A 30-page booklet titled, “The Changing Structure of the Home Remodeling Industry,” published this spring by Harvard University's Joint Center for Housing Studies ( www.jchs.harvard.edu), contains some interesting statistics about the remodeling industry. For example, in 2003 remodeling expenditures totaled $233 billion (both private homes and rental properties). That total accounted for 40% of residential construction and improvement spending and was more than 2% of the U.S. economy.
With numbers like that, the remodeling industry is starting to be viewed not merely as the poor cousin to new-home construction, but as its own economic force.
On the High End The Joint Center report points to several trends. The first is the emergence of a high-end market. The Center cites data showing that the incomes of the top 20% of U.S. households are now nearly 15 times those of the bottom 20%. These households, whose incomes top $120,000, nearly doubled their home improvement spending from 1995 to 2003. Also, although homes valued at $400,000 or more represent just 11% of the total occupied housing inventory, owners of these properties completed more than 800,000 room additions in 2002-2003 alone. Although the DIY segment is still strong, approximately 85% of high-end homeowners hire professional contractors for larger remodeling jobs. I believe a good portion of this high-end work is already being performed by design/build remodelers. The Joint Center's report shows that 10% of the top 100 remodeling firms are design/build contractors, and I anticipate that this number will grow.
Trend Toward Specialization Another trend the report points to is the restructuring of the supply side of remodeling. In the past, lumber, building materials, and specialty distributors have supplied the professional building trades, while retail home centers and warehouse home improvement stores focused on DIY.
Today, consolidation among pro dealers has begun. Some of the biggest suppliers are solely focused on large home builders, and many of those who are still willing to work with small- and medium-sized contractors and remodelers have reduced the number of products in their inventories. Increasingly the slack is being picked up by the big home centers. During the past five years, for example, the pro dealer share of sales to remodelers has dropped from 24% to 18%, while home centers and warehouse retailers have increased their share from 11% to 14%. And it looks as if this trend will continue in coming years.
It hasn't happened yet, but it's just a matter of time before remodeling suppliers will be relegated to smaller pro dealers and the pro divisions of the big box retailers. The Home Depot is already at the $3.5 billion level and expects to hit $10 billion in the near future. This situation makes it imperative for remodelers to forge strong relationships with dealers of all types.
Homeowner Demographics Foreign-born households, particularly those formed by Hispanic and Asian immigrants, will have an increasingly strong effect on both the new housing and remodeling markets. Between 1991 and 2001, for example, more than 2 million homes built before 1985 switched to minority ownership. In 2003, according to the Joint Center report, foreign-born households purchased 8% of all the new homes and 11% of the existing homes sold. That same year, home improvement spending by foreign-born homeowners topped $10 billion for the first time, and Hispanics increased their per household expenditures at rates comparable to those of white households.
The housing boom is now 12 years old and still continuing. The emerging demand of Generation X and foreign-born homeowners will keep the remodeling industry thriving during the decade ahead. —Walt Stoeppelwerth is a publisher of management and estimating information for professional remodelers. 800.638.8292; email@example.com;www.hometechonline.com.