Home improvement figures across Great Britain decreased in 2018 with the number of planning applications dropping by 2.8%.
What drives households to spend on home improvement will vary over time, place to place, household to household. Many factors will influence decisions. Exploring these various factors reveals how the pattern of which households are most likely to spend on home improvement is in constant flux, with change shaped by the sometimes complementary and sometimes competing forces.
Home improvement is strongly linked to the economy. Is a drop in applications in Great Britain to be expected?
The graph below shows how interest in home improvement moves closely with changing economic activity. The number of home-improvement planning applications varies across the year, but the heavier red line shows the four-quarter average number of applications, which, as we see, tracks closely with growth in the economy. The correlation becomes even stronger if we lag the home-improvement applications six months behind GDP, suggesting – perhaps unsurprisingly – that growth in the economy prompts greater interest in home improvement.
While the state of the economy is not the only driver, the evidence suggests that home improvement is sensitive to economic activity. For instance, the weakening economy in late 2011 and 2012 shows up in reduced applications for home improvement in 2012. But the impact of economic growth will not be evenly distributed between households and can alter the pattern of home improvement between differing groups across the nation. In previous reports it has been noted that economic downturns hit those reliant on income in terms of spending on home improvement more than those with wealth, while economic upturns tend to support more growth in home improvement spend among those reliant on income rather than wealth. This was evident in the South West during the recession a decade ago. As a traditional retirement destination, the South West home-improvers market was more sheltered from the recession than many other parts of Britain.
Is an improvement to a home where land values and house prices are higher more likely in Great Britain?
This graph shows the average number of home improvement applications for every 100 private homes in each of Britain’s local authorities over three years against the average house price. The correlation is very apparent and if we think about it not, surprising.
The value of a home is largely determined by the land value. So, the value of an improvement to a home where land values are higher is likely to be far greater for a given level of money spent. Furthermore, if house prices rise faster than the cost of improvement work, the financial case for improvement is increased as the increased value the improvement provides to the house will tend to be magnified. Rising house prices also provide more capital against which households might borrow to undertake larger projects. The key point, though, is that house prices in most places have a significant bearing on how much larger scale home-improvement projects are undertaken. This should not be too surprising as the higher price housing areas tend to be home to the better paid and wealthier.
Is there a link between home sales and home improvement in regions of Great Britain?
Economists who track construction generally accept that there is a link between the number of sales of private homes and the money spent on repairing or doing up homes. Certainly, this tended to hold true with sellers occasionally investing to make their home more attractive and buyers of existing homes doing them up before moving in.
This graph shows that over the last couple of years we have seen a faster rise in housing repair, maintenance and improvement activity than in residential transactions. Interestingly, in previous years we have found that in local authorities where a higher proportion of the housing stock had been sold there had been a higher proportion of home-improvement applications. However, this relationship appears to be shifting, particularly in the hotter markets and is very apparent when we compare regional data. In last year’s report we found that a closer look at the data suggested falling sales in some of the hotter housing districts, but in many cases rising home improvement. While there are multiple factors at play when we see rapid increases in house prices existing homeowners, while better off in terms of wealth, find it harder to trade up. But the cost of an improvement will have risen roughly in line with their earnings and the financial benefits of an improvement greatly increased by rising house prices in the area. This would shift the balance for householders towards improving rather than moving and weaken the relationship in the figures between moving and improving.
Is there a strong relationship between household income and the likelihood of home improvement to take place in Great Britain?
Home improvement tends to be expensive, so a strong relationship between the average earnings in an area and the level of home improvement seems natural and is supported by the data. The more disposable income households have, the more this should support home-improvement activity. So, rising real earnings, a reflection of a growing economy, should lead to more home improvement, all other things being equal. But varying incomes between households and between areas will also help to determine who is more likely to engage in home improvement and where. The Office for National Statistics family spending survey shows that over the past five years the top 20% of households on the income scale have spent about 13 times the amount on home improvements than the bottom 20% see chart below.
Are certain generations more likely to invest in home improvement within the UK?
One factor that might help tilt the more affluent and idyllic rural areas towards more home improvement is the shift of the equity-rich out of cities and into more rural environments. The average age of the population in rural areas is rising at a much faster rate than in cities, partly because of this trend, but also because younger people are increasingly moving to cities and larger towns for education and employment. What we can see from the Office for National Statistics family spending figures is that the big spenders are those between 50 and 64 – broadly speaking these are mainly Baby Boomers, born between 1946 and 1964.
But as this graph shows ten years ago it was homeowners aged between 30 and 50 that were the bigger spenders, suggesting that as the boomers have crossed age bands the balance has tipped. And a similar trend is happening in the 65-to-74 age bracket as increasing numbers of the Baby Boomers retire. Broadly speaking this generation and either side of it were those who gained most from rising house prices.
This provided them with money to invest in improving homes. And in some areas this cohort is an important element of the home-improvers market. Perhaps of some relief is that spending among the 30-to-49 cohort appears to be holding up. However, when discounted for inflation there has been a fall in real spending by this group. But for today the big spenders are most likely to be between their 50s and retirement.
Does the type of household in Great Britain determine if they are more likely to carry out home improvements?
The shape of household, or more likely the changing shape of households will impact on the propensity of families to invest in home improvement. It is generally thought that kids can act as a prompt. But, do they? A new child may well prompt a move or an improvement, but a new phrase has entered the family lexicon – the boomerang kid. That is a young adult who, after having lived independently for a time, returns to live in the parental home. The data are quite clear on this. There was an increase of 28% in the number of young adults aged between 20 and 34 living with their parents between 2007 and 2017. That’s an extra 750,000. And the share of young adults these represent has risen from 22% to 26%. Without very detailed surveying it is hard to assess the impact. Does it encourage investment in improving the family home or does it delay planned changes in the minds of the parents who had envisaged themselves as empty-nesters? There will be a mix of responses, but the surge between 2007 and 2013, which accounts for most of the rise may well have faded. Whether this is a possible explanation for the rise over the past decade in spending among families of three or more adults without kids is hard to assess. But currently that group appears to be the big spenders according to the ONS Family Spending survey, see graph below.