Academic journal article Business Economics

The Home Improvement, Maintenance, and Repair Industry

Academic journal article Business Economics

The Home Improvement, Maintenance, and Repair Industry

Article excerpt

Spending on existing housing is important not only for the building materials, building products, and construction markets but also for the macroeconomy. It accounts for about half of total spending on housing capital. The new construction, home improvement, maintenance, and repair markets use overlapping distribution channels, labor, and capital inputs. The various segments of the housing industry touch many other industries and exhibit different patterns over the course of the business cycle. Understanding the unique characteristics of these segments helps business economists and macroeconomists in planning and interpreting changes in the economy as well as estimating better forecasting models. Business Economics (2015) 50, 101-108. doi: 10.1057/be.2015.7

Keywords: home improvement, maintenance, repair, housing, construction

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Investment in housing capital is widely followed as an indicator of economic health. Housing starts, permits issued, and value of residential construction put-in-place are reported monthly by the Census Bureau. As soon as the numbers are published, they are scrutinized by economists and industry analysts for clues to changes in the marketplace. Not only do they signal changes in the housing market and GDP, they also reflect household confidence.

For economists interested in home improvement, the Bureau of Economic Analysis (BEA) provides estimates of investment in existing construction as part of the National Income and Product Accounts (NIPA). The NIPA also report housing maintenance and repairs expenditures. Although home improvement, maintenance, and repair receive less attention in the media than housing starts, the total amount of spending on these three activities rivals that of new residential construction.

1. What are Home Improvement, Maintenance, and Repair?

Although maintenance and repairs use nearly the same inputs as home improvement activities, they have different effects on the housing stock. Understanding the distinction between them is important for several reasons. First, improvement is an investment that impacts the value of housing capital and therefore can affect the value of homeowners' equity. Maintenance, on the other hand, is an expense that preserves capital and does not lead to a wealth effect. Second, the two are difficult to distinguish empirically, which creates challenges in measurement for economists in the industry. Third, forecasters need to take into account the fact that these categories of spending each have their own unique drivers.

Home improvement

Home improvement (sometimes referred to as remodeling or renovation) is an investment activity made to the existing housing stock that adds to value or useful life. (1) The BEA defines home improvement as follows:

Improvements to residential structures ... consist of additions, alterations, and major replacements to structures subsequent to their completion. They include construction of additional housing units in existing residential structures, finishing of basements and attics, remodeling of kitchens and bathrooms, and the addition of swimming pools and garages. They include major replacements--such as new roofs, water heaters, furnaces, and central air conditioners--that prolong the expected life of the structure or add to its value; routine maintenance and repair work is not included. [Bureau of Economic Analysis 2014]

The Census Bureau estimates that home improvement spending on private, owner-occupied dwellings was $133.1 billion in 2013 [Census Bureau 2014c]. According to the American Housing Survey (AHS) 50 percent of homeowners made improvements in 2011-12. Of these, 36 percent were do-it-yourself projects, and 64 percent were done by professionals [Census Bureau 2013]. Owners choose a wide range of different projects reflecting a diversity of trades and materials. Table 1 ranks projects by major category from the AHS survey. …

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