“The U.S. Housing Stock: Ready for Renewal,” is the latest report in the Improving America’s Housing series published by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University. The latest report, released today, offers insight into four areas: renewing the housing stock; demographic changes in the remodeling market; improvement activity by location; and the impact of the downturn on contractors.
Among the findings, the report notes that the downturn brought a 16% decrease in spending on home improvements from 2007 to 2011, which, in turn, had a measurable impact on the quality of the nation’s housing stock. After decades of decline, the number of “inadequate” owner-occupied homes increased 7% during that time. (“Inadequate homes” — those with severe or moderate physical problems — are significantly more likely to be converted into rental units or nonresidential uses, become vacant, or be permanently lost from inventory.)
In 2011, improvement spending on distressed properties was estimated to be almost $10 billion.
The significant drop in house prices has eroded improvement spending, especially on discretionary projects. In 2011, owners with less than 20% equity in their homes spent 22% less on average on home improvements and 30% less on discretionary projects than homeowners with 20% or more equity.
From 2007 to 2011, spending on maintenance and repairs increased about 6%, while spending on improvements dropped by 22%.
Though improvement spending dropped, that market remains the biggest portion of the remodeling market. The breakdown on improvement spending in 2011:
25% discretionary projects (kitchen and bath remodels, room additions, structural alterations)
40% replacement expenditures (roofing, siding, windows, doors), and system upgrades (plumbing, electrical, HVAC)
12% interior upgrades (flooring, paneling, ceilings, insulation)
22% other property improvements (garages, driveways, fencing, patios, disaster repairs)
Older homeowners will drive the growing demand for aging-in-place retrofits, while longer-term trends in immigration and household growth with move younger households to the forefront of the home improvement market.
Ten years ago, homeowners aged 55 and over accounted for less than a third of all home improvement spending. By 2011, this share had grown to more than 45%.
Improvement spending by 55+ homeowners does not decline with duration of residence. Even those who have lived in their homes for 20 years or more spend about the same on improvements as same-age owners who have lived in their home for less time.
By 2025 the echo-boom generation will be aged 21 to 40 years old, and it is projected that echo-boomers will outnumber baby boomers by more than 12 million, or 16%, compared to when the baby boomer generation at that age.
Owners in the Northeast report home improvement expenditures that are more than 20% above the national average. This is due to a combination of relatively higher average incomes and older, more expensive homes.
Owners in the South, where both incomes and home values are lower, spent almost 10% less than the national average on home improvement expenditures.
In 2011, 75% of homeowners lived in metro areas and accounted for 81% of all remodeling expenditures. The high concentration of spending is due, in part, to the fact that incomes and mobility rates tend to be higher in metro than in non-metro areas.
Of the 50 largest metro areas in the country, the 10 where average home improvement spending per owner in 2011 was the highest were: Boston; Providence, R.I.; New York; and Washington on the East Coast; San Francisco and San Jose, Calif., on the West Coast; and Austin, Denver, Phoenix, and Las Vegas in the interior.
Among metro areas with the highest improvement spending per household in 2011, 42% of homeowners earned above $100,000; among metro areas with the lowest spending, the share of $100,000 earners was just 26%.
Impact on Contractors
The downturn put many contractors out of business, and the industry remains highly volatile and fragmented.
The annual share of companies exiting the industry increased from less than 13% in 2004 to more than 17% by 2010
Larger remodeling companies are less likely to fail. Remodelers with estimated volume of less than $250,000 had a failure rate of 25% in 2010, while companies with a volume of $1 million or more had a failure rate of 2.8% in 2010.
Half of larger remodeling companies posted annual revenue growth of 5.1% or more in 2010 and 3.6% or more in 2011.
Read the full “Ready for Renewal” report.
—Nina Patel, senior editor, REMODELING. twitter.com/silvernina