A growing population of aging Americans plus a growing supply of homes almost as old could be a boom for remodeling over the next decade, according to a Harvard University think tank study. What's more, as the birthdays mount up, tens of millions of former do-it-yourselfers are becoming "do-it-for-mes" as they pay professional contractors to handle the remodeling work.
With the aging of both the population and the housing stock, the study forecasts that spending on home improvements and repairs should add as much as $6 billion per year between now and 2010 to a market already pegged at $150 billion.
That's great news for remodeling contractors and bad news for the home centers, which have seen the DIY side of the market fall in recent years. Indeed, increased reliance on professional contractors over the next decade is one of the most significant changes in the remodeling industry, the study uncovered. As a result, the study predicts that the average annual spending on contractor-installed improvements will increase faster than spending on DIY improvements. However, every silver lining has a dark cloud behind it. Read on for more information on the increased emphasis of installed sales.
Let's look more at the good news first."Because the DIY market is such an important factor of the remodeling industry, we found some real differences in demographics between households that were likely to do it themselves vs. those who were likely to hire a professional contractor," says Kermit Baker, director of Improving American's Housing, a recent study done by the Joint Center of Housing Studies at Harvard University.
Much of Baker's work had to do with sifting through demographic information to determine why people make remodeling decisions at certain stages of their life and what are the important factors that determine when and how they take action.
"One of our major conclusions was that there was not going to be a lot of growth in DIY activity," Baker adds. "The main group of households over the next decade will be those Baby Boomers who are 40 and 50 now, turning 50 and 60. They are moving from a peak time when they may have been a do-it-yourselfer to an age when they will likely hire someone to do it for them."
Currently, 34 million homeowners undertake some sort of home improvement each year. To be sure, the study includes plenty of work that PM readers don't do, such as replacing a leaky roof, updating an electrical system or building a new addition.The study also lumps repairs and replacement under the general heading of "remodeling," which required us to do some sifting of our own. And much of the combative brawls with home centers outlined in the report may be felt initially by general remodelers per se as opposed to plumbing contractors who do remodeling.
However, looking deeper at the numbers, the study concludes that approximately $35 billion is spent on bath and kitchen remodeling every year - and predicts a huge market for bath remodeling for senior citizens.
In addition, the overall demographic trends certainly bare notice for PM readers who want to better understand
which households are most likely to make home improvements, what their motivation for doing so are - let alone
which will likely hire their services. Finally, readers simply plying their trade in the large residential service and
repair market would learn plenty from the study's findings, too.
DIY DeclineWe don't need to remind you that the DIY market is a formidable competitor. It's not so much that you're going up against Home Depot, Lowe's and the like as much as you are the millions of homeowners who've assumed the title of "general contractor" for many home improvement projects. According to the study, half of all remodeling homeowners perform DIY projects, buying about $20 billion worth of material in the process each year. The typical DIYer also isn't just slapping on new wallpaper and calling it "remodeling" either. DIYers, in fact, actually remodel more bathrooms than professional contractors and just as many kitchens! The fact that such ambitious undertakings are routinely done by amateurs who, by and larger, lead basically frantic two-earner lifestyles shows just how "easy" consumer-oriented home centers, TV shows and publications make remodeling out to be.
However, the share of DIY projects is shrinking. Between 1985 and 1993, the DIY market share dropped 11 percent. (Before contractors break out the champagne, keep in mind the overall figure still stands at a rather substantial 38 percent collectively. Specifically for bathroom projects, the DIY share dropped almost 4 percentage points, but still stands at 57 percent.)
"Part of this trend away from DIY activities simply stems from the aging of the population," the report states. "The share of homeowners in their 20s and 30s (the age group most likely to do improvements themselves) has fallen over the past decade. Meanwhile, the share of owners in their 40s and 50s (a group likely to hire contractors to make improvements) is on the rise. As homeowners age, the likelihood of their doing home improvement themselves diminishes."
This demographic trend and others will continue to the disfavor of home centers. According to Joint Center projections, the share of homeowners between the ages of 45 and 64 will increase from less than 36 percent in 1995 to almost 45 percent in 2010. At the same time, the share of married-couple homeowners with children - the No. 1 demographic type likely to be a DIYer - is projected to shrink between 1995 and 2010. Meanwhile, this decline will be matched by a gain in the share of single-person households and married couples without minor children - types that are somewhat less likely to remodel, but more likely to hire a contractor when they do.
You can be sure that the drop in DIY hasn't escaped the attention of the home centers.
"The entire industry is shifting to providing more service to meet the needs of the Boomer generation," said Robert Tillman, chairman of Lowe's Cos. at an investment banking conference last June. "That generation is aging out of the do-it-yourself segment."
Lowe's already sees plenty of potential in selling to another type of customer - namely, you. Sales to what the
home center describes as "non-builder professionals," such as plumbers and painters and other tradesmen, could
grow to 40 percent of revenue. It's already 16 percent of revenue. Such sales grew 32 percent in the first quarter,
compared to about 20 percent for the company.
