Monday, May 07, 2007

What is "Residential Investment"?

by Calculated Risk on 5/07/2007 03:09:00 PM

From the BEA:

Investment in residential structures consists of new construction of permanent-site single-family and multi-family units, improvements (additions, alterations, and major structural replacements) to housing units, expenditures on manufactured homes, brokers'commissions on the sale of residential property, and net purchases of used structures from government agencies. Residential structures also include some types of equipment that are built into residential structures, such as heating and air-conditioning equipment.
The breakdown by each category is available in the BEA underlying detail tables. The only significant categories are: permanent site (single and multi-family structures), improvements and broker's commissions.

Economy GDP EmploymentClick on graph for larger image.

This graph shows that investment in single family structures is the most important category of residential investment. This amount is based on the Census Bureau data: Construction Spending and is included when the value is put in place.

A few things to note: Broker's commissions and improvements tend to track investment in single family structures, and investment in multi-family structures are not correlated with single family structures. In the current downturn, investment in improvements has only just started to decline as a percent of GDP, and will probably decline much further as MEW declines. Investment in multi-family structures will probably stay fairly low since the vacancy rate for rental units is still near the all time highs (this is definitely a local issue - some areas will have a low vacancy rate and see more multi-family construction).