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Housing-Related Spending Makes Up 17.6 Percent of GDP

Growth in Housing Spending Lags Growth in GDP

Molly Boesel    |    Housing Trends

Numbers released today by the Bureau of Economic Analysis confirm that housing-related expenditures continue to make up a substantial portion of U.S. gross domestic product (GDP). To calculate the portion of domestic spending that is related to housing, we look at three expenditures from the quarterly GDP release: residential investment (the construction of new single- and multi-family houses), spending on housing services (rent, owner’s equivalent rent and utilities) and spending on furnishings and durable goods. Together, these made up 17.6 percent of total real GDP in the third quarter of 2013, up slightly from a year ago, but down from the high of 20.6 percent in the third quarter of 2005. Housing services were 12.4 percent of total GDP in the third quarter, followed by residential investment at 3.2 percent and furnishings and durable goods at 2.0 percent (Figure 1).  The share of GDP attributable to housing services and spending on durable goods has been stable for the past decade, with the fluctuation in housing-related GDP coming from residential investment. Residential investment made up 6.2 percent of GDP at its peak in 2005, fell to 2.5 percent of GDP in 2009, and has slowly come back in 2013.

In terms of year-over-year growth rates, housing-related GDP growth has lagged overall GDP growth for much of the economic recovery. In the latest quarter, overall GDP grew by 1.6 percent year over year, and housing-related GDP fell by 0.1 percent year over year. Figure 2 shows the year-over-year growth rates of the three components of housing-related GDP. Because housing services make up the majority of housing-related spending, the stability in this sector has led to slower growth. The more volatile segments of housing-related GDP are residential investment and spending on furnishings and durable goods. The amount of residential investment peaked in late 2005, after which it began to plummet, ultimately posting double-digit year-over-year declines for three and a half years. While residential investment is 43 percent below peak levels, it gained 37 percent from the trough, hit in the third quarter of 2010. Changes in spending on furnishings and durable goods echo changes in residential investment, but the effects are muted as these expenditures are not completely dependent on new construction.  Residential investment grew by 15.3 percent and spending on furnishings and durable goods grew by 7.3 percent in the latest quarter, but the total dollar amount of these components was too small to move the growth in housing-related GDP.

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