[rahimnathwani]

I can see how car buying increases GDP (as each new car must be produced) but the same doesn't necessarily apply to home buying. Home supply is relatively fixed. Increases in demand cause asset price inflation, more than they do additional homebuilding. So home purchases don't 'drive the economy' in the sense of causing additional economic output.

[freehunter]

Home supply is fixed in some areas, but certainly not in all. Plenty of people around me are buying new houses in brand new subdivisions. When I bought my house, the sellers were moving to a brand new house. If someone hadn't bought their house, they would't have bought a brand new house. My area is growing by thousands of people per year, and the existing houses are already filled. If people want to move in, they have to build more houses.

Meanwhile I buy only used cars, so me purchasing a car doesn't drive the economy any more than buying a used house does.

[rahimnathwani]

Your point about used home sales enabling the sellers to buy new homes applies equally to used cars.

But cars are different from homes:

1) No zoning preventing new cars from being built

2) Cars wear out within a decade or two

[freehunter]

Cars vs houses is actually a pretty interesting comparison. Houses wear out after a decade or two as well, we're just willing to spend more money keeping a house in good working order than we are keeping a car running. If your central air goes out, it could cost you $7000 to fix it. If your car's engine goes out, that repair would cost $4000. But no one throws away their house, they just pay to get a new air conditioner put in. Few people would put a new engine in their car, though.

The average price to replace a roof is $12,000. But again, people are more likely to replace a roof than they are to replace an engine in their car. They'd just scrap it and buy a new car.

Houses wear out just as fast as cars do, but we're more willing to fix our house versus fixing our car. And it's not just a function of cost: you can get a new modular home for $50,000 and it will last decades. The double-wide I grew up in was installed in 1994 and there are still people living there over 20 years later. Very few people keep $50,000 cars for 20 years, though. And I see a lot of people with $5000 used cars parked in front of $150,000 houses. But if they bought a $50,000 brand new manufactured home, they could be parking a BMW out front instead. And if they wanted to, they could throw the house away just as fast as they throw away their car.

[rjsw]

Buying the home itself may not increase GDP but people tend to upgrade their furniture and appliances a bit when they feel secure enough to buy rather than rent.

[lintiness]

maintenance alone keeps a lot of people working.

[steveax]

When people buy houses, they also buy all the things that fill up a house.

[Houshalter]

Also if the car is manufactured in a foreign country it doesn't really benefit the US economy. Maybe in some complicated and indirect way it does. But if that's the strongest argument for subsidizing education, we should just give the money to car companies directly and skip the middle man. Or whatever economists say is the most effective use of that money, perhaps giving it directly to the poorest.

[djrogers]

This is completely wrong. Housing starts - the number of new home units which began construction in a given quarter - have long been a significant economic indicator.

More specifically, new residential construction accounts for roughly 15% of the GDP, compared to the 3-3.5% from the automobile industry.

Housing supply is so far from being 'fixed' that it contributes 5x more to the GDP than automobiles.

[rahimnathwani]

You are correct. I was forgetting the fact that homes in the US are produced in the US, but that, on the whole, cars, and especially car parts, are not.

I looked at this data from 2014: http://www.bea.gov/industry/gdpbyind_data.htm

It shows the value added rather than gross GDP. So if I import $7000 of parts from Asia, and use them to make a $12000 car, that would show up as a $5000 value add, representing the work that was done in the US.

From this data it appears that construction is about just under 4%, and motor vehicles are just under 1%. So, 4x, which is not far off the 5x you stated.

[ScaryRacoon]

Home construction and remodel services has always been a very strong indicator of how well or poor the economy is going.