 
Opportunities Are
Plentiful In Remodeling and Construction
by Michael J. McDermott
From the time the tech bubble burst and right through the difficult times that followed, there was one segment of the economy that never faltered: housing. As a result, remodeling and construction continued to be fertile ground for new business opportunities, a trend that continues today with no end in sight.
Low interest rates that have made home ownership affordable for the largest percentage of Americans at any time in the nation's history-and prompted millions more existing home owners to refinance their mortgages-are the first factor cited in any discussion of the construction and remodeling sector's continued vibrancy, and rightly so.
However, interest rates are not the only engine driving this market, and that's good news for entrepreneurs thinking of starting a business in construction or remodeling. Even with the gradual rise in rates currently underway, analysts say the diversity and multiplicity of factors fueling the trend promise to keep this a strong growth sector of the economy for at least the foreseeable future, and probably beyond.
Last year, Cartwright and Daughters Builders, a 30-year-old construction and remodeling firm in Ithaca, N.Y., booked almost $7 million in revenue from remodeling projects. To handle that volume, it parceled out work to more than 55 subcontractors, generally much smaller businesses specializing in a number of areas, ranging from concrete and cement work to roof gutter installation to kitchen cabinet refacing to bathtub reglazing-and much, much more. For most first-time business owners, it is in those specialty areas that the construction and remodeling industry's most promising opportunities lie.
Low interest rates have played a key role in the remodeling industry's vibrancy. |
Siding and window replacement, kitchen and bathroom remodels and room additions generate the lion's share of sales in the remodeling industry, according to the 2004 Homeowner Remodeling Survey conducted for the National Association of the Remodeling Industry (NARI). Americans spent about $236 billion on remodeling projects last year, estimates the Harvard University Joint Center for Housing Studies (JCHS).
"Homeowners continue to reinvest in their homes," says Nicolas Retsinas, director of Harvard's JCHS. The common perception is that owners of older homes are the primary consumers of remodeling services, but data from the U.S. Census Bureau shows that homes built since 1990 account for as much spending in this segment as those built prior to that year. Spending by both groups of home owners has been fueled by low mortgage interest rates prompting them to tap the equity in their homes and free up cash to use for remodeling and construction projects, Retsinas says.
Other factors contributing to the bull market in construction and remodeling include a documented preference among baby boomers to remain in their current homes as they reach retirement age. A recent survey by the American Society of Interior Designers (ASID) found that more than 75 percent of members of the baby boom generation express this preference. That should drive future demand for remodeling and construction projects targeting safety, accessibility and other age-related issues which the industry describes, collectively, as "visit-ability."
As the baby boomers have repeatedly demonstrated through their embracement of wrinkle-fighting creams and lotions, cosmetic surgery and other
"age-defying" products and services, they tend not to acknowledge the reality of their own aging, says Charlie Schewe, a marketing consultant specializing in generational issues. However, they do recognize the need to make their homes more accessible, flexible, convenient and comfortable for parents and other elderly relatives-hence, visit-
ability.Current trends suggest that as many as one in four
baby boomers will be significantly involved in providing care to an elderly
parent or relative during their own pre-retirement and/or retirement years. In
cases where some or all of that care giving will take place in the boomer's
home, the visit-ability issue looms even larger.
This issue has the potential to be one of the most important emerging trends
in the remodeling and construction industry. The Universal Design Alliance, a
not-for-profit advocacy group based in Suwanee, Ga., estimates that remodeling
and construction costs to achieve needed levels of visit-ability can amount to
as much as 25 percent of a home's existing value. Incorporating the same design
concepts and the products needed to achieve them into new-home design and
construction generally costs much less, about 2 percent of the home's value on
average.
Americans spent about $236 billion on home remodeling projects in 2004. |
Adding credence to the potential importance of visit-ability as a market
driver for construction and remodeling businesses is the NARI study mentioned
earlier. Sixty-two percent of respondents in that survey said their remodeling
projects were spurred by the need to address lifestyle changes and family needs.
Although the survey did not cover the nature of those needs, a spokeswoman for
AARP, a nonprofit organization that advocates for seniors, says there is little
doubt age-related issues figured prominently in the survey's responses.
That represents something of a change from the traditional model of the
remodeling market, an economist with NARI points out. "Historically, things like
increasing a home's market value and adding an office for a work-at-home
situation have ranked higher as motivations for remodeling projects," he says.
"Changing lifestyles and family needs beat out both of them in the most recent
poll. Clearly, this is an issue that looks to increase in impact and importance
in the coming years."
A corollary of the red-hot housing market has been a concomitant increase in land values. In some parts of the country, exorbitant land costs have people cramming ever-larger houses onto smaller and smaller lots-a phenomenon sometimes referred to as the
"McMansion" trend.
Such an aggressive approach to land use has prompted some legislative and
regulatory bodies to enact more restrictive zoning rules, limiting the options
for some expansion-minded home owners. Where they once might have eyed a
horizontal growth plan-such as the addition of a new wing or room-they now are
looking either up to attics, or down to basements to satisfy the yen for more
living space.
That trend is creating opportunities for aspiring business owners in the
concrete and cement segment of the construction and remodeling industry.
