Remodeling Activity Projected to Grow in Most Metropolitan Areas

by Elizabeth La Jeunesse
Research Analyst

Spending on home improvements is expected to increase this year in 43 of the nation’s 50 largest metropolitan areas, according to our latest report about the home improvement industry, Demographic Change and the Remodeling Outlook. The report projects that, on average, home improvement spending in 2017 in these metro areas will be 6.8 percent higher than it was in 2016, slightly more than the projected 6.1 increase nationwide. 

However, as an interactive map released in conjunction with the report shows, the growth rates will vary widely. About a third of major metro areas are expected to see strong growth of 10 percent or more, while a similar number should see declines or slow growth of under 3 percent.

Some of the largest increases, in percentage terms, are expected to occur in several Midwestern metropolitan areas such as Cincinnati, Cleveland, Columbus, Kansas City, Minneapolis, and Milwaukee, where there is a consistent demand for housing and prices are not as high as in other parts of the country.

Double-digit gains in home improvement expenditures are also expected in New England’s three largest metro areas—Boston, Hartford, and Providence—where home sales have been strong. While average per-owner spending in other metropolitan areas on the East Coast has been relatively high in recent years, total spending in several of those areas is expected to increase slowly in the next year. The report projects that spending will grow by less than one percent in New York, the nation’s largest metro area, and by less than four percent in the Washington, DC area.

Home improvement spending is also expected to pick up significantly in several fast-growing, Southern metropolitan areas where homebuilding activity has revived and more households are forming, such as Atlanta, Charlotte, Jacksonville, and Orlando. In contrast, spending will grow modestly or may even decline in Southern metro areas with oil-dependent economies such as Dallas, Houston, and Oklahoma City.

On the West Coast, the report projects a significant increase in spending on home improvements in the Sacramento metro area, where house prices recovered more slowly from the Great Recession than in other parts of the state. In contrast, spending is expected to increase only modestly or decline slightly in the Los Angeles, San Diego, San Francisco, and San Jose, where leading indicators suggest housing markets may be approaching their cyclical peaks. In metro areas across the Mountain and Pacific Northwest regions, growth rates are also expected to vary widely, from a low of just under 2 percent in the Las Vegas metro to a high of nearly 10 percent in the Salt Lake City area.

These projections are based on two measures of housing demand—single-family starts and growth in existing home sales—that are strong leading indicators of national remodeling activity. The results broadly support our expectation that home improvement expenditures in certain high-cost markets may soon reach a cyclical peak, while spending will increase in markets where house prices are lower but are increasing steadily.

The report also finds that the national market for home improvements is somewhat more concentrated in the nation’s 15 largest metropolitan areas, which account for about 29 percent of the nation’s homeowners. Illustratively, according to estimates from the 2015 American Housing Survey, average per-owner improvement spending in the same 15 metro areas was $3,500, or more than 30 percent greater than average spending by homeowners outside of these areas. As a result, aggregate spending by homeowners in the same 15 areas totaled over $80 billion, or nearly 37 percent of the total spending by all owners on home improvements nationally.

The Continued Growth of Multigenerational Living

by Shannon Rieger
Research Assistant

A substantial number and share of older Americans are living in “multigenerational” households, according to our analysis of recently released 2015 American Community Survey (ACS) one-year population estimates. In total, 20.3 percent of all non-institutionalized adults aged 65 and over – about 9.4 million people – live in multigenerational households that include at least two generations of adults (individuals over the age of 25). The ACS data also show large differences in the prevalence and composition of multigenerational homes by age, race, and ethnicity.

The new data not only reflect the fact that there are a growing number of older Americans, but also that the share of older Americans living in multigenerational homes has been growing steadily since the 1980s. These trends are likely to continue as baby boomers age. Importantly, multigenerational living might allow some older Americans to enjoy a higher quality of life while aging in place, as an overwhelming majority of people want to do. At the same time, for some families of limited means, multigenerational living may be a financial necessity rather than a desirable living situation. Regardless of why they are choosing multigenerational living arrangements, providing families with education and support to suitably modify their homes could help these arrangements be as safe, effective, and beneficial as possible.

Who Lives in Multigenerational Homes?

About two-thirds of the 9.4 million older adults living in multigenerational homes live in households that have exactly two adult generations (usually parents and adult children aged 25 or older). The rest are in three-or-more-generation households that typically include grandparents, adult children, and grandchildren.

