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The latest edition of the HIA Renovations Roundup was recently released.

This report marks Australia’s most comprehensive pulse-taking exercise of the nation’s $30 billion-plus home renovations market. As well as assessing the current state of the market, the Renovations Roundup also provides forecasts of renovations activity for each of the states and territories out to the year 2020.

Many people are surprised to learn that the performance of the home renovations market is not always in step with that of new home building activity. Indeed, events over the past decade have illustrated this divergence quite starkly. For example, while the new home building side of residential construction enjoyed its largest and longest ever upturn between 2012 and 2016, renovations activity endured a sharp contraction between 2011 and 2013, with the volume of activity falling by some 14.4 per cent over the course of two years. The ensuing recovery was slow to gather momentum – a snail would have made faster progress to begin with. However, by the end of 2016, renovations activity was 8.5 per cent up on its 2013 trough.

One of the key features of the HIA Renovations Roundup is that results of a unique quarterly industry survey are presented and analysed. In terms of its reach, the renovations market is a generous one: the key participants are overwhelmingly concentrated amongst sole traders or small firms, with the glow extending to a further cohort of subcontractors such as electricians, plumbers, painters, carpenters and plasterers.

In terms of the specific types of renovations work done, repairs and maintenance jobs are the bread and butter of the market in the post GFC world. Other important sources of work identified by the survey include kitchens and bathrooms. These areas of the house have traditionally been very popular to renovate, and in the case of a kitchen, a larger square metre footprint often emerges from the reno job. The HIA-GWA Kitchens & Bathrooms Report 2016/17 was released in early April and provides comprehensive coverage of activity both in terms of new homes and kitchen and bathroom renovations work.

One segment of renovations that has been hard hit in the more cautious post-GFC world is structural extensions. The Renovations Roundup survey does provide evidence that this important component of renovations activity is again gathering steam, a finding supported by anecdotal evidence. This is a really encouraging development.

With conditions in the renovations market considerably quieter than in new home building, over one third of renovators have indicated that they have taken on new home building work this cycle. Over recent years, a perception has grown that Knock-down Rebuild (KDR) work has been replacing some of the larger renovations jobs. The latest survey results largely refute this theory – just 28 per cent of respondents are of this opinion. In all likelihood, we are seeing a recovery in both KDR and structural extensions, with the recovery in the former segment of the market beginning first.

The recovery in renovations activity that has played out over the past few years was prompted by the reduction to historic lows of interest rates across the spectrum. This allowed households to undertake borrowing for home value enhancing renovations work at lower cost. The fact that this environment was preceded by several years of heavy saving by the household sector meant that a large reserve of cash was also available for the purposes of renovations work.

Added to the mix was the strong upturn in dwelling prices since 2012 in Sydney and Melbourne. This more than replenished the home equity tanks, especially in Sydney, which had been running on empty for nearly a decade. This overall situation has provided would-be renovators in Australia’s two largest cities with the confidence and – more importantly – the money to give the green light to renovations work on their homes.

Over the medium to long term, the single most important driver of home renovations work is the profile of the dwelling stock. HIA research demonstrates that renovations activity is disproportionately concentrated in detached houses aged between about 20 and 40 years. On this front, the indications are reasonably promising: although the number of houses in the 20-to-30-year age bracket will fall back a bit over the next 10 years, there will be a much greater rise (roughly 14 per cent) in houses in the 30-to-40 year cohort (think about all those houses built between about 1985 and 1995). Assuming economic conditions are reasonably accommodating over this period, the scope for increased renovations work is quite substantial over the next decade.

Another plus for market prospects is the fact that the 2011-13 downturns have produced an accumulation of overdue renovations jobs. No doubt, some of these are already being tackled, but it is likely that a continued stream of activity will originate from this source in the near future.

Perhaps the biggest obstacle to renovations demand over the short term is the continued drop in turnover in the established house market. Latest data points indicate that established house sales fell by 3.9 per cent over the year to the June 2016 quarter. This matters because one of the biggest triggers for renovations activity is the sale of a house. In many cases, the new owners of older houses will initiate renovations work after taking possession. The fact that fewer old houses are being sold is a challenge from the point of view of renovations activity.

In 2016, renovations work across Australia rose by 2.7 per cent to a value of $33.06 billion. This actually represented a modest deceleration from the growth rate recorded in 2015. This year, growth is projected to slow again (up 0.3 per cent). However, the pace of growth on the renovations side of the residential construction market is anticipated to speed up to 3.2 per cent in 2018. Further expansions of 2.4 per cent in 2019 and 2.5 per cent in 2020 are likely to restore the market to its peak prior to the 2011-2013 downturns. Over the entire forecast period, the HIA Renovations Roundup outlines how the total value of work is projected to increase from $33.2 billion in 2017 to nearly $36 billion in 2020.

 
Bizprac (expire May 30 2018)
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