Neil Irwin has an interesting piece in the NYT's Upshot section about how housing is holding back the recovery. There are two points worth adding.

First, the vacancy rate continues to be well above historic averages. In the fourth quarter of 2013, the most recent period for which data are available, the vacancy rate was still over 10.0 percent. This compares to a vacancy rate that averaged less than 8.5 percent in the pre-bubble years. This translates into a large number of empty units that will discourage new construction for some time to come.

The other point is that looking at the historic average share of residential construction in GDP may be somewhat misleading. If we go back to the 1980s, the share of medical care in GDP has risen by more than 6.0 percentage points. This increase must come from other categories of consumption. If we say non-health care consumption is roughly 60 percent of GDP, then a 6 percentage point rise in the share of health care in GDP would imply a reduction of 10 percent in non-health care consumption, if the consumption share of GDP stayed constant.

In fact consumption has risen as a share of GDP, but if we assume the consumption share will not rise indefinitely, it means that a rising share of consumption going to health care means a smaller share going to everything else. The implication is that we might expect housing to comprise a smaller share of GDP going forward than in the past. In that story we should still expect housing to recover further, but perhaps not to its average share for 1970s, 1980s, and 1990s.

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