Housing Share of GDP Inched up In the Fourth Quarter of 2023

Housing’s share of the economy rose to 16.0% at the end of the fourth quarter of 2023. Overall GDP increased at a 3.3% annual rate, following a 4.9% increase in the third quarter of 2023, and a 2.1% increase in the second quarter of 2023. The annual GDP growth in 2023 was reported at 2.5%. Housing’s share of GDP on an annual basis in 2023 was 15.9% — the lowest level since 2019 (15.7%). This marks a decrease from the 2022 housing GPD share of 16.4%.

In the fourth quarter, the more cyclical home building and remodeling component – residential fixed investment (RFI) – remained level at 3.9% of GDP. RFI added 4 basis points to the headline GDP growth rate in the fourth quarter of 2023, marking two consecutive quarters of positive contributions. For the year, RFI subtracted 49 basis points from GDP growth. Housing services added 5 basis points to GDP growth in the fourth quarter. Moreover, housing services added 5 basis points to annual GDP growth.

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 the fourth quarter, RFI was 3.9% of the economy, recording a $1.1 trillion seasonally adjusted annual pace. RFI constituted 3.9% of GDP at $1.1 trillion for the year as well.

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 in GDP.

For the fourth quarter, housing services represented 12.0% of the economy or $3.4 trillion on a seasonally adjusted annual basis. For 2023, housing services accounted for 11.9% of GDP at $3.3 trillion over the year.

Taken together, housing’s share of GDP was 16.0% for the fourth 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.