If you’ve ever undertaken a big kitchen renovation, finished off a basement, or added a wing to your home, you know the feeling: No matter what the contractor promises, remodeling takes longer and costs more than anyone ever expects.
That’s a drag for homeowners, but not for the economy. As a new report out Tuesday shows, home remodeling punches above its weight as far as contributing to growth – and it keeps ticking even as the housing market takes a licking. And there are signs that it will continue to command a sizable – and growing – portion of household budgets and the national economy in the future.
The report, Improving America’s Housing 2019, is from Harvard’s Joint Center for Housing Studies. As shown in the graphic above, spending did tick down as the housing bubble deflated a decade ago – but even at its post-crisis nadir, it was still higher than in 2004, when the bubble was getting started. And the overall market has grown more than 50% since the recession ended, including making a 6.5% annual jump from 2016 to 2017.
Remodeling spending generated 2.2% of national economic activity in 2017, the Harvard researchers said in the report. They point to some well-known factors bolstering that spending: an aging housing stock and an aging population, for example, as well as surging home equity.
Another factor keeping the overall age of housing stock high: the lean pace of new-home building. Economists at Freddie Mac have estimated that the U.S. is several million homes short. At an investor conference early in March, Home Depot. Executive Vice President Edward Decker told analysts that “the age of the housing stock” was something management kept a close eye on.
“We under-built for going on 10 years now,” Decker said. “So over 50% of the U.S. housing is now over 40 years old, which is great for our business.”
But there are also some surprising new findings. “When the Great Recession hit, a surge in rental housing demand sparked a boom in multifamily construction,” the researchers wrote. “Owners of existing rental properties responded to the growing demand for updated but more affordable units by investing in significant upgrades to their buildings, lifting the rental share of residential improvement and repair spending from about 20% in 2007 to over 30% in 2016 and 2017.”
Also, homeowners are spending more on improvements caused by disasters. Across the country, such expenditures totaled $2.3 billion in 2017, nearly double the $1.1 billion spent in 1999. And the average price tag is getting a lot bigger, too: $13,199 in 2017 versus $5,931 in 1999.
It’s a lot harder to track remodeling expenditures on rentals than on owner-occupied properties, and because it’s taking a bigger share of the total than in previous periods, that makes it harder to estimate overall spending growth. The Joint Center’s leading indicator tool for remodeling covers only spending by owners, which was projected to pop up 7.5% from 2017 to 2018.
Joint Center researcher Abbe Will told MarketWatch that “a very rough back-of-the-envelope” accounting of all expenditures – those for rental properties as well as owner-occupied ones – suggests spending was up 6% over that period, taking it to about $449 billion.