Sunday, October 7, 2012

Residential construction will not have a material impact on the US GDP

Some are expecting the latest surge in US home construction to lift economic growth. Even though it is indeed a positive development, construction however will have only a limited contribution to the GDP.

Home construction in the US has indeed been on the rise due to tight housing inventories (see discussion), particularly in neighborhoods where people actually want to live. Here are a couple of examples:
1. Star-Telegram: - New home construction in Dallas-Fort Worth jumped 34.5 percent in the third quarter compared with a year ago, the fifth straight quarter of gains and the best since the second quarter of 2010, Residential Strategies said Thursday.
2. WRAL: - Wake County's slowly improving housing market got more good news recently, as the National Association of Home Builders predicted that home building could be back to normal by the end of 2013. Home construction is up 27 percent compared with this time last year, despite only 1,500 new homes being on the market in the county.
But unfortunately just as single family home construction momentum picked up, multifamily construction has slowed - offsetting some of the gains.

Source: JPMorgan

But even if the total residential construction spending accelerates, right now it unfortunately accounts for only about 1% of US GDP. So as much everyone wants to see construction drive GDP (as it did to some extent during the boom years), it is still a fairly insignificant contributor to the overall output.

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