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Construction Trade Forecast: Remodeling

Business prospects look positive for the home remodeling industry in 2017, but some established remodelers think the growth will require well-thought-out adjustments to continually emerging technological and demographic changes next year and beyond.

The contractors we spoke to view their 2017 business prospects with optimism.

“Economically, things continue to recover from 2008 and consumer sentiment plays a big role in that,” says Scott Mosby, president of full-service remodeling company Mosby Building Arts in St. Louis, which provides design-build services on about half of its projects. “We’ve experienced 10 percent growth every year since 2010 and anticipate the same for next year.”

Andy Lindus, chief operating officer at Baldwin, Wisconsin-based Lindus Construction, which provides complete interior and exterior remodeling services in Minnesota’s Twin Cities and seven central U.S. states overall, projects a 20 percent increase from 2016, up about eight percentage points. “In a lot of our markets, we see real estate prices going up and it seems that a lot of people are willing to spend,” Lindus says.

With remodeling activity in the Midwest tending to lag the rest of the nation by six to nine months, 2017 should be a little better than 2016, according to Michael Menn, president and architect at Michael Menn Ltd., Northbrook, Illinois, and member of the Home Builders Association of Greater Chicago and NAHB Remodelers. Menn’s company offers full-service remodeling, including whole-house renovations in the Chicago area; about 60 percent of its business is exterior work. The company also provides architectural services in 45 states. The increase in sales can be attributed to higher labor prices, slightly higher building material prices and the firm’s reputation for quality work, Menn says.

Jay Cipriani, president of Cipriani Remodeling Solutions, Woodbury, New Jersey, projects similar business growth. Cipriani, whose full-service, design-build company provides services from kitchen and bath remodels to whole-house remodels, basements, dormers and exterior renovations in the South Jersey area and New Castle County, Delaware, expects a 10 percent increase in business in 2017. He has noticed a return of large projects. The average project in 2015 was $50,000 and the average increased to around $65,000 in 2016. Cipriani hopes to increase the average project price to $75,000 in 2017. “We expect to see growth in housing and that will be positive for us,” he says.

Labor shortages still the No. 1 industry challenge

The contractors agreed that a shortage of qualified tradespeople is their top industry concern. “Hiring installation technicians is going to be the biggest challenge in our industry for the next 20 years,” Lindus says. “Until we can convince our youth that four-year degrees aren’t always the best option, we’re going to continue to have this challenge.”

Lindus Construction is taking a proactive approach, working with local school districts and vocational schools to offer youth and adult apprenticeship programs led by a head trainer with a master’s degree in education. “I think we can show people a really good roadmap where they can make anywhere from $40,000 to $80,000 a year through this apprenticeship program,” Lindus says. “The part a lot of people don’t like is wearing a tool belt and working outside for an extended amount of time.”

Mosby points out that most of his carpenters are partially or fully college-educated, although a four-year degree is not always necessary. “It’s not an unthinking man’s trade—you’re talking about a lot of geometry, a lot of math to get layouts and dimensions right.”

Menn reports that some projects that are scheduled for four months take five months to complete because with the shortage of labor.

Little or no impact expected from U.S. policies

Mosby says his company continues to feel impacts from the 2008 financial crisis, namely tighter lending standards that limit potential customers’ ability to obtain loans for remodeling work. Mosby often sees highly compensated spouses with sizeable student loan debt who want to remodel a modest house in a modest neighborhood and then sell it in a few years. In many of these neighborhoods, foreclosures have lowered median property values and the remodeled home would not appraise at a price that would allow the couple to qualify for conventional financing and deduct mortgage interest.

Contractors are also confident that, should proposed overtime rules that raise the salary limit for eligible employees above the current $23,660 level pass, it would have little or no impact on their businesses. Mosby says that a few of his highly skilled tradespeople have been rewarded with salaries and they might be impacted by higher limits; Lindus would feel a similarly negligible impact. For small builders and remodelers like Menn, “I doubt there will be much impact, but for large builder-remodelers, it might have a big impact,” Menn adds.

Demographics, technology drive growth strategies

Baby Boomers are still a driving force for the remodeling industry, but Millennials are a growing market force and engaging with both demographics requires different skillsets. “You’re going to see a big trend in aging-in-place remodeling,” says Menn, an NAHB Certified Aging-in-Place Specialist. “Some Baby Boomers want to live in their homes longer and I think the trend is going to last for at least another 10 years.”

Menn engages Millennials online utilizing social media. “The only printed collateral I have is business cards,” he says. Cipriani generates sales leads with tactics such as hosting design seminars, setting up a booth at home shows, internet marketing and past client outreaches. Mosby agrees that former customers are a great source of leads. “Our marketing must be able to farm our own data from previous jobs to find out if customers might want to do a kitchen eventually and then we need to drip-touch them. Data mining and data proactivity are where marketing is going.”

Lindus Construction recently implemented a customer relationship management (CRM) system based on the Salesforce platform. The company uses its CRM to communicate with customers, fill the schedule and communicate with employees. The CRM has solved scheduling problems, which should lead to more referrals that are easy to sell, Lindus says. Lindus sees smart home technologies as such a major future growth area that a new company division will focus on equipping retrofitted homes with Internet of Things technologies for greater livability, security and energy efficiency. “Millennials will have good buying power over the next 15 years and smart homes are something they’ll be very interested in,” he says. “They want to be connected to their homes from their phones or whatever device they’re using.”

Similarly, Cipriani Remodeling Solutions is installing many products that customers can control with their smartphones, including security cameras, lighting, entry locks, garage door openers and thermostats.

For marketing, Lindus Construction invests in television commercials and its website. Online marketing now accounts for more than half of the company’s marketing budget, compared with 5–10 percent a decade ago. A unique Lindus Construction initiative is employing a reputation management specialist who follows up with every customer ensuring they are satisfied with the company’s work and encourages online reviews.

Better efficiency through technology

Technology isn’t just for marketing or clients, contractors are using it to improve their own operational efficiency, too.

Menn’s company recently started using cloud-based Buildertrend project management software that is equipped with a customer management module, among others. “Our clients have transparency, everything from the daily schedule to change orders,” Menn says.

Mosby reports that his company developed its own CRM system about 10 years ago. His tradespeople complete digital timesheets on company-issued smartphones. The technology frees up more of their time for “actually building stuff” and his company also accesses the data to analyze job costs in real time. Mosby Building Arts also stores project information and architectural drawings on SharePoint so that tradespeople can access them from anywhere. Lindus Construction plans to implement a FinancialForce back-office system in January 2017.

Lindus says that this tool will allow leadership to optimize project pricing and material usage.

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