Real estate stands as a fundamental piece of the United States’ economy. In fact, real estate construction contributed $1.2 trillion to the nation’s economic output through Investment (I) in 2016, six percent of the national G
DP. Although many would think that buying houses would fall under Consumption (C), it goes into Investment because of the magnitude and capital value of the purchases.
On the residential side, real estate provides citizens with housing. Whereas the commercial side includes property solely used for business purposes, for example, malls, office parks, restaurants, gas station, convenience stores and office towers. Lastly, comes industrial real estate, which includes all land and buildings either utilized or suited for industrial activities, such as, factories, mines and farms.
With all this said, construction, the actual building of buildings, is the only part of real estate that is measured by GDP. However, real estate impacts many other sectors of economic well being that GDP does not measure. For instance, when real estate sales decline, real estate prices will eventually decline. This lowers the value of homes, which reduces the number of home equity loans available to owners and thus leads to a decrease in consumption. A fall in consumer spending leads to further unemployment and a reduction in income. Thus, if the Federal Reserve fails to reduce interest rates the country can fall into a recession, similar to what we saw in 2008 with the Great Recession.
Furthermore, the real estate world creates an abundance of jobs throughout all sectors. Each role works together in cohesion to get deals done, and provides employment for millions of Americans. For example, there are roles in brokerage that serve buyers and sellers in the real estate transaction process. Both the buying agent and the selling agent charge a commission of a given property’s selling price, which brokers research and analyze.
Looking to politics, President Trump, a longtime real estate mogul, has stressed ‘buy America, sell America.’ This means a rise in home prices and increase in employment will be a major key to drive growth in the real estate sector. It will be interesting to see what more President Trump will do in regards to the real estate market. My guess is that he will implement industry-friendly policies in effort to improve the market.