Trends in multigenerational living also change with age (Figure 1). The share of people living in multigenerational settings is highest for individuals in their late 20s (mostly due to adult children still living at home), then drops for those in their 30s as young adults move out and form their own households. The share rises again for people in their early 40s until peaking at about 23 percent for people in their late 50s. This “sandwich” age group includes people who are living with their adult children, those who are living with their aging parents, who often need daily support and care, and those living with both their children and aging parents.

Notes: Multigenerational households are those with least two adult generations aged 25 or older or that include grandchildren, adult children, and grandparents. Householders and parents are considered “adults” regardless of age. Other household members include extended family members (e.g. aunts, uncles, nieces, nephews) and unrelated individuals. Source: JCHS tabulations of US Census Bureau, 2015 American Community Survey 1-year Estimates. 

Because adult children move out and elderly parents pass away, the share of people living in multigenerational households declines for people who are in their 60s and early 70s. However, the share rises steadily for older adults in their mid-70s, who often are starting to face more daunting health and financial challenges. Among the oldest age groups (aged 85 and over), 27 percent – about 1.5 million people – lived in multigenerational households in 2015.

In addition to differences in age, people of color and foreign-born individuals are far more likely to live in multigenerational settings than non-Hispanic whites and people born in the United States (Figure 2). More than 25 percent of native-born blacks, Hispanics, and Asians/others aged 65 and over live in multigenerational homes, as do more than 45 percent of foreign-born in all three of these groups. In contrast, 15 percent of native-born non-Hispanic whites of the same age, and just over 20 percent of foreign-born non-Hispanic whites, live in multigenerational households. 

Notes: Whites, blacks, and Asians/others are non-Hispanic. Hispanics may be of any race. Multigenerational households are those with least two adult generations aged 25 or older or that include grandchildren, adult children, and grandparents. Householders and parents are considered “adults” regardless of age.

Source: JCHS tabulations of US Census Bureau, 2015 American Community Survey 1-year Estimates. 

A sizeable subset of these multigenerational homes include at least three generations: usually grandparents, adult children, and grandchildren living together under the same roof. Roughly ten percent of native-born blacks, Hispanics, and Asians/others aged 65 or over live in such households, along with around 25 percent of foreign-born older adults in each group. Among non-Hispanic whites, just under 4 percent of older native-born adults and 7 percent of the foreign-born live with three or more generations.

Looking forward, projected growth and demographic shifts in the older population seem likely to increase the number of multigenerational households and the share of people living in those households. The U.S. Census Bureau’s most recent population projections estimate that by 2035, about 79 million Americans will be age 65 or older, an increase of more than 30 million people in just two decades. This growth is due to the fact that the baby boom generation is getting older and because with increases in longevity more people will live well into their 80s, 90s, and beyond.  In fact, the Census Bureau projects the number of “oldest old” adults aged 85 and over to double over the next two decades.

The racial and ethnic composition of the older population will also shift markedly over the next several decades. The non-Hispanic white share of the 65-and-over population is projected to drop nearly ten percentage points to 69 percent by 2035, while the black, Hispanic, and Asian shares will rise, respectively, by 20 percent, 67 percent, and 39 percent (Figure 3). Census Bureau projections estimate that the foreign-born share of the 65 and over population will also continue to increase, growing from 13 percent in 2015 to 19 percent in 2035. Though the direction of future residential preferences among the older population is uncertain, the sheer magnitude of growth in the older population and the fact that much of the growth will be among the very old, people of color, and the foreign born suggests there will be substantial growth in multigenerational households in the coming years. 

Notes: Whites, blacks, and Asians/others are non-Hispanic. Hispanics may be of any race.   

Source: JCHS tabulations of US Census Bureau, 2014 Population Projections. 

Impacts on Housing and Services

As this growth occurs, it will be important to consider how new and existing housing stock might be designed or modified to best meet the needs of multigenerational households. Universal design features including single-floor living, zero-step entrances, and hallways and doorways wide enough to accommodate wheelchairs, walkers, or strollers can make homes more accessible for older adults with mobility limitations as well as for their young grandchildren. Flexible layouts that can change as family needs evolve, as well as the addition of semi-private spaces for each generation (such as in-law suites with separate entrances, multiple master bedrooms or kitchens, and accessory dwelling units), can also help make the housing stock better suited for multigenerational households.

