Report Paints Positive Picture for Remodeling

by WOHe

Report Paints Positive Picture for
Remodeling


CAMBRIDGE, MA Residential remodeling continues to consume an
increasingly larger chunk of the total annual U.S. construction
market, and the prospects for continued remodeling growth remain
positive through at least the next decade particularly for
professional home improvement contractors.

That is one of several key conclusions spelled out in a research
report that details major remodeling trends among nearly 70 million
U.S. homeowners.

The research report, entitled Remodeling Homes for Changing
Households, was released last month by the Joint Center for Housing
Studies of Harvard University. Funding and support for the report
was provided by Masco Corp. Additional support was provided by
several manufacturers and trade associations, including Elkay Mfg.
Co., Moen, the National Association of Home Builders and the
National Association of Realtors.

While new construction remains the most important way the
nation’s housing stock adjusts to changes in Americans’ housing
preferences, “the importance of remodeling is growing and promises
to increase for at least the next decade,” the Joint Center
reports. 

Since home-building levels have remained relatively stable for
the past 20 years, new homes have accounted for a smaller share of
the total housing stock, which approximates some 70 million units
in all. For example, when construction activity peaked in the
1970s, new homes represented about 30% of the nation’s total
housing stock in any given year. That share declined to about 16%
in the 1990s, and should fall to less than 14% over the next 10
years, the Joint Center reports.


Because of the growing number of older homes, the pace at which
homes are remodeled is rapid and growing, according to the Joint
Center. In fact, more than 900,000 homes a year now undertake a
major discretionary modification (spending $10,000 or more) that
alters the interior space of a home, such as redesigning a kitchen.
That figure has risen from about 680,000 in 1985 .

Impact ‘dramatic’
U.S. residential remodeling, including spending by owners of rental
properties, now approaches $180 billion a year, according to the
Joint Center. Homeowners account for nearly three-quarters of that
total, or about $135 billion. Of that total, about 80% is dedicated
to remodeling projects, including kitchen and bath upgrades.

“The impact of remodeling on what is often considered a static
housing stock is dramatic,” the report observes.
Spending for home improvements rose by about $30 billion, or more
than 4.5% per year from almost $150 billion to just under $180
billion between 1995 and 1999, according to the Joint Center
report.

Among the other key conclusions of the report are the
following:

  • While a favorable economy has fueled growth in home improvement
    spending, much of the spending strength can be attributed to the
    10-million-unit increase in owner-occupied housing that took place
    in the 1990s. In fact, the Joint Center notes, more than 26 million
    homeowners reported undertaking more than 44 million separate home
    improvement projects in 1999 alone.
     
  • A large share of major improvement expenditures are for
    kitchens, bathrooms, additions or interior alterations. These types
    of projects accounted for over one-third of total homeowner
    spending in 1999, and for 46% of expenditures among homeowners who
    spent $10,000 or more on improvements that year.
     
  • There are also certain key times for the homeowner when major
    remodeling projects are likely to occur. New homeowners in
    particular, tradeup buyers purchasing a resale tend to spend at the
    time of purchase. Expenditures then tail off, and move up until the
    home is 25-to-30-years-old (see Graph 2). That’s when expenditures
    typically spike, since they coincide with the time when major
    systems need upgrading or replacement. Remodeling expenditures also
    increase noticeably when homeowners add a household member, such as
    a child, an elderly relative or a spouse, the Joint Center
    notes.
     
  • While do-it-yourself spending “has been relatively healthy”
    over recent years, the D-I-Y share of overall home improvement
    spending has been declining at the expense of professionally
    installed projects. Rising incomes, an aging population and a
    projected rise in the number of empty-nester and single-parent
    homes favor extra activity among professional contractors, the
    report states .


Prospects for the home improvement market are “positive,” the Joint
Center report notes.

“As the economy continues to grow, the average age of the
housing stock increases, and household incomes rise, spending on
home improvements should remain healthy over the next decade,” the
report states, adding that the key forces supporting this outlook
are “strong growth in the number of owner-occupied homes and the
likelihood that average expenditures per home will increase.

“Spending levels obviously depend on a household’s ability to
afford home improvements, making future income a critical factor,”
the report continues. “Here again, the prospects remain favorable.
Low unemployment rates and strong productivity growth have pushed
up compensation levels.

“A continuation of these trends, coupled with the fact that many
baby boomers will be in their peak income-earning years, means that
homeowner incomes are likely to grow over the coming decade,” the
report concludes.

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