4 Essential Market Trends for the Residential Construction and Renovation Industry in 2021

4 Essential Market Trends for the Residential Construction and Renovation Industry in 2021

Shawna HendersonOctober 02, 20201 comment
This article is a summary of a session titled Essential Market Trends to Grow Your Business presented on 30 September 2020 by Sara Gutterman, Co-Founder and CEO of Green Builder Media (online and print media for new construction, retrofit, and prefab) at the EEBA 2020 Virtual Summit

Green Builder Media has developed a pay-per use data analysis tool called Cognition Smart Data that can drive more informed decisions about the market. The tool gathers advanced market intelligence and insights, with a hyper focus on the built environment and topics of sustainability. 

What's different in 2020, the first year of COVID-19, and what’s upcoming in 2021, the next year of COVID-19?

According to Gutterman, there’s some good news and some not so good news:

  1. The housing market is strong but consumer confidence is shaky

  2. There’s a shift in demands for housing types and floor plans because of who’s buying and where

  3. Top Trends: Health and Wellness + Indoor Air Quality

  4. Builders and contractors will inevitably be faced with delays and limitations

ECONOMIC OUTLOOK AND IMPACT OF COVID

It’s no surprise that consumer confidence is shaky. COVID-19 is going to have an impact on lives for a long time to come, before and after a vaccine.

There have been radical changes to how people spend their money. COVID-19 shutdowns led to decreased discretionary spending for restaurants, travel, recreation, apparel, personal care, gasoline, and vehicles, and more spending on groceries, remodeling, household supplies, and home entertainment.

In general, people are still staying at home, erring on the side of caution, and limiting their amount of engagement. This is proven out by a shift to enhanced digitization, whether voluntary (erring on the side of caution) or because of public health requirements. A majority of consumers remain online for shopping, work, school, and are using telemedicine, along with home health care, and home fitness services.

GOOD NEWS FOR THOSE WHO ARE IN A POSITION TO BUY A HOME

Existing and new home sales hitting record highs. Housing is the bright spot in both US and Canadian economies. Growth can be attributed to low interest rates, solid demand in the market, and a housing inventory shortage. People in general are not investing in travel or recreation, but in their homes, whether it’s moving, building, or remodelling. 

However, there are limiting factors to this growth, mainly around costs and material availability. In the US, according to Gutterman’s data, rising lumber prices are resulting in an average of $16,000 additional cost. Markets are experiencing, or anticipating, significant supply chain shortages. Labour shortages are another limiting factor, however, our industry is seeing labour coming over from other sectors that are suffering.

Right now, according to Green Home Media’s data, in the US, it’s cheaper to own than to rent. This is due to low interest rates and high rental rates. Gutterman showed that across the US, the median rental cost is $1657. At sub-3% interest, a monthly payment on the average mortgage of $211,000 is about $300 lower.

So while consumer confidence is shaky, opportunistic buyers w/income or savings can take advantage of low interest rates.

Another shift is where people are buying. There is a distinct move from high-ticket, high density metro markets to secondary and tertiary markets with lower priced homes. That being said, it is definitely a seller’s market: inventory is so tight in some 2nd and 3rd markets that buyers are faced with competing offers and overbidding for single family homes. This is also reflected in data from Canada.

This shift to the suburbs and rural areas can be attributed to the following factors:

  • Increasingly common household formation is Millennials and older Zoomers

  • Declining vacancy rates

  • Increased development of accessory dwelling units (ADUs)

  • Rise in share of young adults living with their parents

  • Surge in unemployment

Interestingly, it’s Millennials and the older cadre of Gen Z who are driving the buying and DIY markets. According to Gutterman, they are deploying more funds into the market than any other age group. However, Boomers are still the most affluent generation, packing a punch with sheer numbers and purchasing power. Their focus is on aging in place investments. 

Gen X remains on the sidelines for both build and renos. Gutterman notes that a large chunk of Gen X never recovered from the economic downturn - they are denied mortgages more than any other generation due to low credit scores and high debt to income ratios from the 2008 recession. 

NEW SET OF DEMANDS FOR HOUSING AND FLOOR PLANS

The data shows that there is a slight increase in home size to accommodate a growing demand for home offices, gyms, and living space. Telecommuting, or working from home (WFH), is going to continue to be a game changer. A Green Media survey showed that 3 out of 4 respondents indicate they want to go back to office 1-2 days/week.

