Harvard JCHS: Remodeling Soars to New Heights
(Image courtesy of Blue Bird/pexels.com)
The U.S. remodeling market soared above $600 billion after the pandemic and remains 50% above pre-pandemic levels despite recent softening, the Harvard Joint Center for Housing Studies reported.
However, industry fragmentation, inflation, and a shortage of skilled trade labor jeopardize the ability of the industry to fully meet demand, the Center said in a new report, Improving America’s Housing 2025. It said the strength of the remodeling market has been supported by the aging of homes as well as record-high property values, but noted far more investment is needed to address growing needs for energy efficiency and disaster resilience of the country’s 145 million homes.
“Given the strong foundation and growing needs, residential remodeling is expected to remain a formidable economic sector in the years ahead,” said Chris Herbert, Managing Director of the Center. “And despite unparalleled spending in the last few years, far more investment is needed to improve energy efficiency, disaster resilience, and accessibility for the nation’s 145 million homes.”
Takeaways from the report include:
Pandemic Fuels Unprecedented Spending on Remodeling
Home improvement and repair spending vaulted from $404 billion in 2019 to $611 billion in 2022 and is expected to remain above $600 billion through 2025. Homeowners remain focused on replacement projects such as roofing, windows, and HVAC, accounting for 49% of improvement expenditures in 2023. On average, homeowners spent almost $4,700 on improvements in 2023, nearly 9% above the previous market boom in 2007.
Climate Change Necessitates Improvement Spending and Drives Up Insurance Premiums
The growing frequency and intensity of hazard events like hurricanes, wildfires and flooding have increased spending for disaster repairs to $49 billion in 2022–2023, up from $16 billion in 2002–2003. “While few homeowners undertake mitigation retrofits, skyrocketing insurance premiums may provide the motivation to do so,” the report said. “The average homeowner insurance premium jumped 17% between 2021 and 2023.”
U.S. Housing Stock is Older than Ever and Substandard Conditions Must Be Addressed
With a median age of 44 years in 2023, the housing stock is older than ever, and critical improvements are needed to replace aging components. Many low-income homeowners live in housing with structural deficiencies or lacking basic features such as running water, electricity, or heat. “There is both a market opportunity and a moral imperative to expand improvement and repair services for these homeowners,” said Sophia Wedeen, a Senior Research Analyst at the Center. “More financing tools and counseling programs can also help preserve the affordable housing stock and ensure that all households live in safe and adequate housing.”
Changing Demographics Affect Remodeling Spending
The shifting characteristics of U.S. households continue to reshape activity and spending patterns in the remodeling market. In 2023, owners age 65 and over contributed 27% of total improvement outlays, up from 14% two decades earlier. And as the population becomes more racially and ethnically diverse, households headed by a person of color contribute more to the home improvement market; in 2023, homeowners of color accounted for 23% of improvement expenditures, up from 14% in 2003. Immigrant owners also account for a growing share of the market, up from 8% of expenditures in 2003 to 13% in 2023.
Fragmentation, Surging Costs, and Labor Shortages Hinder Remodelers
Despite a flurry of mergers and acquisitions, the remodeling industry remains highly fragmented, with large shares of self-employed contractors and small payroll companies, the report said. “The industry is also hampered by high costs of building materials, including uncertainty around the potential impacts of tariffs, and labor shortages,” it continued. “Between 2015 and 2023, a majority of remodelers reported a shortage of skilled trade workers including carpenters, electricians and plumbers.”
In the near term, the remodeling industry faces both challenges and opportunities. On the one hand, elevated interest rates, weak home sales, and a persistent shortage of skilled trade labor are expected to constrain the market. At the same time, massive levels of home equity, a sustained shift toward working from home, and the aging of the housing stock will support significant investment in home improvement, perhaps most notably among owners who prioritize updating their existing homes over moving.
