Home Sweet Home

Jan. 25, 2011
Remodeling work may breathe new life into struggling residential sector

There’s no doubt the crash in the residential sector a few years back placed a black cloud over the entire construction industry. But as bad as it appeared to be in its initial stages, most of the construction economists and research groups we regularly keep tabs on remained optimistic that a fairly quick recovery was just around the corner. Unfortunately, years later, we’re still waiting for the rapid rebound to take place. Will this finally be the year that puts a smile back on the faces of the residential electrical contractors, or will they once again struggle to survive?

McGraw-Hill Construction is forecasting a 25% increase in the number of new single-family housing starts this year. In addition, they’re projecting a 23% rise in multi-family units. The National Association of Home Builders forecasts total housing starts will increase approximately 33% this year — 37% on the residential side and 19% for multi-family. FMI Corp. is also bullish on the housing market, but is split on the two sectors — forecasting a 20% dollar increase in single-family construction put-in-place figures and an 8% decline in the multi-family sector. However, a key factor to keep in mind when reviewing these forecasts is that, even if these projections come true, the total number of single-family units built, or planned to be built, is roughly a third of the number of units that were constructed at the peak of the market back in 2005. In other words, we’ve got a long way to go to get back to where we once were.

So what’s a residential electrical contractor to do if the new construction market remains depressed? How about focusing on service work and the remodeling sector to tide you over? I know the mortgage crisis and the poor economy has hurt the remodeling sector in recent years, but there are opportunities out there. For example, the burgeoning foreclosure crisis has created a ton of distressed properties that need upgrade work. The strength of the rental market of late is also forcing rental property owners to upgrade their buildings after years of underinvestment. There are also a good number of middle-aged single-family homeowners today that are dealing with expanding households — college graduates who can’t find employment returning home, and aging parents who need care are expanding the household. In addition, reduced home values are forcing many current homeowners to stay put instead of “upsizing” to a larger property. Rather than move, these homeowners will instead choose to upgrade their existing homes.

What’s the growth projection and outlook for the remodeling market sector? As noted in the Joint Center for Housing Studies of Harvard University report released this month, real spending on homeowner improvements is expected to grow 3.5% annually on average. The focus of remodeling spending in the next five years will shift from upper-end discretionary projects to replacements and systems upgrades. As home energy costs continue to rise and environmental sustainability grows, so too will spending on green energy projects. So as the lack of new construction — especially in the residential market — continues to put a strain on the entire building industry, why not look to the service and remodeling sector for some relief? Because they already have the technical skill set in place, it makes sense to me for these electrical professionals to try and capture a little piece of this almost $300-billion market segment.

About the Author

Michael Eby

Mike received a B.S. degree in electrical engineering in 1986 and an M.S. degree in engineering management in 1994 from the University of South Florida. He is currently a member of the National Fire Protection Association (NFPA), Institute of Electrical and Electronics Engineers (IEEE), Association of Energy Engineers (AEE), and American Society of Heating, Refrigeration and Air-Conditioning Engineers (ASHRAE).

Prior to joining EC&M as Editor-in-Chief in September 1999, Mike served as the Executive Editor of Transmission & Distribution World magazine for five years. He currently serves as the Senior Director of Content - Buildings Group in the Infrastructure & Intelligence Division at Informa. Before joining Informa, Mike held various engineering titles within the Substation and Transmission Engineering Groups at Florida Power & Light Co., Juno Beach, FL.

Mike was awarded the Southeastern Electric Exchange (SEE) Excellence in Engineering Award in 1993 and has received numerous regional and national editorial awards for his reporting and writing work in the electrical market.

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