I am very happy to report that the homebuying market is skewing female. Gutterman noted that the Millennial market is 73% dual income/couples, 8% single men, and 20% single women. Single women are more likely to purchase condos and apartments vs houses.

Millennials are strong in home buying and renovations. This segment of the buying market is often college educated and, as noted above, moving away from density.

However, they view their housing purchase through a different lens than past generations. Millennials are looking for more compact and efficient spaces. They are digital natives with new families who are steeped in issues of sustainability, they have lived with climate change concerns all their lives. Smart homes and solar grid connect PV are bragging rights. Many have worked remotely for years, second nature to work from home.

How they buy:

  • At home online 3d home tours (up to 25% buying sight unseen)

  • Dreaming of autonomy - looking for work-life balance not location location location focus on community amenities, access to trails and recreation

  • Millennials value relationships and purpose over paycheque

TOP TRENDS: HEALTH AND WELLNESS + INDOOR AIR QUALITY

There’s no surprise, given COVID-19, that the top trends include indoor air quality. 

Net Zero is here, even without tiered codes. There are significant innovations coming on in PV, hot water heat pumps, heat pumps, induction cooktops, smart controls, high performance windows and systems, offsite and prefab construction, as  well as accommodations for electric vehicle to grid (V2G)

I appreciated that Gutterman moved into the bigger picture to round out her analysis of the industry with some points about climate change and global risk.

The number one risk: lack of water. Data shows that people are more concerned about access to clean water than food crises, climate change mitigation. Gutterman cites this as the number one factor in growth inhibition.

After discussing all the tracking and data analysis, she finished by discussing the implications of what we can’t track, namely: how quickly is climate change accelerating? 

Forecasts that were made for 20-30 years out are happening NOW. 

IT’S NOT CLIMATE CHANGE: ‘IF...WHEN’, IT’S CLIMATE CHANGE: ‘YES...NOW’.

There are questions that have to be asked that impact the whole of the building industry: 

What about the threat multiplier from extreme weather events and changing climates? 

Where is it OK to rebuild? 

How many times do we build? 

Which communities need to be abandoned for the sake of the community members?

How long will this bright spot remain? 

How can we do better? 

How can we build back more responsibly?

How can we anticipate the change that we cannot track?

COVID-19 IMPACT ON BUILDERS AND CONTRACTORS

Some of the top level impacts facing builders and contractors that Gutterman outlined:

  • Difficulty accessing PPE

  • Delays in projects due to long processing times for permits and inspections

  • Delays due to back ordered materials and equipment 

  • Delays due to longer delivery times even when material and equipment is in stock

  • Credit tightening issues

  • Enhanced requirements for workplace safety measures/jobsite safety plans

  • Limits on numbers of workers allowed on job sites

Gutterman pointed out that the data from September showed growing anxiety in the US (less so in Europe and China) over impending material shortages. She flagged that manufacturers and distributors who have available product should be talking about that now!

Her advice to builders and contractors: plan ahead: Q1/Q2 2021 might see wider spread shortages of HVAC equipment and appliances due to high demand. 

INNOVATIVE DISRUPTION: NOW IS THE TIME FOR CHANGE

Gutterman ended the presentation by observing that there is tremendous opportunity to participate in the evolution of the industry - especially as the potential client will be expecting, perhaps demanding, change. If nothing, COVID-19 has (re)taught us a valuable lesson: the quality of your home contributes to quality of life. 

Due to its nature, construction is small ‘c’ conservative, it is not innately innovative. Case in point: the building industry is 2nd to last in industry categories that have adopted advanced technologies to improve efficiency and effectiveness. Which industry category is last when it comes to digitization? Hunting and fishing.

Millennial buyers are more selective and demand solutions that will serve household needs better. With this in mind, think of what enhanced digitization of the building industry could bring to your bottom line - from sales to permitting and inspections. There’s unlimited potential for change. There’s not unlimited time to think about change. It’s yes, now. 

I’ll leave the last word to Gutterman: 

“BUILDING PROFESSIONALS AND MANUFACTURERS HAVE A STANDOUT OPPORTUNITY TO BE CHANGE AGENTS AND MAKE A POSITIVE CONTRIBUTION TO IMPROVING THE INDUSTRY.”

Comments (1)

Best Access Doors on March 11, 2022

Everything from sales and permits to inspections might benefit from improved digitization in the construction business. Thank you so much for sharing this!

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