Renovations: A Next Market for Contractors

Whenever we talk business, my friend Tom tells me the following:

“You can’t fight the macro.”

He means, of course, that while you might have a good business idea, if it goes against macro trends, you better rethink it. You can’t fight it.

I think of the macro when I ponder a “recovery” in home-builder stocks. The reality is that while there has been a bit of a stabilization in some aspects of house construction, it is by no means a revival. When you have completely empty condo buildings in places like Fort Myers and Miami, depopulated industrial cities like Detroit, overbuilt regions of California and empty McMansions across the South, it might be better for all of us if the home-builders took a little break. Perhaps a break of about five years, ’til the “macro” turns micro.

Long term, of course, the macro looks good for housing. The U.S. population, according to a February 2008 Pew Report, will have 438 million Americans by 2050; this is their mid-projection of three different scenarios. The most modest projection is for 384 million in 2050 and the largest projection is 500 million. Of course, population is impossible to predict. And how many houses this population will need is another question; sometimes, multi-generational immigrant families live together, so adding 5 million Hispanics to the population is not the same as adding 5 million white Americans.

Habit. They haven’t had to do it, so they don’t, except if it is an urban historic building, or some sort of old house stuck in the middle of a subdivision that they have to fix up or they get in trouble from the local historical commission. But with their massive purchasing power, and the addition of design help from some noted interior designers, they could get it down to a brand.

I think here in Sarasota of fashion designers like Adrienne Vittadini, who made money during the craze doing house renovations. And back in Richmond, where I used to live, there were a number of small builders who during downturns made a local reputation for their renovations, which they then sold.

My question: What if a homebuilder launched a renovated house brand under the license of an Adrienne Vittadini or Old-House Journal?

The typical homebuilder would say that there are no economies of scale on renovations. But that’s not true. There are dozens of franchises for home renovations that prove scale is possible. Companies provide a wide variety of services for home renovations, including assorted dry basement companies, cabinet refacing companies, fix-it services, plumbing services, tree services, closet builders, wine rack builders, sunroom builders and closet and garage renovators. And in truth, every site development plan is fraught with local approval eccentrities.

Actually, rebuilding an empty house on an approved lot is sometimes far easier than greenfield.

Somehow, there has never been a national brand for a renovated house company, a CarMax for used houses. What if a company branded the home renovation nationally? With the large number of empty houses, there are economies of scale, and with the different sub-vendors, it might seem like a FEAST of subcontractors who could benefit, all outsourced.

Right now, local governments are desperate to keep their local housing stock in good shape. In some places governments are even buying houses. Banks are looking to sell old building stock. Consumers want “green” houses that are in older areas near to downtown. In this environment, homebuyers might turn to a “branded” renovation to take the risk out of cost.


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