High Impact

High Impact

A major new report underscores the growing importance of home remodeling to the nation's economy, while providing insights into the factors fueling continued kitchen and bath industry growth.

By Elliot Sefrin


That's the conclusion of a major new report which contends that homeowners' increased spending on home improvements played a pivotal role in preventing the U.S. economy from slipping further into recession during the recent economic downturn.

The report, whose findings were released during January's International Builders Show (IBS) in Las Vegas, was conducted by Harvard University's Joint Center for Housing Studies. It was sponsored in part by the Taylor, MI-based Masco Corp., the parent company of many major building product manufacturers, including Merillat Industries, KraftMaid Cabinetry, Delta Faucet Co. and others with important ties to the kitchen and bath industry.


That figure also represents more than 2% of the nation's total economic activity, the report noted. Furthermore, it is the highest dollar amount ever reported for the U.S. residential remodeling market, whose exact size has proven rather difficult to pinpoint.

Yet, despite its enormous size, "home improvement activity is a 'stealth' industry, flying way below the radar screen of most macro-economic analysts," said Kermit Baker, director of the Remodeling Futures Program of the Cambridge, MA-based Joint Center for Housing Studies.

Baker noted that the remodeling industry is far larger, for example, than other, better-studied industries, including retail clothing sales ($169.1 billion), legal services ($133.5 billion) and commercial construction ($131.4 billion).
"The importance of the home remodeling industry to the U.S. economy cannot be overstated," he observed.

The Joint Center report, one of two to be released at the IBS event, contains positive news for the kitchen and bath industry. It also contains key insights into an industry whose growth is based, in large part, on the overall vibrancy of the housing market, as well as on such factors as household composition, existing-home sales, an aging housing stock and current financing conditions.

Among the key findings of the report are the following:

  • The vast majority of remodeling activity completed in the U.S. each year is accounted for by homeowner improvements that is, discretionary expenditures aimed at addressing changes in lifestyle, status and family composition as opposed to routine maintenance and repairs of the home. That is a sector that also includes kitchen and bath remodeling.

    At the same time, the percentage of total remodeling expenditures accounted for by high-income, high-spending households has increased significantly in recent years as well. In fact, the 6.3% of owners who spent $20,000 or more on home improvements accounted for almost half of the 2000-2001 total, while the 2.7% of households spending $35,000 or more accounted for over one third (see Graphs 1 and 2).

  • Households spend the most on remodeling within the two years of buying a home. Homebuyers, on average, spend more than twice as much as non-moving households; at the same time, trade-up buyers spend about 50% more than first-time buyers (see Graph 3). Because of this, the current record level of new- and existing-home sales is a prime factor for the growth found in an already robust remodeling market, the report reveals.

  • Aging baby-boomers concerned with the quality and usability of their homes are considered more inclined to hire a professional remodeling contractor for their home improvements (see Graph 4).

  • Hispanics pace the growth in home improvement spending. In fact, minorities represent a growing share of homeowners, and consequently, of home- improvement spending. As the report reveals, minority spending on home improvement has been growing at almost twice the rate of white households. Also of note is that, since 1995, home-improvement spending by Hispanic owners increased by an impressive 78%.

  • Remodeling activity is concentrated. In fact, the top 10 metropolitan areas for home- improvement spending account for more than 30% of total home improvement expenditures.

  • According to the report, the remodeling share of total residential investment has been growing steadily. Nationally, remodeling accounts for about 40% of total residential investments. In the northeastern U.S., where homes are older and construction opportunities are perceived as more limited, spending on home improvement significantly exceeds spending on new construction projects.