INTRODUCTION

In the early 1990s, the total residential remodeling, renovation and rehab industry has been above $100 billion a year for several years, and the projections are that it will grow at a rate of 5-10% a year. This is down from the 10-15% rate in the 1980s, but changes in the demographics of the population indicate the slower growth rate.

Even so, this is the fastest growing segment of the entire building industry, and is expected to reach a total of $200 billion a year by the turn of the century. Of that amount (and this is very important to the position of this book), over 80% is professionally installed while the balance is do-it-yourself. In the 1990s, all of the growth in the market has been in the professionally installed segment, and the do-it-yourself percentage has decrease ---- in the residential end of the business.

In the commercial, institutional, and industrial segment of remodeling and renovation, the market has been approximately 10% less than the residential end ($90-100 billion at the start of the decade). It too will likely grow at a rate of 5-10% through the 1990s, and will approach the $175-200 billion mark by the year 2000. Thus, when we add the two together, the market in the early 1990s is in the neighborhood of $200 billion and will be close to the $400 billion mark within the next few years.

The 1980s was said to be the era of rehabilitation and it turned out to be just that. And the 1990s will be the decade when remodeling and repair is recognized as the major segment in the building industry that it is.

When people ask why remodeling is growing, the answer is very basic arithmetic. There are now in the United States over 100 million housing units, and of that number 70 million are at least 15 years old. Everyone who knows construction recognizes that houses, if they are structurally sound, tend to last forever, but their integral parts wear out on a predictable basis. Roofs wear out in a 15-20 year cycle, kitchens and baths become outmoded in about that same time frame, major equipment such as hot water heaters and furnaces wear out on a predictable cycle, and every house needs constant upkeep and maintenance. So, as we add one million new units each year at a minimum, and the existing housing stock gets one year older, there has to be an increasing market for remodeling and renovation.

In the commercial, institutional, and industrial segment there are in this country just under 5 million buildings. Of that number, 60% are over 20 years old, and some 750,000 are at least 60 years old. All real estate and buildings need constant upkeep and maintenance, and thus the market for remodeling, but even more, the market for repair and maintenance.

Consider these statistical factors regarding the specific area of repair and maintenance.

1. Government surveys of remodeling and renovation show that repair and maintenance is running between 42-45% of the total market. This means that of the approximately $100 billion market, there is $42-45 billion spent on handyman types of services.

2. In these surveys, 17% of the market is in major replacement, primarily hot water heaters, furnaces, roofs, and other major items. Until recently window and door replacement was not included in this major replacement category, so it is probably understated. The $8-10 billion replacement window market and the $1-2 billion replacement door market suggest the understatement may be as much as $10 billion.

This type of work can in part be handled by the repair and maintenance (handyman) segment of the industry. So the total potential for the repair and maintenance market in the residential sector is $60-70 billion in the early 1990s.

3. Over 30% of the residential, remodeling, and repair market is rental property ---- 65 million of the 100 million single family housing units. In multi-family dwellings, almost all of the work done is in repair and maintenance.

4. In the commercial, institutional, and industrial segment, there is a need for repair and maintenance on a regular basis. Additionally, projections show that in the 1990s there will be twice as much retail space available as is needed for the market. What this means to remodeling and repair is that the number of new shopping centers built will be drastically reduced and the existing space will require repair and maintenance as well as considerable remodeling.

5. Most studies show that real estate values, with some regional variance, will probably not increase much beyond the rate of inflation. The reasons for this are fourfold:

There will be no tremendous push for new homes for the baby boomers. The 76 million people born between 1946-1964 are now 27-45 years old and most have purchased their first house. Thus, there is no tremendous demand for new homes.

The savings and loan debacle has had a tremendous effect on the real estate industry. The recession of the early 1990s is being called a real estate recession unlike the past inventory recessions.

In many parts of the country, particularly the northeast and California, house prices have risen much faster than salaries. In southern California, the median price of a house was $220,000 and the median income was less than $35,000. By contrast, in Houston the median house price was $69,000 and the median income approached $40,000.

All this means that people are much more cost/value oriented as they view remodeling work to be done. When a homeowner's house is going up in value 15-20% a year, and they plan to do a remodeling project, they often will bring the contractor in and tell them to just do it. They will not really care how much it costs. They made $50,000 on their house last year. So there was no emphasis on the cost to value relationship.

When the value of your house is static, deflating, or going up only at the rate of inflation, then more attention is given to whether the remodeling project will offer a pay back if the house needs to be sold within the next 3 years.

Most importantly, it means that more attention is going to be given to taking care of an existing house to make sure it does not deteriorate in value and that it stands the chances of being sold as a mint condition house rather than one that shows deferred maintenance.