While multigenerational living works well for many households, it is important to note that it is not necessarily a desirable option for every family. Rather, multigenerational living may be a financial necessity rather than an attractive housing option not only for families with lower incomes but also for moderate-income families living in higher-cost areas. Further, sharing a home with multiple generations can be challenging, particularly if the house is small, has inadequate amenities, or there are unclear or unrealistic expectations about responsibilities for both finances and personal care. Finally, informal help from family members may not be an adequate replacement for professional care, particularly for aging adults with serious health conditions. Providing families with guidance about how to live successfully in multigenerational settings, and, perhaps, with financial assistance to make home upgrades and modifications, will therefore be critical if multigenerational living is going to be an appealing, comfortable option for families of all means. While designing and carrying out such policies and programs will be challenging, such efforts have the potential to provide a more appealing and cost-effective housing option for older Americans and their families.

Urbanization and Growth in India

by Sonali Mathur
Research Assistant

“Urbanization as a Growth Strategy for India” was the focus of a panel discussion on Saturday, February 6 at the India Conference at Harvard University, the largest student-run conference focusing on India held in the United States. (The Joint Center was one of the event’s co-sponsors.) As one of the most populous countries in the world, the policy decisions and investment choices that are made in India will have a resonance beyond its borders in terms of environmental impact and quality of life for one of the largest and fastest growing markets in the world. Panelists at the conference, who noted that India’s urban population is expected to grow significantly in coming decades, focused on a variety of topics including the role that urban areas can play in the country’s economy and the many challenges to achieving that goal.

Shirish Sankhe, Director of the Mumbai office of McKinsey & Co. opened by citing the 2010 McKinsey Global Institute report, India’s urban awakening: Building inclusive cities, sustaining economic growth, which estimates that India’s working age population will grow by nearly 270 million people by 2030 (from about 800 million to over 1 billion). The growth will be urban, he said, noting that by 2030 at least 10 of India’s 29 states will be more than 50 percent urbanized.  (Currently, only two relatively small states are urbanized.) Moreover, McKinsey projects a five-fold increase in GDP.

Accommodating this growth will be a major challenge, he conceded, because 25 percent of the urban population of India lives in slums and the country only invests $17 per capita per year in infrastructure, about an eighth of what McKinsey estimated was needed. Illustratively, because the country has underinvested in transportation, the share of people using public transportation is estimated to have dropped in recent years from 50 percent to 30 percent. Moreover, there is a significant lack of public understanding about administrative practices and the role of various organizations involved in city and state governance, which not only makes public participation challenging but complicates the entire planning process.

Photo courtesy of The India Conference

Prathima Manohar, an architect and founder of The Urban Vision, an urbanism “think do-tank;” asserted that another key challenge is that the leaders of India’s cities seem to be fixated on strategies that more developed parts of the world are moving away from, such as auto-centric development and over-consumption of resources. Despite the creative brilliance and skilled human capital in India’s cities, she added, there is a lack of civic and recreational space that would improve residents’ quality of life. However, she also said there are an increasing number of grassroots organizations working to improve urban environments. She also predicts that the success of these smaller enterprises will be paramount to improving livability of the cities.

Brotin Banerjee, CEO of Tata Housing, noted that the lack of affordable housing options is a problem that has plagued Indian cities for decades. Given the scale of the problem, he said it would take efforts from various sectors in order to make a difference. Tata Housing is spearheading this effort from the private sector, by investing in construction that provides homeownership options for the low- and middle-income urban residents. The challenge in doing this, he added, is devising models that are scalable and profitable, particularly when new projects must also provide supportive infrastructure such as water and sewer connections as well as roadways, which are typically the public sector’s responsibility.

Despite their diverse backgrounds, the panelists agreed that given the scale and interdependence of the urban problems in India, the prevalent expectation that the public sector should solve all the urban problems is unreasonable and likely detrimental. Instead, they agreed that there needs to be – and there seems to be – growing coordination between the public and private sector, and there is a significant role for grassroots organizations to play.

In discussions moderated by Bish Sanyal, Ford International Professor of Urban Development and Planning and Director of the Special Program in Urban and Regional Studies at MIT, the panelists highlighted a host of approaches and practices that, in their opinion, seem to be working. Shirish Sankhe noted that funding allocation methods based on competitive grounds, like the one being used for development of ‘smart cities,’ seems to be a successful model. These are small to medium size cities competing for federal fund to spur infrastructure development and the selection is based on certain predefined design criteria.

Along similar lines, he noted, there is a movement towards a performance management system of city governance. In this approach, India’s cities are ranked on various criteria which then puts pressure on the elected officials to perform and be more accountable to the public. Highlighting some of the positives surrounding the development of “greenfield” sites, he added that anticipation of transportation needs and how those are likely to evolve over time has become an integral part of planning. In the context of building more affordable housing, Brotin Banerjee noted that some of the policy solutions in recent times have revolved around making construction and green construction more cost effective by providing flexibility around height limitations and FAR regulations. He also added that perhaps the best form of public-private partnership would be talent sharing.

