Scotiabank report shows renovation spending fast growing
A report from Scotiabank shows more and more Canadians are taking the renovations route when it comes to their homes.
The report, Canada’s Housing Market — Transitioning to Slower Growth shows renovation spending is a fast growing segment, which is impacted by rising home prices, tight resale market conditions, attractive financing and g o v e r n m e n t tax credits.
The reports said real renovation outlays increased over six per cent from 2000 – 2012, which doubled the three per cent average increase in new construction. This has increased the quality of the housing stock and contributed to price appreciation.
Last year residential investment, which includes new construction, renovations to existing dwellings and ownership transfer costs such as real estate commissions and appraisal fees totaled $128 billion. New construction took the lead with investment at 45 per cent, renovation spending tailed behind at 37 per cent and transfer costs were at 18 per cent.
The report said housing has been a major driver of growth over the past decade. It shows residential investment has expanded at an average 4.2 per cent annual rate from 2000 to 2012, which is close to double overall GDP growth of 2.2 per cent.
Building or renovating a house doesn’t only aid the housing market, but also a range of other goods and service industries. The report explained studies have yielded an industry output multiplier of around 1.5, which implies there is a $1 billion investment in housing which includes new construction, renovations and resale activity.
This all generates a $1.5 billion increase in real output across the economy. The report said housing assets have generated $1.7 trillion in net new wealth for Canadian households since 2000, which displays a major change from the 1990s when the housing market only generated $324 billion in household wealth creation.This could have added upwards of $6 billion annually to retail, renovation and other household spending.
Another category a strong housing market assists is the employment sector. The National H o u s e h o l d Survey in 2011 shows the residential building construction sector employed 235,000 Canadians, and 245,000 were employed in real estate.
Over the past decade, the employment growth in housing-related sectors has outperformed national hiring trends. The report expects resale activity to edge lower in 2014/2015 and rising mortgage rates, combined with high home prices and stricter mortgage regulations will strain affordability.
In Alberta, the report said it is expected to outperform national trends, with sales and construction supported by relatively firmer employment and income gains and strong population inflows.