Housing’s Share of GDP Falls in the Third Quarter of 2024

Housing’s share of the economy fell 0.1 percentage points to 16.2% in the third quarter of 2024 according to the advance estimate of GDP produced by the Bureau of Economic Analysis. The share was revised upwards for both the first and second quarter of 2024 to 16.3%.

The more cyclical home building and remodeling component – residential fixed investment (RFI) – was 4.0% of GDP, slightly lower than the 4.1% in the second quarter. RFI subtracted 21 basis points from the headline GDP growth rate in the third quarter of 2024, the second consecutive quarter where RFI negatively contributed to GDP growth.

In the third quarter, housing services added 18 basis points (bps) to GDP growth while the share grew to 12.2% of GDP. Among household expenditures for services, housing services contributions were the third-highest contributor to headline GDP growth behind health care (30 bps) and food service and accommodations (19 bps), while above other services (12 bps) and transportation services (10 bps). The graph above stacks the nominal shares for housing services and RFI, resulting in housing’s total share of the economy.

Overall GDP increased at a 2.8% annual rate, down from a 3.0% increase in the second quarter of 2024, but up from a 1.6% increase in the first quarter of 2024.

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. RFI consists of two specific types of investment, the first is residential structures. This investment includes construction of new single-family and multifamily structures, residential remodeling, production of manufactured homes, brokers’ fees and some types of equipment that are built into the structure. RFI’s second component, residential equipment, includes investment such as furniture or household appliances that are purchased by landlords for rental to tenants.

For the third quarter, RFI was 4.0% of the economy, recording a $1.175 trillion seasonally adjusted annual pace. RFI shrank 5.1% at an annual rate in the third quarter after falling 2.8% in the second. Among the two types of RFI, real investment in residential structures fell 5.3% while for residential equipment it rose 2.2%. Investment in residential structures stood at a seasonally adjusted annual pace of $1.153 trillion, making its share of residential investment far greater than that of residential equipment, which was at seasonally adjusted annual pace of $21.5 billion.

The second impact of housing on GDP is the measure of housing services. Similar as we saw with RFI, housing services consumption can be broken out into two components. The first component, housing, includes gross rents paid by renters, owners’ imputed rent (an estimate of how much it would cost to rent owner-occupied units), rental value of farm dwellings and group housing. 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. The second component, household utilities, is composed of consumption expenditures on water supply, sanitation, electricity, and gas.

For the third quarter, housing services represented 12.2% of the economy or $3.581 trillion on a seasonally adjusted annual basis. Housing services grew 1.5% at an annual rate in the third quarter. Real personal consumption expenditures for housing grew 1.4% while household utilities expenditures grew 1.7%. At current dollar expenditure level, housing expenditures was $3.124 trillion and household utility expenditures stood at $456.6 billion in seasonally adjusted annual rates.

Housing service growth is much less volatile when compared to RFI due to the cyclical nature of RFI. 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.