High-End Housing Drives U.S. Remodeling Market
Feb 10, 2005
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U.S. homeowners with incomes more than U.S. $120,000 and those living in high-end homes costing $400,000 or more are emerging as “one of the anchors” of the U.S. remodeling industry, according to William Apgar, a senior scholar at the Harvard University Joint Center for Housing Studies.
Looking at the demographics behind the remodeling industry, Mr. Apgar said that “Generation Xers” born between 1964 and 1975 are shaping up as a new market force and those in the group with the highest incomes are joining with affluent baby boomers and seniors to fuel growth in the top end of the remodeling sector.
According to a new study from the Joint Center, “The Changing Structure of the Home Remodeling Industry,” the number of home owners with inflation-adjusted incomes exceeding $120,000 soared by 50 percent from 1995 to 2003 and they spent more than $43 billion on remodeling in 2003, which was a full 31 percent of the total $138.1 billion expenditure on home improvements.
Although the high-income group accounted for only 30 percent of total U.S. household growth during that period, they were responsible for 61 percent of the inflation-adjusted increase in improvements by home owners, the report says. In sharp contrast, households with incomes below $80,000 accounted for 41 percent of household growth, but a slight 3 percent of the increase in home improvement spending.
Mr. Apgar added that homes topping $400,000 accounted for only 11 percent of the housing stock in 200 -- or 8 million units -- but were responsible for 30 percent of home improvement expenditures. Owners of these homes fueled more than 90 percent of the growth in improvement spending between 1995 and 2003, he said, with owners in this group increasing their remodeling expenditures from $8 billion to more than $40 billion.
Owners of the high-end homes, Mr. Apgar said, completed more than 800,000 room additions in 2002-2003, which accounted for 43 percent of total spending in this category. The group also accounted for one-third of total spending on kitchen and bath remodels.
Of the more than $40 billion spent on improvements in high-value homes in 2003, $34.1 billion of the work was done by professional contractors, according to the Harvard report, leaving only 15 percent in the hands of do-it-yourselfers. By comparison, among owners with homes valued at less than $100,000, one-third of improvements were do-it-yourself jobs.
Even so, affluent households still contributed to do-it-yourself (DIY) activity, the report said, with a DIY component found in 28 percent of all projects completed by owners with $120,000+ incomes. “Overall, the nation’s 10 million highest-income home owners spend an average of $800 each year on DIY projects,” the report says, which is “some 90 percent more than owners with lower incomes.”
Baby boomers, who are now moving steadily into their 50s, still dominate the remodeling market and accounted for 52 percent of total improvement spending in 2003, Mr. Apgar said, “but Generation X is starting to come on strong, growing rapidly in homeownership” and accounting for 28 percent of remodeling expenditures in 2003.
The 30-somethings who comprise the Generation X group are already spending as much on remodeling as the baby boomers spent when they were at the same age, Mr. Apgar said, with household outlays averaging $2,200 in 2003.
However, when it comes to remodeling, Gen Xers are more likely to do the work themselves, he added. In 2003, DIY accounted for 41 percent of the younger generation’s spending on home improvement, compared to a 26-percent share for baby boomers.
Older households, Mr. Apgar said, may spend less on improvements as they age and find themselves living alone or in an empty nest and not needing additional space, but their use of professional remodelers goes up.
The Harvard report notes that assessing Gen X remodeling demand is complicated by the fact that it includes a large share of minority and immigrant households, groups with potentially different home improvement needs. Minority participation in the remodeling market has been up across the board, Mr. Apgar noted, and Hispanics just about doubled their total remodeling expenditures during the past 10 years.
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