Home renovation pros expecting strong 2016 growth

Home renovation pros expecting strong 2016 growth

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Home renovation professionals are expecting continued growth in 2016 due to increased existing home sales, but are coming under pressure due to rising costs, labor constraints and consumer expectations.

Houzz Inc., an online platform for home remodeling and design, released the 2016 Houzz State of the Industry with an overview of 2015 and an outlook for 2016 for residential renovation and design businesses based on data reported by more than 3,500 professionals in the Houzz community.

The vast majority of residential businesses are bullish on 2016, expecting both revenue and profit growth to continue this year.

Home renovation and design businesses on Houzz anticipate more widespread revenue and profit growth in 2016 than they experienced in 2015, according to the findings of the 2016 Houzz State of the Industry.

Half or more of businesses surveyed expect revenue growth rates of 10 percent or more (48-59 percent of businesses, depending on industry sector), with over one-fifth expecting annual rates of 15 percent or more (22-35 percent of businesses). This is roughly in line with the growth experienced in 2015 by all industry groups with the exception of architects, who expect more conservative growth rates in 2016 relative to 2015. In order to sustain this substantial growth in 2016, half or more firms plan to further invest in marketing (50-70 percent of firms across industry groups). Over a third plan to bring in larger budget projects (39-54 percent of firms), increase their prices (37-49 percent of firms) and/or improve customer experience (35-47 percent of firms).

“All of our Houzz industry research to-date points to an exceptional two-year run for the home renovation and design industry, leading to a healthy market in 2016,” said Nino Sitchinava, principal economist at Houzz. “2016 should bring more moderate but steady growth, driven by solid consumer demand but hampered by labor shortages. We expect to see businesses increasing their fees to offset rising labor costs and years of low margins, as well as focusing efforts on big-ticket projects while expanding their staff.”

2015 was a year of revenue growth for nearly three-quarters (67-76 percent) of residential renovation and design companies on Houzz, mirroring 2014 rates. Revenue growth rates were more moderate in 2015 than in 2014, however 30-37 percent of businesses reported high double-digit revenue growth (more than 15 percent) in 2015, compared to 34-45 percent or more in 2014.

Similarly, while over half of firms experienced an increase in profits in 2015 relative to 2014, the proportion of companies that experienced this growth is approximately 5 percentage points lower than in 2014 across nearly all professional sectors. Additionally, there is a gap of 7-14 percentage points between the proportion of firms reporting revenue growth and those reporting profit growth in 2015 for nearly all industry groups. Not coincidently, over half of the firms in each category reported that the cost of doing business increased in 2015, with those in the construction sector reporting the most widespread cost increases (76 percent among general contractors, 74 percent among building and renovation specialty companies, and 70 percent among design-build firms).

Despite overall industry growth in 2015 and positive expectations for 2016, residential renovation and design businesses cite the following challenges:

Managing Consumer Concerns and Expectations: Tackling the cost-related worries of consumers (31-45 percent) and finding common ground between consumer expectations and their budgets (21-39 percent) were top challenges for businesses in 2015.

Rising Business Costs: The increasing cost of doing business was also a top challenge across most industry groups (19-37 percent). Rising employee wages and/or benefits is one of the top drivers behind these swelling costs (36-63 percent). Other commonly cited cost drivers include advertising/marketing investment, product and material prices, business insurance fees, and subcontractor wages and fees.

Staffing Shortages: Consistent with other Houzz industry research, employee and/or subcontractor shortages are other top concerns for most industry groups heading into 2016 (13-37 percent). Firms were just as likely to expand their staff in 2015 as they did in 2014. In 2016, hiring is expected to continue at similar rates, with design-build and building and renovation specialty firms especially bullish.

Read more about green home remodeling.

Topics: Appliances, Bathroom, Interior Design, Kitchen, Maintenance & Repair, Remodeling

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