By M. Power |
Are you thinking about refocusing your marketing energy, your manpower, and your time on green remodeling as a safe haven in these tough times? You’re not alone. But here’s what you should know before (and after) you take the leap.
A lot of research has been done in the last 20 years about what happens to the remodeling industry during a deep recession—much of it by the Joint Center for Housing Studies of Harvard University (JCHS).
The record shows that residential remodeling suffers less than new home building during bad economic times. But it still suffers. And here’s a sobering reality: Small remodeling firms—in both good and bad times—have an average survival rate comparable to the typical desktop computer—about five years. Firms that beat the odds traditionally have larger operations, a longer track record, and a good economy to buffer the hard times.
But maybe that’s changing. Now that sustainability is center stage, some (but not all) of today’s green remodelers find themselves in the cat-bird seat. The firms that seem to be doing best have had good timing, the right geographic area, and a bit of luck. They carved out a green niche for themselves early—before the worst of the economic dominoes began to fall.
For example, Steve Shinn, owner of Homework Remodels in Phoenix, has watched many home builders go belly up in his area—at the same time his green-oriented remodeling business is thriving. “We’re four years old,” he says, “and we’ve been really on purpose with what we’re doing. A lot of the companies hurting now benefited from the boom, but they got their increase in business without having to do anything to promote it. I’m not saying they’re not good companies, but they got too comfortable.”
Shinn adds that many home builders in the Phoenix area now advertise green remodeling, but they’re finding the transition tougher than they expected.
“It’s a whole different world from doing a row of houses on an empty site,” Shinn explains. “A builder might quote someone a job and say it will cost X dollars per square foot. But they’re not looking at the real costs—the destruction of the existing structure for example, may be half the cost of the job.”
Who’s Out There?
The 2002 U.S. census listed about 500,000 “home improvement” firms. Of those, about 60% were composed of a single individual. But as the Joint Center points out, while the smallest firms are the ones most likely to fail in a given year (22% of firms with payrolls of $30,000 or less go under each year), both small and large have been slammed by the downturn.
As researchers at the Joint Center explain, “Faced with economic recession and increased competition, even large contracting firms are likely to fail. In 2007, 47% of remodeling contractors that had revenues of $1–$5 million reported revenue declines, up from 31% in 2003. Meanwhile, 33% of firms with revenues above $5 million also posted declines in 2007, up from 23% in 2003.”
The remodeling market tends to parallel the boom and bust of new home construction. When things turn sour, however, shocks to remodeling tend to be less severe. Existing home sales also impact remodeling directly. About 25% of all cosmetic work is triggered by new owners who want to change their digs right after purchase.
Plunging home values have flattened the equity capital available to the middle class. Throw in the banks that have stopped making loans, and you see why many homeowners have put their remodeling plans on hold.
But the loss of home values cuts even deeper. Homeowners know that the remodel they do now may not hold its value like the one they did five years ago. Back then, they might get an 87% return on resale. Now they would get just 67%, according to estimates by the National Association of Realtors.
Back to Maintenance?
Is any place safe for remodelers and would-be remodelers who are just trying to ride out this recession? If you crunch the numbers from past downturns, the only types of construction work to remain relatively stable have been maintenance and repair. But that kind of work is not always a welcome shift, especially for design-oriented contractors.
“I’d do it as a last resort,” notes Grant Manka, a design/build remodeler in Kansas City, Kan., “but it’s not very much fun. There’s no creativity involved, but if it’s that or nothing, you do it.”
But is green remodeling a second alternative in these tough times?
We asked Kevin Park, a researcher at the Joint Center his view. He’s been studying whether contractors can (and will) make a go of green-focused remodeling.
“We did one survey, and the results were intriguing,” he says. “What we found is that smaller companies seem to see green as a workable alternative, more so than large companies. We just sent out another survey to find out if they’re really following through on green products and projects—but unfortunately we don’t have that data yet.”
For some remodelers, however, there’s no gray area about where the industry is headed. Even in hard-hit New England, an area Park describes as “just dead in terms of green remodeling,” some remodelers are looking to the future, laying the groundwork for what they expect will be a green building boom as the economy rebounds.
A New Way
Tom Wells, a contractor from Yardley, Pa., is what you might call a green gambler. Faced with a dire economy in his region, he has single-mindedly focused his remodeling business on sustainability. He takes his knowledge on the road, offering seminars to local churches, real estate offices—anyone who will listen. And Wells has plenty of time on his hands. In November, he lost $300,000 in contracts due to his clients’ economic fears. But he’s using his time to craft a well-rounded message.
“I don’t talk about green,” Wells says. “I talk about sustainability—acting in a way that won’t be detrimental to future generations. I think everybody knows oil is going to rise again. Our utility rates are about to get deregulated. People are aware of global warming and don’t know how they can have an impact.”
Wells is doing everything right. He has teamed with an energy auditor to offer infrared inspections of the homes of potential clients. He writes a green article for the local newspaper. He went through NARI’s green certification program to build his credibility.
Wells says building a reputation for green remodeling isn’t easy, thanks to the lack of licensing requirements. Out-of-work, unqualified “handymen” are leaving a trail of poor workmanship behind.
Should remodelers embrace green? Are the potential rewards worth the risk?
Sarah Susanka, author of The Not So Big House, and more recently, Not So Big Remodeling, says remodelers would be foolhardy not to get into green renovation. She believes that when the downturn ends, we’ll be looking at a green boom time.
“I went to the last IBS show in Vegas, and everywhere I went there was a lot of talk about remodeling. Those companies that keep methodically moving along the sustainable lines are going to do extremely well. I wouldn’t pull back now. No way. Everything green is moving forward.”