Rising home values, a shortage in new home inventory, and aging housing stock are all helping to fuel strong growth in the remodeling industry, according to a report by the Joint Center for Housing Studies of Harvard University.

The report finds that improvements and repairs to both owner-occupied and rental properties hit a record high of $424 billion in 2017. This represents an expansion of more than 50 percent since 2010 and 10 percent since 2015.

"With new construction slowly recovering from historic lows, 40 percent of the country's 137 million homes are at least 50 years old," said Abbe Will, associate project director in the Remodeling Futures Program. "The aging of the housing stock has been a boon to the remodeling industry, with spending surpassing investment in homebuilding every year for over a decade, and contributing 2.2 percent to U.S. economic activity in 2017."

The report determined that 40 percent of the 137 million homes in the United States are at least 50 years old. Nearly half of home improvement spending went toward replacement projects, such as upgrading exterior or interior components, home systems, or equipment. This share was up from 40 percent in the decade prior to the Great Recession.

The recovery of the economy and housing market since the Great Recession has also spurred investment in homes that were previously rented or vacant. While 5 million homes were converted to owner-occupied residences in 2010-2011, the number increased to 6.6 million in 2016-2017 with an average remodeling spend of $7,500 per owner.

More than one-third of this spending went toward kitchen and bath remodels, along with room additions. Among homes that were owner-occupied during this period, one-quarter of remodeling spending went toward the same purposes.

A steady increase in home values has also provided an incentive for homeowners to undertake more expensive projects or a greater number of remodels. Not only are homeowners more willing to consider remodeling to be a worthy investment, but they also have more equity to fund projects. Homeowners in markets with stronger price appreciation in the past decade, such as Boston and San Francisco, have spent more on home improvements than homeowners in markets where home values have not fully recovered, such as Las Vegas and Miami.

Half of home renovation spending in 2017 was done by homeowners ages 55 and older. This demographic group typically sought to replace home components and systems, but were also increasingly focused on improvements designed to keep the home more accessible as they aged. Homeowners ages 55 and older who added accessibility upgrades spent about 40 percent more than homeowners making other improvements.

"Over the next decade, the strong preference of older homeowners to age in place and the increasing difficulty of building affordable housing in many markets will continue to hinder the construction of new homes," said Kermit Baker, director of the JCHS Remodeling Futures Program. "The remodeling industry will therefore retain its critical role in helping the country meet its housing needs."

The report suggests that older homeowners are more likely to have the resources necessary to modify their homes, but also have a higher homeownership rate as younger adults struggled to enter the housing market after the Great Recession. However, the number of homeowners under the age of 35 rose 6 percent between 2015 and 2017 to 7.3 million, the first increase in a decade.

Remodeling spending per owner in this age group increased 38 percent between 2013 and 2017, exceeding the 6 percent boost among homeowners ages 35 and older during the same period. Improvement spending among younger homeowners was more pronounced in the more affordable metro areas in the Midwest and South.

Homeowners were less likely to attempt projects on their own, which the report attributed to a general preference for hiring professionals as well as an increasing reluctance among aging homeowners to attempt renovations on their own. The share of spending on DIY projects, which only include the material costs as an expense, fell from 25 percent in 1997 to 18 percent in 2017.

Many homeowners focused on projects to boost energy efficiency, including improvements to roofs, windows, HVAC systems, and insulation. More than 17 percent of homeowners cited energy efficiency as a motivating factor in their renovations, up from 11 percent in 2013. The share was higher in markets like Minneapolis and Rochester, N.Y., which tend to have older housing stock and harsher winters.

With natural disasters becoming more frequent and devasting, homeowners were spending more money to repair damage from these incidents. More than $27 billion went toward these recovery efforts in 2016-2017, almost twice the two-year average of $14 billion two decades earlier.

As a share of national home improvement spending, disaster recovery has accounted for an average of 6.2 percent since 2005 – up from an average of 4.5 percent between 1994 and 2005. Forty-six percent of this spending was concentrated in the South, with one-third in the Midwest.

Seventy-seven homeowners relied on personal savings to fund a project, as the median remodeling project only amounted to $1,200. Cash was also popular for more expensive projects, with more than half of homeowners whose projects amounted to $50,000 or more getting the money out of savings.

A variety of other financing options, including contractor-arranged financing or gifts from family members, were used for 9 percent of home improvement projects in 2017. Five percent relied on credit cards, with another 5 percent tapping into their home equity or using cash-out refinancing. Insurance settlements financed the remaining 4 percent of projects.

Homeowners typically spent more money when using alternate forms of financing. The average spend on a remodel stood at approximately $3,300 for projects funded with savings or credit cards, but rose to $6,500 for renovations with contractor-arranged financing. The spending increased further to $7,500 for projects using cash-out refinancing and $9,300 for those using home equity loans or lines of credit.