The demand for home remodeling and renovations in the United States should remain healthy as younger buyers enter the market and older homeowners modify their property to support aging in place, according to an analysis by the Harvard Joint Center for Housing Studies.

The biennial report, entitled "Demographic Change and the Remodeling Outlook," says that homeowners and rental property managers spent $340 billion on remodeling projects in 2015. This spending surpassed a record set in 2007, and market spending in 2016 grew another 6 percent to an estimated $361 billion.

The report suggests that spending on remodeling will see an average growth of 2 percent per year through the year 2025. This growth, which adjusts for inflation, is below the pace of the past two decades but still on track for expected overall economic growth in the nation.

"With national house prices rising sufficiently to help homeowners rebuild home equity lost during the downturn, and with both household incomes and existing home sales on the rise, we expect to see continued growth in the home improvement market," said Kermit Baker, director of the Remodeling Futures Program at the Joint Center for Housing Studies.

Baby Boomers have been the dominant force in the remodeling market for the past two decades, and their influence is expected to grow in the coming years. The report predicts that remodeling spending by homeowners over the age of 55 will grow by almost one-third by 2025 and account for nearly three-quarters of all market growth. The market share of this age group is expected to reach 56 percent, up from 31 percent in 2005.

These upgrades may focus on allowing older homeowners to continue living independently. Some renovations for aging in place include establishing a master bedroom on the first floor, curbless showers, and pull-down shelving in the kitchen.

At the same time, the Joint Center for Housing Studies projects that a net inventory of more than 12 million homes will become available for purchase as older homeowners move in with family or relocate to assisted living facilities. This trend will both free up more affordable housing stock for younger buyers and increase the demand for remodeling if these older households did not do significant renovations before relocating.

Households under the age of 35 spent $18 billion on remodeling projects in 2015. This accounted for only 8.3 percent of remodeling spending in 2015, a 20-year low.

The report says younger Americans face affordability challenges in a number of markets, but that their demand for homeownership—and remodeling—could increase as they marry and have children. It projects that remodeling spending by homeowners under the age of 35 will climb to only $20 billion in 2025 if there is no significant increase in the age group's homeownership rate, while their market share will drop to 7.6 percent.

Younger buyers were often attracted to older, more affordable homes in need of renovations. Homeowners under the age of 35 who purchased a home built before 1980 spent 16 percent more than the national average on renovations in 2015 and about one-third more on renovations than other homeowners in their age group.

The report says that remodeling demand among Generation X homeowners will likely increase due to improving home values. With the recovery of equity lost during the downturn in the housing market, these owners may be more likely to complete discretionary remodeling projects—such as kitchen and bathroom improvements—that they delayed.

Spending on discretionary remodels shrank from 40 percent of overall remodeling expenditures in 2007 to one-third in 2015. During the same period, replacement projects—such as putting in new interior or exterior mechanical systems—grew from 40 percent of remodeling spending to more than half.

The bulk of recent spending on remodeling has been concentrated in metro areas with higher home values and household incomes, with homeowners in the 25 largest metro areas in the U.S. accounting for $100 billion in remodeling spending in 2015. The report says these homeowners have a larger source of home equity to tap into as well as a greater incentive to preserve or increase the value of their home to protect their investment.

The overall number of residential remodelers in the U.S., including self-employed workers and payroll firms, exceeded 700,000 in 2012, up 35 percent from 2002. At the same time, the size of the construction workforce shrank by 20 percent during the housing downturn between 2007 and 2012.

More than half of all payroll firms closed or shifted to self-improvement during this time. Sixty-eight percent of large-scale remodelers with revenues over $1 million in 2007 survived until 2012, compared to just 38 percent of those with revenues under $250,000.

The Joint Center for Housing Studies says investments in rental properties have increased since 2010, with per unit capital expenditures increasing 12 percent between 2010 and 2015. This likely signals that owners of rental properties are working to upgrade their properties rather than maintain them in their current condition.

In addition to these drivers of remodeling spending, the report projects that several niche specialties will experience growth in the coming years. These areas include home automation, energy efficiency, environmental sustainability, and home health.