Harvard Study: Household Changes Prompt Remodeling

Summer is all about remodeling: remodeled bodies for pride on the beach, remodeled films with a bigger Roman numeral on the end for the cinema multi-plexes, remodeled skin tone to match (seemingly) everyone else’s perfect bronze. Naturally, that’s the "prime time" to think about remodeling one’s home as well, since the warm weather encourages a hands-on approach to projects around the house. And Americans are doing just that, 26 million of them, to the tune of $180 billion spent on home improvement each year. This is according to a report entitled Remodeling Homes for Changing Households, published early this past summer by the Joint Center for Housing Studies of Harvard University.

The study goes a long ways towards answering some of the most important and relevant questions on everyone’s mind regarding an elusive market, but one with great potential and opportunity for building product manufacturers and residential contractors: who is remodeling their home, when is this happening, and where, geographically, are the brightest prospects for the remodeling industry?

The "who" of the remodeling population consists of increasingly wealthy Americans that have a household income 150% higher (in inflation-adjusted terms, of course) than in 1940. The study shows that even though Americans are living in "bigger, higher-valued" homes, they are still spending on home improvement and repair, which often leads directly to additional spending for furnishings, appliances, lawn and garden, and audio and video equipment.

Having decided to go ahead with home improvement, however, homeowners have become increasingly less likely over the past several years to do the work themselves. The study cautions against placing too much stock in the seemingly robust numbers published (sporadically) by the Commerce Department, since they don’t give a full and comprehensive picture of market dynamics. The Harvard researchers conclude that not only is a majority of remodeling still handled by the highly fragmented world of remodeling firms and contractors, but that this share is continuing to increase over time.

"When" remodeling takes place is predictably varied among homeowners, but new homeowners and the addition of another household resident are two reliable indicators for remodeling. New homeowners are likely to remodel due to their age (younger households spend more than others on improvements), the condition of their new home (many young buyers purchase older homes in need of repairs or improvements), and their mindset (new home-owners are thinking about current and future home space needs related to new family members, home offices, dens, multimedia rooms, etc.)

A new family member in the home is probably the single most reliable indicator of some sort of household spending activity that involves remodeling or repair. Whether an elderly parent or a new baby, the study finds that home expansion often greets new arrivals, especially additional bedrooms and bathrooms.

The "Sunbelt" (broadly defined as the South and West regions of the country) is logically identified as the "where" of future home improvement expenditures. The report documents the huge number of homes that were built in the Sunbelt during the 50s and 60s, and that - given their advancing averageage - are currently ripe for repair. While total remodeling spending is still highest (in absolute dollar terms) in large-population metropolitan areas like New York and Los Angeles, the potential and steady increase of spending in the Sunbelt makes this the large portion of the U.S. with the greatest potential for high percentage growth.

Of Note:

The Harvard research concludes that an average of 26 million Americans remodel every year, creating a $180 billion industry.

Increased household wealth has made Americans in bigger, more expensive homes, more able (and inclined) to remodel.

New homeowners and families welcoming an additional member are most likely to remodel and spend additionally on products ranging from furniture to audio and video equipment.

The "Sunbelt" is the area of the country with the most potential for future home improvement spending growth. This broad regional swath of the country has many younger homeowners, and is home to many houses built in the 50s and 60s that are currently prime candidates for repair/remodeling.

To review the full report, go to http://www.jchs.harvard.edu/ and click the "Research" link.