Consumption of Portland cement is increasing at a rate of two to three percent a
year, according to Ed Sullivan, chief economist for the Portland Cement
Association, and that trend is projected to last at least through 2008. Concrete
and cement are used in both new construction and remodeling projects, and
basement remodels are particularly likely to involve some kind of masonry work.
In the new construction sector of the industry, almost one of every five new
single-family homes built in the U.S. uses cement stucco siding, according to
the National Association of Homebuilders (NAHB). Another 13 percent use fiber
cement siding, and 2 percent use manufactured stone, which is generally made
from cement.
Poured concrete driveways grace the garage fronts of 60 percent of new homes.
All told, about 19 tons of concrete and cement is used in the construction of
the average new home in the U.S. Applications include basements, crawl spaces,
foundation walls, floors, footings, slabs, above-grade walls, fireplaces,
hearths, chimneys, landscaping, paving and decorative uses.
Construction of the average new home requires about 19 tones of cement and concrete. |
Decorative and other nontraditional applications now account for some of the
most innovative uses and best business opportunities in the cement and concrete
industry. The new technologies available today allow concrete to be shaped into
virtually any form and to sport a variety of finishes, resembling everything
from polished marble to antique brass.
Reasonable financial requirements make entry into this segment of the
construction and remodeling industry viable for many would-be entrepreneurs. The
upfront capital needed to purchase a business opportunity in the cement and
concrete industry can be as little as $5,000. A variety of business types and
formats are available, such as dealerships, distributorships, manufacturing
businesses, licensing deals and franchises. Opportunities also abound in such
traditional segments of the industry as crack repair, concrete resurfacing and
waterproofing.
Baby boomers will continue to be major consumers of construction and remodeling services. They accounted for 56 percent of all remodeling expenditures in 2001, and 72 percent are now or soon will be
"empty-nesters," according to NARI. A significant portion of them-at least 15 percent, NARI estimates-plan to remodel their homes, creating
"significant business opportunities for remodeling professionals," the group predicts.
Rising demand for home organization products and services is a positive trend. |
Cocooning (a term coined to describe people's tendency to invest in making
their homes more welcoming, comforting and entertaining, especially during
periods of widespread societal angst) was first identified as an important
driver of the remodeling and construction market more than a decade ago. After
waning somewhat in the late 1990s, cocooning has remerged as significant
market-driving trend in the wake of the 9/11 terrorist attacks on the U.S.
Money that might have been spent on expensive overseas vacations and other
forms of conspicuous consumption is now likely to be earmarked for home
improvement projects instead. "During times of stress and trouble, people turn
toward the sanctuary of hearth, home and family," says Morton Gottlieb, a
psycho-social anthropologist.
"It's quite a natural reaction for people to seek the safety and security of
home, where they feel most connected to the things that are important to them,
during such periods. When it comes to feathering their nests, U.S. consumers
have very strong motivations and the financial resources to follow through on
them," he says.
A fairly recent but fast-growing trend in the construction and remodeling
industry is consumer demand for home organization products and services. Closets
and garages used to qualify as little more than afterthoughts in most remodeling
and construction projects, but a booming cottage industry has grown up in
cabinets, shelves, racks, hooks and design plans to keep those two areas
organized as neat as a pin.
While closet systems were once considered a luxury item suitable mainly for
the very high end market, organizing aids are now considered an essential
element in a growing percentage of expansion and remodeling projects, says Mike
Carson, president of the National Closet Group and chief executive officer of
Closet Works.
Carson notes that many homeowners are now including dressing room areas in
lieu of closets in their remodeling project design plans. Typical dressing room
accoutrements include drawers, benches, dressing tables, mirrors and even
televisions.
A basic organizing makeover can cost as little as $500 for a conventional
bedroom closet, but the ranks of people willing to spend $10,000, $15,000 or
even $20,000 on a fully-equipped dressing room area are on the rise, Carson
says.
The home organization market even has its own trade magazine today. Helen
Kuhl, editor-in-chief of Closets, pegs current sales of home organization
products and services at about $2 billion a year. A recent survey of suppliers
to the home organization industry by the magazine found that 90 percent of them
saw business increase in 2004, and the same percentage expect sales gains in
2005, she says.
The remodeling and construction industry has undergone some significant
changes in recent years, especially in the residential market. A notable one is
the increased emphasis on service. It's a trend that is creating many new
business opportunities, some of which may offer attractive entry points to the
industry to novice remodelers.
|
Once spurned by most remodelers, handyman businesses are
becoming more popular. |
"Many niches exist that offer ample opportunity for remodelers just entering
the market," notes Marty Collingswood, a consultant specializing in remodeling
and construction management techniques. He cites the handyman niche as a prime
example.
"Fifteen years ago, there was very little interest in the handyman concept
evident among anyone in the remodeling industry," Collingswood says. But as
houses have become more expensive and difficult to maintain, homeowners have
grown increasingly unwilling or unable to perform many required maintenance and
repair procedures themselves. They are willing to pay someone else to do the
work for them, but they demand a level of professionalism much higher than that
traditionally found in the handyman marketplace. |