Homeowners in Ontario are set to increase their renovation spending, according to the latest Housing Market Insight from Canada Mortgage and Housing Corporation (CMHC).
Current estimates find that the average homeowner equity in Ontario has grown by 14 per cent since 2012. Most of this growth is concentrated among older households. When rising prices boost home equity, households feel wealthier, inspiring them to invest in their homes.
Home renovations in Ontario make up a growing share of the province’s economy. The renovation market has nearly doubled in size over the past 16 years and is poised to reach nearly four per cent of GDP in the years ahead. The bulk of this spending is on higher-end home upgrades.
“Although the average growth rate of home renovations is not likely to match that of the last couple of decades, the province is still set to see an increase,” said Ted Tsiakopoulos, CMHC’s regional economist for Ontario, in a press release. “Ontarians are aging, the housing stock is aging, home prices are on the rise and more homebuyers are turning to the resale market – all of these factors support renovation spending.”
Historically, the renovation market has been driven by home resale activity. In fact, CMHC data indicates that Ontario households usually undertake renovation work within one year of an existing home purchase. Roughly 75 per cent of spending involves projects that add value to a home. As resale activity reached record levels in 2015 and early 2016, this suggests renovation spending is poised for additional growth. In 2015 alone, Ontario’s renovation market was estimated to be worth about $25 billion.
Some of these renovations and upgrades are necessary, since according to the 2011 census, 57 per cent of the entire housing stock was built before 1980, and about 85 per cent of the apartment rentals in the province were built prior to 1980. Not surprisingly, as more stock has sprung up for both new ownership and rental units, existing homeowners and landlords have completed more renovation work in order to sell or rent existing space.
Since more purpose-built and condominium rental units were completed in 2014 and 2015, industry contacts suggest landlords have invested more money in their units in an effort to remain competitive. Ontario landlords are able to pass on increases in rent exceeding guideline amounts when capital improvements and upgrades have been made to rental units. In addition, new money allotted in the 2016 budget designated to repair and upgrade the existing social housing stock will provide additional support to the renovation market.