner-occupied units) with 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 in GDP.

For Q2, housing services represented 12.1% of the economy, or $3.5 trillion on a seasonally adjusted annual basis. Housing services grew 1.5% at an annual rate in the quarter after 1.0% in Q1. Housing service growth is much less volatile when compared to RFI due to the cyclical nature of RFI. Quarterly growth dating back to 2016 is shown below for both housing services and RFI.

The NAHB also notes that 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.