Growth in remodeling spending will be driven by older homeowners who make upgrades to age in place
Residential remodeling spending by both homeowners and rental property owners reached $340 billion in 2015, surpassing the previous record of $318 billion set in 2007. Spending is expected to get even stronger, rising to an estimated 6 percent to $361 billion in 2016.
“Demographic Change and the Remodeling Outlook,” the latest biennial report in the Improving America’s Housing series from the Joint Center for Housing Studies of Harvard University, found that homeowner spending on improvements is expected to increase 2 percent annually through 2025, after adjusting for inflation—a rate below the pace of remodeling growth over the last two decades but near the expected expansion of the economy as a whole. Homeowner improvement spending is expected to increase to $270 billion in 2025, up from $220 billion in 2015.
Growth will be driven by older homeowners who upgrade their homes so that they can age in place. (A February report from Freddie Mac says that 43 million people age 55 and older wish to age in place, and the homes of 1.5 million older households today need some form of retrofitting.)
According to the Joint Center report, expenditures by owners age 55 and older are expected to account for more than three-quarters of market growth over the next decade. The group’s share of aggregate improvement spending is slated to reach 56 percent by 2025, up from 31 percent in 2005.
Baby Boomers have led improvement spending for the last 20 years, but Gen Xers and Millennials will also be players in the markets. Gen Xers, according to the report, are in their prime remodeling years, and will finally undertake improvement projects that they put off due to the recession and economic downturn.
The number of younger households is expected to rise in the coming years. To accommodate their growing families, Millennials will need to update and customize their homes. Also, this generation of homeowners will be more comfortable with new technology and will be the main driver in the home automation market.
Residential remodeling spending is concentrated among the nation’s largest markets. The report found that 25 major metros accounted for 45 percent, or $100 billion total, of owner home improvement spending in 2015.
The per-owner spending in these 25 metros was $3,400 in 2015, about 15 percent higher than the national average. The nation’s five top-ranked remodeling markets in 2015 were New York City, San Francisco, Denver, Boston, and Washington, D.C. Homeowners in those cities average around $4,900 in home improvement expenditures.
Large metros have higher home values, meaning that owners have better access to home equity and are motivated to improve their investments.
Counting those who undertook improvement projects in 2015, homeowners spent an average of $19,796 on major kitchen remodels and $10,699 on major bathroom projects, according to the report. The average room addition cost owners $20,327, with new kitchens being the most expensive ($22,455). Outside attachments, including decks, porches, and garages, cost an average of $6,094.
The average roofing remodeling expenditure was $6,745 in 2015, while siding was $5,641, and windows and doors cost an average of $3,212. Insulation remodeling cost owners $1,450 on average, new flooring was $2,723, and HVAC systems went for $5,239. Disaster repairs cost owners $14,373, on average.