Homebuilding lags in US, remodel picks up slack
Monday, April 22, 2019 from Floor Covering Weekly Daily
The U.S. home remodeling market expanded by more than 50 percent since the end of the Great Recession. Spending on improvements and repairs to both owner-occupied and rental properties hit a record of nearly $425 billion in 2017. As new construction struggles to meet the nation’s growing housing needs, almost 80 percent of our 137 million homes are now at least 20 years old and 40 percent are at least 50 years old. The aging of the U.S. housing stock has been a boon to the home improvement industry, with spending on existing homes surpassing investment in homebuilding every year for more than a decade.
These are some of the key findings from Improving America’s Housing 2019, a new report from the Harvard Joint Center for Housing Studies. Indeed, in the years since the Great Recession, spending on improvements and routine maintenance to both owner-occupied and rental properties has not only increased the value of the existing stock but also contributed a dominant share of residential investment. In addition, the 10s of millions of projects undertaken annually — from roof and window replacements to major kitchen and bath remodels — generated 2.2 percent of national economic activity in 2017.
Some of the recent strength of the remodeling market reflects a significant increase in spending by rental property owners. The huge surge in rental demand following the housing crisis prompted property owners to invest in substantial upgrades to their units. Homeowners also had some catching up to do on maintenance and replacements deferred during the downturn, particularly on properties temporarily converted to rentals or left vacant for extended periods. The steady uptick in house prices in many markets has also helped to lift improvement and repair spending. Rising home prices mean growing equity, providing owners both the incentive and the means to undertake more and larger projects. The aging population is another factor, given that households age 55 and over not only have higher homeownership rates, but many also have the resources to pay for improvements and replacements.
Looking ahead, several market forces may temper the growth in improvement spending. The decline in homeowner mobility is a drag on the remodeling market because households that move typically spend more on improvements during their first few years of occupancy. Lower household mobility is in part the result of an aging population, but rising house prices have also made some markets increasingly unaffordable, thus preventing potential owners from buying homes and current owners from trading up.
Offsetting these challenges, however, is a growing list of opportunities. Over the next decade, the slower growth in new households and the increasing difficulty of building affordable housing will keep the damper on new home construction. The remodeling industry will therefore continue to have a major role to play in meeting the nation’s housing needs. As members of the baby-boom generation age into their 70s and 80s, investments in home modifications to improve accessibility are expected to soar. A likely upturn in homeownership among younger households will also support growth in remodeling spending as many of these new owners modify older homes to meet their needs and preferences. In addition, the rising incidence and severity of natural disasters have created a growing market for repair and renovation of housing damaged in these events. Finally, expanding the ability of owners to pay for improvement projects over time — whether through home equity loans or lines of credit, cash-out refinancing or contractor-arranged financing — would not only benefit the remodeling industry, but also help to preserve and modernize the nation’s aging housing stock.
Copies of Improving America’s Housing 2019, as well as interactive graphics and extensive data tables, are available to download for no cost at www.jchs.harvard.edu.
Kermit Baker is the senior research fellow for the Joint Center of Housing Studies at Harvard University. He may be reached via e-mail at [email protected]