While the number of dwellings and the age of kitchens and bathrooms is indicative of the size of the market, other factors influence the level of renovations activity each year. In previous housing cycles demand for renovations generally moved in sync with demand for new homes.
Something is different this time around.
The level of investment in new homes has increased by more than 40 per cent since 2013, whereas investment in renovations has increased by only 7.4 per cent. This divergence between the renovations and home building markets is not due to any deficiency in the renovations market.
A unique combination of factors has delivered the exceptional boost to the new home building figures. This includes the concerted effort of state governments to deliver more housing to meet the needs of a growing population, more apartments in existing urban areas and unprecedented demand from domestic and overseas investors.
The majority of dwellings are owner-occupied and much of the remaining housing stock consists of homes owned by the household sector and supplying the private rental market. The factors that have boosted the new home market only have a peripheral impact on a household’s willingness to undertake a home renovation.
The condition of a household’s balance sheet (now and the expectation for the future) is the biggest factor influencing decisions relating to home renovations. When households feel confident in the prospect of real growth in household income or a rise in real household wealth they are likely to be more inclined to spend on things that improve their standard of living, such as home renovations.