By: Catherine Kavanaugh
February 28, 2014
LAS VEGAS — For the third time in a row, bathrooms beat kitchens when it came to rooms to revamp, but overall residential remodeling wasn't a flush industry in 2013.
At first, it really appeared to be in the crapper with a 1.9 percent drop in revenue for the market segment, but the National Association of Home Builders crunched more data and found it was slightly better than flat.
"We now estimate that there was $119.6 billion in remodeling spending in 2013 after adjusting for inflation, virtually unchanged from the $119.5 billion spent in 2012," NAHB spokesman Michael Neal said in a Feb. 12 email.
Last year was unexpectedly weak, according to Paul Emrath, the NAHB's vice president of housing research.
"We believe we'll do considerably better going forward," Emrath said during a Feb. 4 panel discussion about the prospects for remodeling at the International Builders Show.
The economic forecast for the trade association's 140,000 members indicates remodeling of owner-occupied houses will increase 2.5 percent this year and 1.8 percent in 2015.
While that's still off from the 2007 peak of about $150 billion spent on remodeling, better and greener days seem to be on the horizon. Increasing home values are giving more consumers the confidence to invest in their major asset and they are choosing sustainable improvements more often.
"When we talk to remodeling contractors they are telling us almost 30 percent of their revenue now is coming from projects where environmental sustainability is a stated objective," said Kermit Baker, a senior research fellow at Harvard University's Joint Center for Housing Studies.
Projects that reduce energy bills and water consumption, use recycled materials, and increase home automation are all picking up steam and driving growth, Baker said.
Remodelers should flaunt their green skills for a competitive marketing advantage in getting the attention of customers, according to a study by NAHB and McGraw Hill Construction. The study shows 84 percent of businesses report that their clients are willing to pay more for green features.
Remodeling contractors and suppliers should also expect more work on the aging stock of rental units, which now average 40 years old.
"It has been largely uninvested," Baker said. "Now we're seeing strong demand on the rental side. We need to bring those units back up to market levels.
The rentership rate nationally is now 35 percent. That's up from 31 percent a decade ago."
Then, there's the dramatic increase in the senior citizen population, which is need of retrofits to age in place. In 2010, 20 million households had members ages 65 and up, Baker said. That will be 27.5 million in 2020 and 34 million in 2030.
"A high proportion of those 65 and older are living in older homes in areas of the country where there isn't a lot of construction," Baker said. "An overwhelming majority don't even have the basic accessibility features in their home as they age in place. We feel this is going to be a really strong market moving forward — to renovate those homes to support an aging population."
Dan Bawden, a contractor in Houston, Texas, said middle-age homeowners are preparing, too.
"What has really amazed me is that it just isn't people over 65," he said. "It's the baby boomers. They're saying this will be my feet-first house. I'm staying here until they take me out feet first. ...I love my neighborhood. I want to stay rooted where I am and fix it up so I don't have to make changes later on under stress and I can remain here with the routines and traditions that I dearly love."
Other baby boomers are thinking more short-term. They're leaving large homes in the suburbs where they raised children who are now on their own and making top-to-bottom renovations of residences in the cities where they work and often dine.
"The larger jobs are back," said Paul Sullivan, a Boston contractor. "When the recession hit we were a company that specialized in whole-house remodels and high-end, big projects. They evaporated literally overnight. We had several projects in seven figures and they just disappeared like it never existed."
Sullivan's business shifted to handy-man projects like many U.S. remodeling contractors, but he is transitioning back.
"We have three whole-house townhouse renovations going on right now in downtown Boston. I can't think of a time when I had three of those going on at a given time," Sullivan said.
NAHB survey results of the Top 10 projects in 2013 haven't changed much, but Sullivan is experiencing a pleasant uptick in the category for whole-house renovations, which moved up to fourth — ahead of room additions, which was followed by repairs, handyman services, decks, siding and finished basements.
Bathrooms and kitchens always lead the list. Window and door replacement ranked third.
In Portland, Ore., remodeling contractors got a boost from a zoning provision that allows "accessory dwelling units" up to 800-square feet to be built as attachments to homes and garages or as free-standing structures if there's room on the property. The city has also been waiving some development fees.
"Imagine your own home," Portland contractor Steve Heiteen said. "You have some room there and want to put another family member in there or have it as a rental. For another year — it has been going on for three now, something brought in to help during the recession — we're able to do that and build that on your home. That adds a ton of value to property right there."
Heiteen has high hopes for 2014. In January he got 27 new leads.
"That's a lot," he added. "Three are whole-house. The rest are kitchen and bath. ... I expect there to be a pretty good work load."