Take advantage of home-improvement trends

HE LATEST REPORT from the Joint Center for Housing Studies of Harvard University describes remodeling as a market in transition. The report devotes considerable attention to the contractors who do home improvements and, if you're one of them, you should pay attention to what it says about your customers and competitors. It probably won't shock you to know that spending on home improvements has almost

HE LATEST REPORT from the Joint Center for Housing Studies of Harvard University describes remodeling as a market in transition. The report devotes considerable attention to the contractors who do home improvements and, if you're one of them, you should pay attention to what it says about your customers and competitors.

It probably won't shock you to know that spending on home improvements has almost doubled in the last decade and in 2005 reached a new high of $280 billion. Someone has to be watching all those home-improvement TV shows. At my house, these programs run nonstop every weekend, and we usually have at least one room torn up as a result. Next year, my wife assures me, we'll turn our attention to the exterior.

Despite our best personal efforts, the remodeling market has softened recently to what the Harvard report calls a "more sustainable pace" after years of exceptional growth. The report defines an improvement as an upgrade to a home rather than routine maintenance. Despite the current softness, consumer spending on home improvement is expected to increase 44% between 2005 and 2015. But here's where the "transition" comes in.

The projects that emerge from the current slowdown may not necessarily be the same as you have been accustomed to doing. Many of your customers will be different too. So will some of your competitors, although we've noticed a trend not mentioned by Harvard.

For starters, homeowners will be investing in less expensive projects such as routine replacements, system upgrades and mid-range rather than upscale improvements. These smaller jobs now pay off better for homeowners, and replacement projects typically provide a better return than costly discretionary ones.

Part of the reason undoubtedly is the sluggish market for home sales. As one of the authors of the report told me and other members of the media, the days of spending $75,000 on a remodeling job and getting $85,000 back are over.

Interestingly, high energy prices will drive a significant portion of these projects as homeowners upgrade to more efficient heating and cooling equipment. In 2005, owners of homes built before 1970 spent an average of $500 — more than 17% of their home-improvement budget — on projects related to energy efficiency.

Not all "green" jobs will be driven by rising prices for fuel and water. Generation X'ers are replacing baby boomers as the biggest home-improvements spenders. They have been raised to be more sensitive to our environment, and their homes will reflect that.

Gen X'ers also are more oriented toward home centers than are baby boomers. This does not mean, however, that they are any handier around the house than baby boomers such as myself. The chances are excellent that even if your new customers buy more products from home centers, they will pay you to install them. So, while spending for professional remodeling is expected to increase by 46% in the next decade and DIY spending by 37%, the numbers may not actually be that close.

Older homeowners won't be left entirely out of the remodeling picture. In fact, some of them will be living with their children and grandchildren in cross-generational households. This will mean plumbing fixtures and faucets that can be used by all ages, and possibly even a spare bathroom added or kitchen expanded.

A growing number of these households will be occupied by families of ethnic groups whose space requirements may be different. Immigration will drive some of this growth, although some groups such as Hispanics are under-represented in home ownership, and that is expected to change. The number of minority homeowners will increase by more than 40% in the next decade and represent 25% of all homeowner spending.

Overall, 12 million new households in the next 10 years will drive the remodeling market. Per-household income will grow, and that will help too.

The Harvard report notes that contractors serving the home-improvement market have yet to see the consolidation that has occurred elsewhere in residential construction and, indeed, may be getting even more fragmented. The total number of general and specialty trade remodeling contractors grew by 32% between 1997 and 2002 to about 530,000, with most of the increase among self-employed contractors.

We'll continue to report on the changing competitive landscape. What's clear is that trends favor substantial growth in home-improvement services. How you take advantage of these opportunities is up to you.