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Harvard studies U.S. home remodeling

The Joint Center for Housing Studies of Harvard University has published a study focusing on how the American remodeling market has changed in the aftermath of the Great Recession. Home improvement spending had risen from $214 billion in 2001 to $324 billion in 2007, just before recession began. In 2011 it fell to $281 billion, registering a 13.4% decrease compared to 2007. Between 2011 and 2013 home improvement industry recovered, totalling $298 billion.

The four sections of home improvement
Home improvement concerns both homeowners and rental property owners. Homeowner improvement spending accounted for 81.8% of total remodeling expenditure in 2013.
Home remodeling includes both property improvements and maintenance and repair. Since they are necessary, maintenance and repair work have been less affected by recession. In 2007 maintenance and repair expenditure amounted to $66 billion ($46 billion owner maintenance and $20 billion rental maintenance) while in 2011 it posted a $71 billion record-level spending.
In 2007 unnecessary remodels and additions accounted for $258 billion ($226 billion homeowners and $32 billion rental property owners) falling sharply to $210 billion in 2011 with an 18.6% decrease.

GRAPHS_Market_Spending

Source: “Improving America’s Housing – Emerging Trends in the Remodeling Market”, Joint Center for Housing Studies of Harvard University, 2015

These figures show that residential remodeling has been less affected by recession than it has residential construction, with housing starts falling about 70% from their 2007 peak. Moreover, while home improvement industry might easily go back to 2007 levels, with a mere 8% gap, the new construction sector is far from it, performing a 60% of what would be considered as an acceptable score.

Kitchen and Bath remodels
Considering homeowner spending, which in 2013 totalled $192 billion, kitchen remodels and additions accounted for $9.5 billion, bath remodels and additions amounted to $7.7 billion, while expenditures for additions and major structural alterations to other rooms made up another $13.1 billion. These categories of improvements can be deferred when economic conditions are uncertain.

The impact of recession on the industry’s structure
As expected, a great many remodeling companies have been heavily impacted by recession. According to the U.S. Department of Labor – Bureau of Labor Statistics, the general remodeling industry registered 86,900 companies in 2007. In 2011 they had fallen to 79,600, with 7,300 fewer firms. The economic recovery hasn’t brought the figure back to where it was: in 2013 companies were 80,800 while in the second quarter of 2014 they were 83,200.
It is interesting to note that the number of people employed in remodeling companies had fallen from 310,000 in 2006 to 235,000 in 2010, with 75,000 jobs lost, which accounted for 24% of the total. This often happens in the US labour market where companies are free to employ and dismiss workers depending on the economic crisis and with no particular reason. American legislation enables more companies to outlive a recession. It should also be noted that while the number of companies went from 79,600 in 2011 to 83,200 in 2014 (+4.5%), employees rose sharply from 235,000 to 282,000 (+20%).

Fonte: “Improving America’s Housing - Emerging Trends in the Remodeling Market”, Joint Center for Housing Studies of Harvard University, 2015

Source: “Improving America’s Housing – Emerging Trends in the Remodeling Market”, Joint Center for Housing Studies of Harvard University, 2015

The importance of size for companies in the remodeling industry
In the remodeling industry larger-scale firms have several advantages compared to small ones. On the other hand, as the Harvard report indicates, since there are basically no barriers to enter the remodeling market and anyone can start a remodeling firm, there are few large companies. Furthermore economic cycles create more instability than in other sectors, making it sometimes difficult to survive. Finally, the necessary funds for the expansion of the company are not easily obtained.
Large companies are few and perform better than small firms. In 2013, the first 100 of the top 500 companies had totalled an average $43 million turnover, while the other 400 companies hadn’t reached $4 million. The top 100 remodelers also experienced significantly smaller losses during the downturn and much stronger gains during the recovery than other large contractors.
A previous Harvard report shows that despite large companies in the remodeling sector are few, during recession there has been a concentration of companies. In 2007 firms with a turnover of at least 1 million dollars were employing 55% of workers in the industry and accounted for 65% of building materials purchases.

Source: “Improving America’s Housing - Emerging Trends in the Remodeling Market”, Joint Center for Housing Studies of Harvard University, 2015

Source: “Improving America’s Housing – Emerging Trends in the Remodeling Market”, Joint Center for Housing Studies of Harvard University, 2015

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