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Why the focus on non-residential investment?

Summary:
I often see pundits separate investment spending into residential and non-residential categories. But I’m not sure why they do this. What makes residential investment so special? At times there seems to be a sort of unspoken assumption that residential investment is akin to consumption, and that non-residential investment is more healthy, or virtuous, or growth-oriented. But why? In 1991, I bought a 50% share in a handsome old brick two-family house in a Boston suburb. Over the next 26 years, I enjoyed a flow of housing consumption services from this capital asset, built back in 1923. When the house was originally built, I imagine that lots of factories and machines and other types of non-residential investments were also being built. I wonder if the business press

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I often see pundits separate investment spending into residential and non-residential categories. But I’m not sure why they do this. What makes residential investment so special?

At times there seems to be a sort of unspoken assumption that residential investment is akin to consumption, and that non-residential investment is more healthy, or virtuous, or growth-oriented. But why?

In 1991, I bought a 50% share in a handsome old brick two-family house in a Boston suburb. Over the next 26 years, I enjoyed a flow of housing consumption services from this capital asset, built back in 1923.

When the house was originally built, I imagine that lots of factories and machines and other types of non-residential investments were also being built. I wonder if the business press of 1923 thought that the non-residential investment was more useful than residential investment.  In fact, my 1923 home was a much more “pro-growth, long-term investment” than New England shoe factories that become obsolete a few decades later.

If we want to boost the living standards of future Americans, housing investment is one of the surest ways of doing so.

Why the focus on non-residential investment?

Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment". In May 2012, Chicago Fed President Charles L. Evans became the first sitting member of the Federal Open Market Committee (FOMC) to endorse the idea.

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