Well-to-do driving remodel behavior

Homeowners spent a new high of $138.1 billion on home improvement in 2003, an increase driven by affluent consumers, according to a new study by Harvard University's Joint Center for Housing Studies.

Spending was up 6 percent from 2001, the last time the center examined the home-improvement market.

"What amazes me is what people have to have these days," said Finley Perry, president of F.H. Perry Builder Inc. in Hopkinton and president-elect of the Home Builders Association of Massachusetts. "Now it seems that almost every bedroom has to have its own bathroom. And kitchens need stone countertops. Formica doesn't happen anymore."

By one measure, homeowners in Generation X (people born between 1964 and 1975) rivaled baby boomers in home-improvement spending; average spending per household by homeowners in both groups was $2,200 in 2003, the study found.

Some people remodel because they're happy where they are. In 1999, attorney Margaret Franklin and her husband, Paul Devlin, a consultant, bought a small Cape in Carlisle for $375,000. They like the home's classic design, its sunny location, and that it's within walking distance of school.

"We didn't want a builder's Colonial," said Franklin, 42, a mother of two daughters.

Not interested in moving elsewhere, the couple is undertaking a major home expansion.

According to builders and contractors, many home improvement projects have been fueled by home equity loans and mortgage refinancings, which allow consumers to take advantage of sharply rising home values.

At Feinmann Remodeling in Arlington, the firm renovating Franklin's home, president Peter Feinmann wonders if the present pace of home improvement can continue. The trend is driven by the large baby boomer demographic. As boomers get older, they may do less remodeling, he said. But baby boomers adding a bedroom for an elderly parent may also keep them in the market.

"Three people talked to me about that in the last week," Feinmann said.

Because income growth has stagnated for low- and middle-income consumers, home improvement is becoming more of a pursuit of the affluent, said Kermit Baker, a senior research fellow who directed Harvard's remodeling study. In 2003, homeowners with incomes over $120,000 spent more than $43 billion on remodeling, accounting for 31 percent of total spending.

"The story now is income disparity," said Baker. "Most income growth is coming at the high end."

Given all of the remodeling by affluent consumers, one might conclude that contractors are enjoying a boom, but that isn't necessarily the case in Greater Boston, said Perry, the Hopkinton builder. A slow commercial real estate market has contractors that once specialized in that field now looking to compete with home builders for residential renovations.

Renovations are especially popular in Greater Boston, Perry added, partly because it's often easier to buy and remodel an old home than to find vacant land to build a new one.

Some other findings of the Harvard report:

Between 1995 and 2003, Generation X homeowners nearly tripled to 12.4 million. They spent $28 billion on home improvements in 2003. But the large baby boomer generation is still responsible for more than half of all home-improvement spending.

With Hispanics leading the way, minority homeowners accounted for nearly 15 percent of home-improvement spending.

When expenditures by rental property owners was included, $233 billion was spent in 2003 on home improvement and maintenance.

Consolidation continues within the home builder and product distribution sectors, leaving the highly fragmented contractor remodeling industry with fewer supply options.

According to the study, a sharp drop in home sales and a departure by baby boomers from the home-improvement market are potential risks to the market's continued expansion.

But Nicolas Retsinas, the director of Harvard's Joint Center for Housing Studies, predicted steady growth for the remodeling sector.

"Continued growth in home ownership, along with record levels of income and wealth, make it much more likely the remodeling sector will be able to sustain three-percent annual real growth over the next decade," he said in a statement.

Chris Reidy can be reached at reidy@globe.com.