In response to questions from the audience about the segregation patterns that have or could emerge based on racial and cultural lines, the panelists agreed that Indian cities need to move away from identity based politics in order to avoid increased segregation and to build more inclusive cities.

New Report: Aging Homeowners Drive Growth in Remodeling as Millennials Begin to Gain Footing

Homeowner spending on remodeling is expected to see healthy growth through 2025, according to Demographic Change and the Remodeling Outlook, the latest biennial report in our Improving America’s Housing series. Demographically based projections suggest that older owners will account for the majority of spending gains over the coming years as they adapt their homes to changing accessibility needs. Although slower to move into homeownership than previous generations, millennials are poised to enter the remodeling market in greater force, buying up older, more affordable homes in need of renovations.

The residential remodeling market includes spending on improvements and repairs by both homeowners and rental property owners, and reached an all-time high of $340 billion in 2015, surpassing the prior peak in 2007. [See our Interactive Infographic.] Spending by owners on improvements is expected to increase 2.0 percent per year on average through 2025 after adjusting for inflation, just below the pace of growth posted over the past two decades, and about on par with expected growth in the broader economy.

The large baby boom generation has led home improvement spending for the past twenty years, and its influence shows no signs of waning. Older homeowners will continue to dominate the remodeling market, as they make investments to age in place safely and comfortably. Expenditures by homeowners age 55 and over are expected to grow by nearly 33 percent by 2025, accounting for more than three-quarters of total gains over the decade. The share of market spending by homeowners age 55 and over is projected to reach 56 percent by 2025, up from only 31 percent in 2005.

Gen-Xers are now in their prime remodeling years, and while some are still recovering from home equity losses after the housing crash, many in this generation will undertake discretionary projects deferred during the downturn. And as younger households move into homeownership, they will supplement the already thriving improvement market.

Try the Interactive Infographic

“With national house prices rising sufficiently to help owners rebuild home equity lost during the downturn, and with both household incomes and existing home sales on the rise, we expect to see continued growth in the home improvement market,” says Kermit Baker, director of the Remodeling Futures Program at the Joint Center for Housing Studies.

Even though increasing house prices are encouraging homeowners to reinvest in their homes, they also are raising housing affordability concerns among younger buyers. Climbing mortgage interest rates and rising house prices not only make homeownership more difficult for younger households, but leave those who are able to buy with fewer resources to make improvements and repairs. And while high rents may provide an incentive to buy homes, they also make it difficult for first-time buyers to save for a downpayment.

Some demographic trends are also presenting challenges to a healthier remodeling market outlook. A disproportionate share of growth over the coming decade will be among older owners, minority owners, and households without young children; groups that traditionally spend less on home improvements.

“Despite these challenges, the remodeling industry should see numerous growth opportunities over the next decade,” says Chris Herbert, managing director of the Joint Center for Housing Studies. “Strong demand for rental housing has opened up that segment to a new wave of capital investment, and the shortage of affordable housing in much of the country makes the stock of older homes an attractive option for buyers willing to in invest in upgrades.”

Finally, as a new generation of homeowners enters the remodeling market, specialty niches focused on energy-efficiency, environmental sustainability, and healthy homes are likely to see significant growth. Home automation—encompassing everything from entertainment systems to home energy management, lighting, appliance control, and security—is also emerging as a strong growth market, particularly among younger households.

Looking ahead, there are several opportunities for further growth in the remodeling industry. The retiring baby boom generation is already boosting demand for accessibility improvements that will enable owners to remain safely in their homes as they age. Additionally, growing environmental awareness holds out promise that sustainable home improvements and energy-efficienct upgrades will continue to be among the fastest growing market segments.

Read the full report, try the Interactive Infographic, or join the conversation on Twitter with #HarvardRemodeling.

What Can We Learn from Attempts to Reduce the Cost of Affordable Housing?

by Sam LaTronica
Gramlich Fellow

Midwestern CDCs trying to build affordable homes that do not require development subsidies have identified three potentially promising strategies: building smaller homes, utilizing factory-built homes, and creatively designing houses to get more out of them. In a new working paper that grows out my work as an Edward M. Gramlich Fellow in Community and Economic Development I conclude that while each technique presents opportunities for cost savings, each also comes with its own set of challenges.

