Demand for Remodeling Should Increase Once Market Recovers

Prospects for growth in home improvement industry are already developing, new study says

February 04, 2009

Cambridge, MA — The US home improvement industry, much like the broader housing market, is experiencing a severe downturn, but prospects for growth are already developing, finds a new report released by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University. The Remodeling Market in Transition, the latest report in the Improving America’s Housing series, finds that in today’s uncertain economic environment, owners are likely to focus remodeling spending on projects that improve the energy efficiency of homes, generate cost savings, and maintain structural integrity. While signs suggest the industry is far from reaching bottom, the outlook anticipates the correction to be less severe than that of the home building industry. Key sources of future growth include the increasing demand for green improvements, upgrades to the nation’s aging rental stock, and the growing population of immigrant homeowners.

In most parts of the country, home prices are falling, discouraging discretionary home improvement spending and diminishing the amount of equity owners have in their homes. “Earlier this decade, the ability to borrow against equity created by rising home prices fueled remodeling activity, as well as broader consumer spending,” says Nicolas P. Retsinas, director of the Harvard Joint Center for Housing Studies. “Now that prices have softened, owners cannot finance home improvement projects as easily. Even those with equity find credit harder to obtain due to tighter standards.”

The rising number of properties in or at risk of foreclosure is also driving down remodeling activity. Expenditures on owner-occupied units accounted for 84 percent of spending in 2007. Owners at risk of defaulting on their mortgages have less incentive to invest in their homes, and those displaced by foreclosure will reduce the national homeownership rate and, in turn, lower remodeling demand. When housing markets recover, however, foreclosed properties will provide opportunities for home improvements, as banks and new owners renovate and repair these properties and state and local governments make use of the Housing and Economic Recovery Act of 2008, which allocated $4 billion for the redevelopment of abandoned and foreclosed properties.

The report also examines areas that will provide opportunities for increased remodeling demand. For example, the consumer shift toward energy-efficient products and systems will pave the way for green remodeling. “If we are going to meet the nation’s energy goals, we have to continuously search for ways to improve the residential built environment. The report demonstrates that maximizing energy-efficiency in existing housing may be one of our greatest challenges, but also one of our greatest opportunities given that homes account for almost a quarter of energy consumption in our economy,” says Mohsen Mostafavi, dean of the Harvard Graduate School of Design, where attention to green design is a growing focus in the classrooms and studios. “Consumer demand for sustainable design is on the rise. Architects and planners can lead the way in devising appropriate solutions.”

Existing rental housing and the growing number of immigrant homeowners will also help reverse this downturn in the remodeling industry. “Years of underinvestment has left the nation’s rental stock, at an average age of 36 years, in desperate need of improvement and repair,” says Kermit Baker, director of the Remodeling Futures Program, “And foreign-born homeowners, who currently account for more than 10 percent of home improvement spending, are heavily concentrated in their 30s and 40s, ages when families are growing and changing the use of their home.” Remodeling still rests on a solid foundation with 130 million homes—and one to two million added yearly—in continuous need of maintenance, upgrades, repairs, and adjustments to meet the nation’s changing preferences and lifestyles.

The Remodeling Futures Program, launched by the Joint Center for Housing Studies in 1995, is a comprehensive study of the factors influencing the growth and changing characteristics of housing renovation and repair activity in the United States. The Program seeks to produce a better understanding of the home improvement industry and its relationship to the broader residential construction industry. 


The Joint Center for Housing Studies is Harvard University’s center for information and research on housing in the United States. Established in 1959, the Joint Center is a collaborative unit affiliated with the Graduate School of Design and the Harvard Kennedy School. For more information, visit jchs.havard.edu.


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