Understanding real estate in U.S. GDP

There has been a noticeable boom in the real estate industry (particularly in investments) in recent years. In fact, the real estate industry’s share of GDP has stayed higher than it was for most of the time since the Great Recession. And, the pandemic changed the market dynamics even more – putting a fresh spotlight on the importance of owning a home. So, what is the value of real estate in U.S. GDP today? And why is it so crucial to the American economy? That’s exactly what we will try to find out, here.

What is the contribution of real estate in U.S. GDP?

The real estate industry is a significant player in the U.S. economy. All activities relating to the housing sector – including home buying, home selling, rental income, construction of new single-family and multifamily structures, home remodeling, production of manufactured homes, property taxes, home repairs, and even broker’s fees – average roughly 14% to 17% of the GDP. 

This figure also takes into account owners’ imputed rent (an estimate of what homeowners would pay in rent if they rented their own homes) and includes gross rents, which are the cost to rent owner-occupied units, utility payments, and other housing services.

The real estate industry’s impact is also measured on a seasonally adjusted basis. This ensures that the housing share of GDP accurately reflects ongoing trends without being skewed by seasonal variations.

How huge is real estate in the U.S.?

The real estate industry in the U.S. is massive, with its economic impact felt across various sectors. It covers everything from home construction and home sales to property management and real estate financing. The industry also includes the income generated from the renting and leasing of properties, both residential and commercial. 

Interestingly, the housing market’s ripple effects extend far beyond property transactions. For instance, it helps generate jobs and stimulate spending across multiple industries such as construction, manufacturing, and retail. We’ll discuss all of these, below. 

Therefore, understanding and leveraging this sector’s influence is key to fostering economic growth and stability across both national and local markets. 

In fact, states such as Florida, Nevada, Delaware, and Arizona have seen real estate contribute over 23% to their local GDPs, fueled by growing populations and new business investments. Meanwhile, high property values in places such as California, Hawaii, and the District of Columbia significantly boost their economic output, with each home sale generating substantial income and creating jobs.

Why is real estate a big player in the U.S. economy?

Real estate plays a fundamental role in the broader economy for several reasons:

• The real estate industry supports millions of jobs across different segments – from construction workers to real estate agents and property managers to financial analysts.
• For many Americans, owning a home is a primary means of building wealth. That’s because, real estate investments often appreciate over time, providing significant returns for homeowners and investors.
• The housing market is a strong indicator of economic stability and health. When the real estate market is thriving, it generally means that the economy is doing well. Conversely, a downturn in the housing market can signal economic trouble.
• Real estate is a vital part of the national income accounting system, capturing the value of housing services provided by both rented and owner-occupied homes. 

Read more: Baby boomers are holding on to their houses

What are some of the ripple effects of real estate on the economy?

The real estate sector also affects other parts of the economy. For instance, when new homes are built, it leads to more demand for materials, from lumber to appliances. Therefore, it boosts other industries. Utilities paid by renters and ongoing maintenance contribute to the service economy and the financial sector benefits from mortgage services and property investments.

Which industry contributes the most to the U.S. GDP?

While real estate is a substantial contributor, the top spot is usually taken by the finance, insurance, real estate, rental, and leasing sectors combined. They make up around 20% of the GDP. This sector is a broad category that incorporates financial services such as banking and insurance, which are integral to the economic infrastructure.

Last thoughts

Real estate is more than just a place to live or invest; it’s a critical component of the U.S. economy. It influences almost every aspect of life, from employment rates to consumer spending and investment. The vast network of activities – be it home construction or imputed rent estimates – illustrates its extensive reach and fundamental importance. If you want to understand the health of the U.S. economy, you need to understand how the real estate sector works and its contribution to GDP. 

Written by Ramona Sinha. October 19, 2024

Ramona is the Senior Content Writer for Kukun. This experienced blogger uses simple and succinct words to decipher the complex phenomenon called life. She has written articles covering a broad range of topics, such as real estate, lending and mortgage, finance, business, taxation, home designs, home improvement projects, decor concepts, and more. An avid traveler, she’s a digital nomad at heart and an animal lover from the depth of her soul.