Why renovations could get more expensive this year
PALO ALTO » Home renovation projects could get more expensive this year, according to a survey conducted by home remodel and design website Houzz.
The ongoing tight labor market and increasing material costs are behind that trend, say many of the 3,378 U.S. residential renovation and design businesses that Houzz surveyed.
“With market fundamentals aligned in favor of the home improvement industry, 2018 is set to be another great year,” said Nino Sitchinava, principal economist at Houzz, in a news release Tuesday about the study. “That said, businesses are cautious about tightening local labor markets that may hamper growth in many regions, and apparent economic uncertainty on a national level.”
Half or more of the architects, general contractors, design-build firms and landscaping professionals surveyed by Houzz expect that the problem of finding workers and the costs of paying them to increase in 2018, following what has been a trend — particularly in the Bay Area — for the last couple years.
On top of the labor costs, one in two companies in each of the groups surveyed — architects, interior designers, general contractors, design-build firms, renovation firms, landscaping and decorating —- expects product and material costs to rise, driving up the overall costs of doing business in 2018.
Other research supports that. According to LegalShield Housing Activity Index, worsening trade relations could also
have an impact on the cost of building.
“The price of framing lumber has risen over 40 percent from a year ago due to import tariffs, while confrontations with key U.S. trading partners, particularly China, have also led to increased costs for steel and aluminum,” said James Rosseau, LegalShield’s chief commercial officer, in a news release, adding that rising interest rates are another cause for concern.
Still, after a strong 2017, the Houzz survey shows, companies are optimistic about revenue growth in 2018 and about two-thirds expect demand for their services to improve this year.
At least three in five companies showed revenue increases in 2017, and at least two in five experienced annual growth rates of 10 percent or more, according to Houzz.
In the Bay Area, the rise of home prices over the last several years has fueled spending on homeimprovement. Increased home equity encourages more access to lines of credit and loans for those who need it to pay for renovations, experts say. And some people who cannot afford or don’t want to buy a new home choose to invest in home improvements instead.
According to the Harvard Joint Center for Housing Studies, homeowners are projected to spend about $340 billion on renovating their homes this year, up 8 percent from last year. So while the overall outlook is positive, a slowing of the growth in the sales of existing homes could temper that, warned Abbe Will, the center’s associate project director, since sales usually prompt significant renovation spending by both sellers and buyers.