Link Between Age & $The age of the household also goes hand-in-hand with income for the most part since household earnings naturally peak in middle age.
"With Baby Boomers now in their peak earning age of their 40 and 50s, they have the financial resources to make even more discretionary improvements to their homes," the study says. Their high incomes also provide financial wherewithal to hire contractors to do the work.
Clearly, personal income has a great influence on whether someone chooses to remodel. Household incomes tend to be highest among 45-56 year-olds, during the maximum earning years and before a significant number of workers retire. But the age of a home exerts a powerful influence, too. As homes age, they become increasingly outdated in terms of styling and features.
Just as the U.S. population is aging and living longer, so is the country's housing stock. By the end of the projection period, the study simply predicts that there were will be more older homes that require plenty of tender loving care, and less homes that are 15 years and younger that require much less upkeep.
The remodeling market sounds in good shape right now. Currently, nearly half of all owner-occupied homes are more than 35 years old. If they haven't been replaced somewhere down the line already, that's about the useful life anyone could expect from a home's major components, such as roof, windows and plumbing fixtures.
Older homeowners continue to spend heavily on maintaining their homes. Whether they are physically unable
or just gained more common sense than a 26-year-old stock broker who thinks he can put a toilet anywhere,
homeowners beginning at around the age of 50 rarely attempt a DIY project. Traditionally, however, their need
to remodel a bathroom isn't as great as it is for a young family with growing children. The report suggests that
Senior RemodelingNot only will a growing older population have the means to hire contractors, they'll also have a big need to do so. One of most noteworthy trends the study outlines is the expanding market for home improvements to assist the elderly to stay in their homes.
"People do want to stay in their homes as long as they can," Baker says. "Seniors don't want to go to an institutional setting, but a lot of them are forced into it because their current environments aren't appropriate to what their needs are. They don't have an option."
While much of what we've discussed hinges on the traditional post-World War II Baby Boom, Baker says an earlier, smaller population boom, along with increases in longevity, will increase the number of households with heads over age 75 by 2.3 million annually between now and 2010. Unfortunately, this age group faces a 50-50 chance of suffering a disability. The traditional Baby Boomer generation will also face these odds, but will move into their 60s "with unprecedented wealth and income, and unrivaled expectations for living well into their 80s and 90s," the report notes.
Currently, less than half of the seniors who have difficulty, for example, taking a bath or shower, have made any such changes to their homes. The American Association of Retired Person's home page, for example, discusses the safety merits of accessible bathtub features such as integrated seats, built-in lifts, doors on tubs, roll-in shower modules and hand-held showerheads.
"Home remodeling activities that improve accessibility are destined to become a high growth market when the
Baby Boomers retire around 2010," the report adds. According to the U.S. Census Bureau, the senior population
will double between 1995 and 2030, with most of the growth starting after 2010.
The BugabooIn making any projections for the future, you have to account for a change that either doesn't exist yet or, at least, whose full impact is just beginning to be felt.
The growth of installed sales and the "buy-it-yourself" market is what to watch more closely in the decade ahead. Baker says BIYer purchases - goods bought by consumers who then hire a contractor for the installation - increased a percentage point from 1985-1995. This increase, he adds, has "offset the decline in DIY spending, thereby masking the ongoing shift toward professional contractors."
We don't picture the home centers of the world just lying down, watching millions in sales go by the wayside. The report suggests that the remodeling industry may itself be remodeled, adding that the business practices of remodeling contractors have changed little in the past 20 years.
"Lacking information on how to identify qualified contractors," the report says, "increasingly brand-conscious consumers have begun to look to home centers to provide and guarantee installations of home products."
The report suggests that many contractors - whether they cater to the high-end or the vast middle-market, whether it's a small project or large - may have to partner with home centers. On the supply side, manufacturers may offer more training and certification to contractors to insure, make that, "demand," that installations are done by qualified people.
The study doesn't draw any firm conclusions. "On the one hand, more small establishments and self-employed individuals could flourish thanks to the ability to install products," it states. "On the other hand, the lower cost of partnering with a few large firms may lead the major home improvement centers to funnel their installation business to just a few contractors or even set up their own contracting businesses."
One other development to mull over for the future of remodeling as well as repair and replacement concerns the development of "HMOs" - in this case, home maintenance organizations. It's a concept we've been reading more about recently that promises to expand on the traditional notion of home improvements to include practically anything homeowners must do to maintain their homes.
Consider our March PM cover subject, ServiceMaster. Its acquisition of Rescue Rooter and American Residential Services gives it a foot in the door for plumbing needs. Meanwhile, the company is able to cross-sell homeowners with other well-known, name-brand services, ranging from lawn care (TruGreen/Chemlawn) to pest control (Terminix). While much of the past success raked up by home centers resulted from easy shopping, customers still had to physically get to the store to make a decision. The ServiceMaster organization can go one step better - come directly to the homeowner.
The future, as the old line goes, may be anyone's guess. Who your competition will be always remains a question mark. But a growing market for remodeling, particularly for senior citizens, is beyond question.