By New data reveals a significant decline in new home building, while spending on renovations has surged over the past five years.
A Shift in Construction Spending
According to a recent report by KPMG, money is still pouring into the construction industry, but the allocation has changed dramatically. New residential construction on a per-capita basis has plummeted to levels not seen since 1987-88. Over the past five years, spending on new home building has decreased by 14% when adjusted for inflation.
In stark contrast, investment in home renovations has climbed by 6.5% during the same period. This marks a notable shift in how private individuals are choosing to invest in residential properties.
“For every nail hammered and brick laid in residential construction, 40% of it is going into renovating a pre-existing home,” said KPMG economist Terry Rawnsley.
Renovations Taking a Larger Share
Back in 2018-19, renovation spending made up 34.2% of all capital spent in the residential construction sector by private individuals. Fast forward to the 2023-24 financial year, and that figure has jumped to 40%.
This trend suggests homeowners are opting to improve existing properties rather than build new ones. The reasons could be manifold, including rising land costs, regulatory hurdles, or a desire to preserve established neighborhoods.
It’s a significant shift that could have long-term implications for the housing market and construction industry alike.
Implications for the Housing Market
The decline in new home construction might lead to tighter housing supply in the long run. Fewer new homes mean potential buyers have less inventory to choose from, which could drive up prices.
On the flip side, the boom in renovations indicates that homeowners are investing in the longevity and value of their current homes. This could lead to increased property values and a boost in the home improvement sector.
A quick look at the numbers:
- 14% decrease in spending on new home building over five years.
- 6.5% increase in renovation spending in the same period.
- 40% of all residential construction capital now goes to renovations.
These figures highlight a notable shift in investment priorities within the residential sector.
What’s Driving the Renovation Boom?
Several factors might be fueling the surge in renovation spending. Homeowners could be taking advantage of low-interest rates to finance improvements. Additionally, the rise of remote work might have people rethinking their living spaces to accommodate home offices or recreational areas.
Economic uncertainties may also play a role, with individuals choosing to upgrade their current homes instead of taking on the risks associated with building new ones.
Whatever the reasons, the trend is clear: renovations are on the rise, and new home construction is experiencing a significant downturn.