Strong foundation points to gains for remodeling in coming decadeMortgagepress.comhome improvements, statistics, energy efficiency,
Spending on home improvements by homeowners is expected to
increase at a 3.7 percent inflation - adjusted compound annual rate
over the next decade, according to a new report released by the
Remodeling Futures Program of the Joint Center for Housing Studies.
After strong growth earlier this decade where low financing costs
and strong returns to house values encouraged upper-end remodeling
projects, spending reached $280 billion in 2005. Recently, the
remodeling industry has softened. "The 2006 slowdown in the broader
housing sector was reflected in the remodeling industry, with many
homeowners putting their improvement activity on hold until the
market stabilizes," explains Nicolas P. Retsinas, director of the
Joint Center. Retsinas adds, "When the industry emerges from its
current slowdown, investments in older homes that missed the last
round of home improvements, the desire for energy efficiency
retrofits and growing pressure to upgrade the rental stock will
ensure a healthy recovery."
"Foundations for Future Growth in the Remodeling Industry," a
recent report in the "Improving America's Housing" series, also
addresses changes in the structure of the remodeling industry.
Despite recent industry concentration, remodeling firms remain very
fragmented, as self-employed contractors not only account for a
majority of businesses in the industry, but also for most of the
recent growth. In lieu of consolidation, many remodeling
contractors have become more specialized. Among the larger
companies, specialization has led not only to stronger revenues,
but also to more stable receipts. "By specializing, remodeling
firms can achieve efficiencies even if their revenues do not reach
the levels of traditional scale economies," notes Kermit Baker,
director of the Remodeling Future Program.
The recent slowdown in home sales means owners are staying in
their homes longer. This will change the composition of home
improvement spending. "Recent buyers often focus on updating their
kitchens and baths as well as adding rooms or making structural
changes," remarks Amal Bendimerad, a research analyst at the Joint
Center. "Given that their use of space is already well established,
longer-term owners make different spending options, choosing to
maintain the condition of their homes." Also, the age of the
nation's housing is increasing. With two-thirds of homes now at
least a quarter century old, growing numbers are in age ranges
where improvement spending is traditionally high. Rising home
energy costs are also causing homeowners to put energy efficiency
near the top of their remodeling concerns. Finally, given the push
for homeownership in recent years, rentals have seen declining
levels of investment. Growing demand for upper-end apartments has
already encouraged more spending on these units.
Increases in the number of households and in per household
expenditures on home improvements, especially as the high-end
market segment returns, ensures solid growth in remodeling activity
over the coming decade. However, the mix of remodeling demands will
be reshaped by immigrants, seniors and non-family households,
thereby producing a more balanced and sustainable pace of growth.
Homeowner spending on remodeling projects is projected to increase
44 percent between 2005 and 2015. "The professional remodeler
portion of the home improvement market is expected to grow 46
percent, or 3.8 percent per year in inflation adjusted dollars
between 2005 and 2015," notes William Apgar, senior scholar at the
Joint Center. "At the same time, D-I-Y spending should grow a
respectable 3.2 annually and increase almost 38 percent."
For more information, visit www.jchs.harvard.edu.