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Advice for contractorThe Impact of Inflation on Renovation Projects
Inflation significantly affects several economic sectors, and the renovation industry is no exception. Whether it be minor or major repairs or remodels, when the cost of materials, supplies, and services increases, it becomes much more difficult for homeowners to carry out renovation projects as intended.
Aside from inflation, the extent of and the frequency of residential renovation projects are influenced by several factors, such as interest rates. Truth be told, the latter is instrumental in the decision-making process for renovations, particularly when it comes to project financing.
In this article, we’ll take a closer look at the connection between inflation, interest rates, and residential renovation, highlighting the current economic impact and industry trends.
Let’s start off by saying that the current state of inflation is hindering homeowners who are looking to undertake renovation work. While numerous homeowners became aware of the importance of improving their residences during the pandemic, labour and material costs are at an all-time high. This is caused by the lack of construction industry-specific labour as well as the rise of raw material costs. This situation renders renovation projects more expensive and deters some homeowners from moving forward with their projects.
Contractors are even confiding that, over the past few months, some of their loyal clients have been having cash flow issues.
To put some numbers on this global trend, according to the Association des professionnels de la construction et de l’habitation (APCHQ), after reaching record-blowing spending figures of 23.5 billion dollars last year, the renovation industry is expected to see a 15% drop in 2023, meaning 20 billion dollars overall.
Therefore, experts are recommending planning renovation projects ahead of time and taking into account any additional costs related to inflation.
Inflation is curbing the demand for very minor and major renovation projects, and this same trend was confirmed by our company in 2023.
This drop stems from several factors. Firstly, the pending state of the economy has led investors to adopt a different, more cautious approach. Furthermore, the COVID-19 pandemic has had a significant impact on the construction industry preventing numerous worksites from being created.
In 2023, amongst the projects that are likely to be on the decline, small-scale residential renovations will be hit. Households affected by the health crisis are expected to cut back on home improvement or repair expenses.
It’s said that so-called “medium-scale” renovation work will be amongst the most sought-after from contractors (projects ranging between $5,000 and $75,000).
Overall, the province of Quebec has had and will continue to experience a rather slow year in regard to extensive construction worksites in 2023 and beyond. Given the precarious economic climate and the pandemic, an industry investment downturn is to be expected.
In Quebec, interest rates significantly impact the demand for residential renovations.
When the interest rates are low, homeowners are more likely to undertake renovation projects, since financing costs are more affordable. Therefore, low-interest rates tend to trigger the demand for residential renovations, which drives the economic state of the industry.
On the other hand, higher interest rates can hinder some homeowners from moving forward with their renovation plans, since financing costs also soar. Therefore, they’re likely to postpone or cut down on their intended renovations. In such cases, it can lead to a decline in demands related to residential renovation work, which impacts industry-specific companies.
Aside from its impact on demand, interest rates also play a role in determining the cost of residential renovations in the province of Quebec. When interest rates are low, homeowners can apply for loans to finance their projects on more favourable terms. This can lead to a spike in material costs and renovation service fees, since as the demand increases, suppliers are forced to increase their rates to compensate. As a result, homeowners may find themselves spending more on their projects than intended due to soaring material and labour costs.
On the other hand, when interest rates are high, financing costs increase, which can motivate suppliers to lower their prices to maintain demand. As a result, homeowners can benefit from increasingly competitive pricing during the course of their renovation projects. However, such a price drop can also affect a renovation company’s profit margin, which may ultimately have an adverse effect on the company’s bottom line.
Despite inflation, the renovation craze is still well and alive amongst homeowners in Quebec, and the reasons for that are plenty.
Renovations can improve the home’s comfort and functionality, which in turn improves the dwellers’ quality of life. Even though costs can be steeper due to inflation, people are still willing to invest in their happiness and well-being.
Well-carried-out renovations can increase a property’s market value. As such, homeowners can be motivated to renovate to benefit from a potentially decent long-term return on investment, even if the initial cost is steeper due to inflation.
People have specific needs, like building an additional bedroom to accommodate a new family member, creating a home office as a result of the widespread work-from-home trend, or renovating a bathroom to meet accessibility requirements. These personal or household needs can rightly motivate a homeowner to renovate despite current inflation rates.
Some people prefer renovating their homes rather than moving. They might’ve grown attached to their neighbourhoods, their neighbours, or the memories created in their homes. In such cases, inflation can be seen as a temporary hurdle that’s unmatched by a homeowner’s love for their property.
The Government of Quebec often makes low-interest rate grant programs available to encourage green or eco-friendly home renovation or improvements accessible. Such financial incentives can mitigate the impact of renovation cost inflation, which can encourage homeowners to move forward with their renovation plans despite inflation.
Note that reasons to carry out renovations differ from one person to the next. Some might be more motivated by the financial aspect of it all, while others might be more inclined to do so for personal or practical considerations.
Doing everything at once may seem like your best bet, but by focusing on critical repairs, you can cut back on material and labour costs.
Don’t overlook the planning stages. While it may seem tedious, establishing a detailed plan prior to undertaking your renovation work will deter any last-minute changes that may end up being quite costly.
Consider using recycled building materials. Not only will it reduce your environmental impact, but it’ll also end up being cost-effective compared to purchasing all-new materials.
To learn more about this:
Consider seasonal pricing. Certain materials and services end up being cheaper during certain periods throughout the year. Therefore, it’s worth planning your renovation project around.
In a nutshell, needless to say, inflation significantly affects the renovation industry. Steep material, labour, and related service costs render renovation projects more expensive and, thus less accessible for many homeowners. Moreover, increased interest rates can also dissuade property owners from moving forward with repair work. Despite these challenges, some homeowners are still driven to renovate their homes to increase their property’s market value and improve their quality of life. Furthermore, due to inflation, limited demands make renovation contractors rather readily available. Therefore, it might be just the right time to contemplate carrying out the desired renovation work if you’re looking for a shorter-than-usual timeline.
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Last modified 2023-11-07
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