The fellowship, which is co-sponsored by the Joint Center for Housing Studies and NeighborWorks^® America, also expanded my horizons because for years, my conception of new “affordable housing” had been limited to the standard multifamily properties developed in larger urban areas. This was the type of affordable housing I had seen since moving to the Boston area, as well as working for an affordable advocacy organization in the San Francisco Bay Area prior to attending the Harvard Graduate School of Design.

As a Gramlich Fellow in the summer of 2015, I was exposed to a new region and new approach to affordable housing. The Midwestern CDCs, which were part of NeighborWorks^® America’s national network, often had in-house general contractors and focused on building and selling affordable single-family homes, in both urban and rural areas. Given the dearth of housing subsidies, particularly subsidies for affordable housing in rural areas, these CDCs were trying to find cost-saving construction techniques that would allow them to build affordable housing without development subsidies.

The Rambler, a single-family home constructed by the Southwest Minnesota Housing Partnership. The home is 1,092 square feet on the main floor with another 1,092 square feet of unfinished basement space that can be converted into living space or more bedrooms at a later date. This home was constructed in 2014 with an asking price of $153,900.

Through reading popular literature on home construction, analyzing building trends, conducting interviews with CDC leaders, and visiting new developments in the Midwest, it became clear that CDCs were interested in pursuing three potential cost saving techniques: building smaller homes, using factory-built homes, and creatively designing houses to get more out of them.

Smaller homes are theoretically cheaper to build because they simply require fewer materials and less construction time. Once occupied, these houses not only can be cheaper to heat or cool but also will cost less to maintain. Smaller footprints also make it possible to build these homes on smaller or irregularly shaped lots, which helps expand the options for CDCs.

However, cost savings are not always realized when buildings are smaller. Once land and other development costs are factored in, it is possible that building smaller homes will be only slightly cheaper than building larger homes on the same lot. Moreover, the marginal cost of constructing a few hundred more square feet might allow the CDC to sell the house for more money while still keeping it affordable. Some CDC leaders also worry that producing affordable homes that are much smaller than new market-rate homes would create obvious distinctions between income levels and stigmatize the people living in the new, smaller homes. Finally, while building smaller can be smart for a number of reasons, most people still want bigger homes as evidenced by the fact that average house sizes have been increasing and have recently surpassed pre-recession levels. This suggests that without a shift in the overall market, smaller homes may not be a particularly appealing option for CDCs trying to build affordable housing.

While factory-built construction techniques are not necessarily new, they are new to many CDCs. Many Midwestern CDCs are currently experimenting with (or exploring the possibility of using) both modular homes and homes made from structural insulated panels (SIPs). Factory-built homes have the benefit of being produced mostly indoors and using assembly line techniques, which can significantly reduce onsite construction time and protect against weather delays, theft, vandalism, etc. Moreover, homes built in factory-controlled settings can be tighter and more energy efficient and make more efficient usage of building materials (which should reduce their cost).

Like building smaller, however, the cost savings that are touted in popular literature are harder to realize in practice. If CDCs, architects, contractors, and subcontractors do not have enough experience working with factory-built housing, then the development process can hit major roadblocks that negate the hypothetical cost savings that would result from a shorter construction period and lower production costs. In fact, some CDCs that experimented with these techniques ended up with homes that cost far more than they would have cost using traditional stick-built techniques.

Finally, creatively designing houses can supplement the previous construction types to get the most out of new homes. This can come in many forms. Designing attached accessory dwelling units will add more units to the housing stock and can supplement the primary tenant’s income.  Co-housing development can utilize scale and reduce the per-owner development costs. Open floor plans can make smaller homes more palatable and unfinished buildouts can reduce costs while allowing families to later customize their home to meet their particular needs.

In the end, there is no silver bullet that can be used to build affordable single-family homes without a development subsidy. However, there are many techniques that, when combined, could produce significant cost savings. CDC leaders interested in pursuing these approaches should remember that the benefits of these techniques, as described in popular literature, do not always materialize in practice. Therefore, CDC leaders should learn from others who have already experimented with them. They should also establish strong relationships with architects and contractors who have experience with these techniques, so that they reduce the likelihood of delays that would drive up costs. Hopefully, by persevering and learning from others, the CDCs can increase the production of affordable homes.

Sam LaTronica, who graduated from the Harvard Graduate School of Design in 2016, was a 2015 recipient of the TheEdward M. Gramlich Fellowship in Community and Economic Development, which is co-sponsored by NeighborWorks®America and the Joint Center for Housing Studies.