The home improvement industry currently benefits from favorable market conditions. Rising house prices, an aging housing stock, a pickup in household growth, and growing demand for a variety of energy-efficient and sustainable improvements all support investment in both owner-occupied and rental housing. Over the next decade, members of the huge Millennial generation will move into their prime spending years just as the Baby Boomers reach the stage in life when accessibility features become increasingly necessary for independent living. While both of these trends should lift spending, emerging housing affordability issues, a weak rebound in homeownership and slower growth in high-spending households could also hamper market gains in the years ahead.
These are some of the key conclusions from a recent report on the outlook for the home improvement industry over the coming decade from Harvard University’s Joint Center for Housing Studies. Homeowner improvement spending should post healthy 2 percent average annual growth over the coming decade, with inflation-adjusted expenditures increasing from just over $220 billion in 2015 to almost $270 billion in 2025, according to Joint Center projections. Driven by rising incomes and home values, almost half of these gains are expected to result from an increase in average spending per owner.
Growth in the number of homeowners will account for the other half of spending gains. Although members of the large Millennial generation have so far been slow to live on their own, the number of younger households should increase as the economy continues to improve. The growth in single-person households and the increased ability of older adults to live independently as they age will also spur household formations. As a result, the Joint Center projects a solid 13.6 million net increase in the number of households over the coming decade. Even without a meaningful increase in overall homeownership rates, this surge will generate more than 8 million additional owner households over the decade.
As younger households move into homeownership, they will supplement the already thriving improvement market. Gen-Xers are now in their prime remodeling years, and while some are still recovering from home equity losses from the housing crash, many in this generation will undertake discretionary projects deferred during the downturn. Meanwhile, the large Baby Boomer generation has led home improvement spending for the past few decades, and their influence shows no signs of waning. Their increased longevity and desire to live independently into old age will boost demand for remodeling projects that improve the accessibility of their homes.
At the same time, however, a large number of older households will be unable to live on their own for health or financial reasons. As they move in with family, into nursing facilities or otherwise vacate their homes, they will provide an important source of housing for tomorrow’s owners. Joint Center projections suggest that such dissolutions of older households will free up more than 12 million housing units on net in 2015–2025. Many of these homes are well suited for younger families in that they are typically older and more affordable. And given that older households generally live in their homes for some time and spend little on improvements in their later years, younger households of these homes will have to invest in significant upgrades.
Improving America’s Housing: Remodeling for a New Generation released on February 28 and is available for free on the Joint Center’s web site: www.jchs.harvard.edu.
Kermit Baker is the senior research fellow for the Joint Center of Housing Studies at Harvard University. He may be reached via e-mail at kermit_baker@harvard.edu.