Why Remodeling is on the Rise for Rental Housing
Influenced by Baby Boomers and Millennials, the home remodeling market is cruising at high speed, continuing to gain momentum since the housing crash nearly a decade ago.
Recent reports by the Joint Center for Housing Studies at Harvard University (JCHS) and the National Association of Home Builders indicate that homeowners and renters are craving new looks and more space while driving improvements that include complete makeovers.
Large-scale improvements, whole house remodels trending
JCHS’s Leading Indicator of Remodeling Activity (LIRA) released in April notes that home remodeling spending will increase 8.6 percent by the end of 2016 and climb to 9.7 percent by early 2017.
“Ongoing gains in home prices and sales are encouraging more homeowners to pursue large-scale improvement projects this year compared to last with permitted projects climbing at a good pace,” says Chris Herbert, Managing Director of the Joint Center. “On the strength of these gains, the level of annual spending for remodeling and repairs is expected to reach nearly $325 billion nationally by early next year.”
JCHS recently reworked its quarterly short-term outlook of national home improvement and repair spending to owner-occupied homes. LIRA now forecasts a broader segment of the national market, which Herbert says more accurately sizes the remodeling market and continues to anticipate major turning points in the spending cycle.
Meanwhile, NAHB says that homeowners are not limiting their remodels to traditional rooms like kitchens and bathrooms, but instead are going for the whole enchilada in some cases. Total house remodels and additions are regaining market share, according to a survey that kicked off National Home Remodeling Month in May.
Whole house remodels increased by 10 percent, along with an uptick in room additions (bathrooms in particular) and basement finishes.
Bathrooms topped the list of most common remodeling projects for the fifth time since 2010. Eighty-one percent of remodelers reported that bathrooms were a common remodeling job for their company while 79 percent noted the same for kitchen remodels. Window and door replacements decreased to 36 percent from 45 percent in 2014.
Home remodeling improves $6 billion since housing crash
Last fall, the JCHS projected that a resurging home improvement vertical would further accelerate in 2016. The strengthening economy stimulated spending on discretionary home improvements to the tune of almost $6 billion from 2011-13, the first increase since the housing crash in 2007.
In 2014, the New York metro area was the largest remodeling market with over $12 billion in expenditures. Washington, DC, Los Angeles, Chicago, and Philadelphia were next, with spending that ranged from $4-7 billion.
The latest news speaks of efforts in the housing industry to meet changing expectations of homeowners fueled by Baby Boomers and Millennials, and is food for thought for the multifamily housing industry.
Boomers, Millennials driving market’s resurgence
JCHS’s 2015 biennial report, “Emerging Trends in the Remodeling Market”, noted that aging-in-place retrofits, energy-efficient and other sustainable improvements, re-investment in the rental stock, and new demand for do-it-yourself projects from the Millennial generation would stimulate growth.
Baby Boomers have boosted demand for accessibility improvements that will enable them to remain safely in their homes as they age, and Millennials have been leading a charge to create non-traditional living spaces in the home rental market.
Herbert said it would only be a matter of time before Millennials are more active in the housing market and support stronger growth in home improvement spending.
The generation is also a reason that sustainable home improvement projects are on the upswing and producing about 30 percent of revenue at full-service, says JCHS. Spending on healthy homes and indoor air quality has increased in recent years. Almost a quarter of homeowners and more than a third of renters expressed concern about the health impacts of their homes in the 2015 report.
Growth continues with number of contractors available
The remodeling industry appears to be ready to meet growth, as the number of general remodeling firms with payrolls has accelerated each year since the market bottom. By 2014, the 83,000-company strong industry had recovered half the firms it lost during the downtown.
With the resurgence has come with a changing labor force that is now older with 16 percent of workers age 55 and over in 2013 compared to less than nine percent 10 years ago. JCHS said that it was critical for the industry to attract and develop a younger workforce through improving the quantity and quality of trade schools and apprenticeship programs.