Housing Share of GDP Remains Lower in the Second Quarter of 2023

Housing’s share of the economy remained at 15.8% at the end of the second quarter of 2023. Overall GDP increased at a 2.4% annual rate, following a 2.0% increase in the first quarter of 2023 and 2.6% increase in the fourth quarter of 2022. Despite overall GDP increasing for the fourth consecutive quarter, housing’s share of GDP remained to 15.8% over the course of the quarter.

In the second quarter, the more cyclical home building and remodeling component – residential fixed investment (RFI) – decreased to 3.8% of GDP. RFI subtracted 16 basis points from the headline GDP growth rate in the second quarter of 2023. The last time RFI added to GDP growth was the first quarter of 2021, resulting in nine consecutive quarters where RFI has subtracted from overall 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 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 3.8% of the economy, recording a $1.0 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.

For the second quarter, housing services represented 12.0% of the economy or $3.2 trillion on a seasonally adjusted annual basis.
Taken together, housing’s share of GDP was 15.8% for the second 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.