Harvard Study: Good News for Contractors
Originally published: 03.01.11 by Terry Tanker
Good news about the U.S. economic recovery continues, and we are now seeing more industry-specific projections. In February, the Joint Center for Housing Studies at Harvard University released a study that bodes well for contractors in the home-remodeling industry, and pinpoints heating-and-cooling-system retrofits as a key driver in remodeling’s rebound.
The 40-page report, A New Decade of Growth for Remodeling, is available for download for free in our download center, www.hvacrbusiness.com/downloadcenter.
First, the report documents what happened t the home-remodeling sector during the Great Recession: Between 2007 and 2009, spending on maintenance and upgrades to owner-occupied and rental dwelling units dropped 12%; and if you take out the rental units, the drop was 20% (This is for all remodeling; our industry on its own declined 40%). The flipside is that as things begin rebounding in the housing market in general, we’re heading into a fiveyear sustainable growth cycle in the remodeling sector, according to the report:
“A 3.5% annual pace of growth in home improvement spending puts the 2010–15 period squarely in the middle of the past two five-year periods. In 2000–05, spending increased at an unsustainable pace as the homeownership rate was climbing, house prices were soaring, and lenders were quick to make loans for home improvement projects. In 2005-10, conditions were the opposite: The homeownership rate was falling, house prices were down in most markets, and lenders were hesitant to extend credit. As market conditions move closer to normal, home improvement spending should do the same.”
In detailing what will drive this growth, the Harvard team reports that — among other trends — continued demand to improve the efficiency of heating-andcooling systems will mean more projects:
“Retrofitting the existing inventory of almost 130 million homes . . . will be a massive undertaking. Remodeling contractors are increasingly targeting energy-related projects and the growth potential that they hold. Between mid-2009 and mid-2010, the share of home improvement contractors reporting that they worked on projects eligible for federal energy tax credits jumped from less than 40% to almost 60%.”
Another boost to our industry will be a preference for smaller remodeling projects among homeowners who are entering “prime remodeling years.” As the report points out, even though the number of U.S. homeowners will grow in the next five years, discretionary spending will be below what it was during the housing-bubble years; and so those who are putting money into their existing homes are more likely to invest in projects that will save them money in the long run.
True, the future of tax breaks for energy-saving home remodeling projects is never certain, but the researchers point out that market forces are more powerful than tax breaks, anyway, and energy savings will remain a national priority because energy sources will become only more scarce, more expensive, and more politically volatile resources in the future.
Adding all of this up, I see an unprecedented opportunity for HVACR contractors as the economy recovers and our country strengthens. Homes use 20% of our U.S. energy consumption, and heating and cooling accounts for most of that. Many of you have spent the “downturn years” investing in new equipment, a better trained workforce, and new service offerings designed to save consumers money.
Now, as the recovery continues, it’s time to step in and be the experts that our customers and our country needs.