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4 Reasons Why a Thriving Economy Is Not Just About Real Estate

For most of the first world countries like the USA, UK and Australia, real estate does play a significant role in the country's annual GDP. In fact, t

For most of the first world countries like the USA, UK and Australia, real estate does play a significant role in the country’s annual GDP. In fact, the real estate industry in the US contributed a massive 1.07 trillion US dollars to the nation’s economy in 2017. That makes 6 percent of the gross domestic product of the country.

Most of us remember the 2008 recession. Well, before the world witnessed this economic crisis on a global scale, real estate was reigning at its peak with the contribution worth 1.195 trillion US dollar in 2006. A significant dip in the home prices during the following year paved the way for such financial crisis in 2008.

Well, if you look at these details, youmay get the idea that real estate industry plays a pivotal part in determining the economic progress of a country, and for the most part, it is right. However, real estate is not the only sector that has a major influence on the nation’s economy. Here are a number of facts that may help you get a clearer picture.

  • There are several other significant contributors besides real estate:

According to the latest data presented by Statista, real estate, alongside finance, insurance, renting and leasing, have made the highest contribution to the US GDP in 2017. The accumulative share of that entire sector was whooping 20.9 percent. That’s impressive, but there’s 79.1 percent of GDP share that receives a contribution from different industries.

As per the report by Statista, Government has contributed 12.7 percent of the GDP, while professional and business services have made a contribution of 12.1 percent in the US GDP in the year 2017. Manufacturing industry also makes the list of 2017 top contributors for GDP in the US with 11.6% share in the annual GDP. So you can see real estate alone cannot make the economy thrive.

  • A major portion of the US economy is based on personal consumption:

Around 70 percent of the US economy is based on personal consumption. A significant change in the real estate business can have an impact on the country’s economy. However, the impact caused by crucial changes in the lines of personal consumption can have a larger impact than that.

A reduction in the consumer spending can have a critical impact on the country’s economy. It can further affect the employment and income across various industries as well. Real estate, which is a crucial part of the economy may also get affected and cause further reduction in consumer spending.

  • Millennials are not very keen about investments in real estate:

Since Millennials have started entering the workforce during the time of recession (2007-2008), most of them have had to settle for low-wage jobs. They even have been underemployed and burdened with high student loan debt. The economy has improved a lot since 2008, but millennials are still finding it difficult to find their position in the workforce.

Quite evidently, they are still in the process of finding stability in their life. In such a situation, investing in real estate properties seems a bit of a stretch. Besides, there several other elements that make it difficult for the millennials to afford a personal home. Firstly, there was a housing crisis. When that was solved, most of the preferable cities became too expensive to live. So, for a thriving economy, relying only on the real estate sector can be catastrophic in the upcoming years.

  • An economy is usually based on three broad sectors:

No matter whether it’s a developed country, a developing country or an underdeveloped nation – the economy of each country (including the US) is based on three broad sectors. The primary sector includes agriculture, the secondary includes industrial production, and the tertiary sector includes the service sector.

The economy of the developed countries like the US and the UK are more reliant on the tertiary sector, while the underdeveloped countries are more dependent on the primary sector, i.e. agriculture. Even though a country’s economy relies heavily on a particular sector, the other two sectors also contribute a significant share in the country’s GDP.

As mentioned earlier, real estate does play an integral role in driving a country’s economy, but it will be stupidity to believe real estate is the only sector that matters. Interestingly, the people in some of the underdeveloped countries as well as the developing countries are in the illusion that real estate can revive their economy. This is why they are turning the fertile land in the hands of real estate companies. What they don’t realize is that their major contributor to GDP, i.e. agriculture sector is getting affected by this decision.

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