The economy got off to a soft start in 2016. Growth rates for the first quarter (0.8%) and the second quarter (1.2%) were disappointing, and NAHB has marked down its forecast for overall growth in 2016 to 1.6%. This would make 2016 the weakest year since 2011. Economic activity associated with investment has been weak for the past three quarters, due to energy sector declines and reduced business investment.
On the other hand, home building, remodeling, and apartment development are enterprises that can give the economy a much needed boost in momentum. Residential fixed investment (RFI), the home building component of gross domestic product, has grown by an average rate of more than 10% since 2012. And there’s room to grow.
As of June 2016, the RFI share of the overall economy was 3.51%. This is lower than the historical average of roughly 5%. As home building, and single-family construction in particular, recovers, this share will expand. NAHB is forecasting single-family starts to total just under 800,000 for the year. However, over the long run the industry is expected to grow to 1.3 million starts per year, given the housing needs associated with population growth and replacement of older housing stock.
As home building, and RFI, increases, the housing contribution of GDP will also grow. Housing’s share of GDP consists of RFI and housing services, which is the economic value produced by new and existing homes. Keep in mind, at the start of the year the combined value of the nation’s owned-occupied and vacation homes alone was $22.5 trillion. Consequently, as of June, the housing service share of GDP was 12.2%. Over time, that metric is expected to expand to its historical average of 12.5%.
In total, the housing share of GDP currently stands at 15.7%. As single-family home building and remodeling grow in the years ahead, and multifamily maintains its above-average levels of production, the housing share of the economy is expected to rebound to 17.5%. This will give a much needed boost to an economy that is lacking a solid growth driver.
That growth means jobs. NAHB estimates that for every 1,000 single-family homes built, 2,970 jobs are supported for a year. For every 1,000 apartments developed, 1,130 jobs are sustained. And for every $100 million in remodeling expenditures, 890 jobs are generated in the economy. These impacts are broad-based, with about half of the jobs in sectors outside of construction.
Residential construction is literally made in the USA.