Spend on home renovations exceeds pre-pandemic levels despite falls

Costs are rising but Australians are still renovating their homes at levels not seen prior to the pandemic, with a slew of work being brought forward.

Homeowners are both calling in the tradies and getting on the tools themselves to upgrade their properties at levels higher than before the pandemic.

While the number of renovations being undertaken around the country has fallen from the stimulus-driven highs of the past few years, spending on home ­improvements has remained high despite rising interest rates and mortgage repayments.

Lending for renovations figures shows 10,308 homes were locked in for a facelift over the three months to May 2023, a drop of 27.8 per cent from the year earlier. However, the average cost has risen by $26,900, with the size of loans blowing out to $202,270 over the past year.

In 2021, renovation work was at the second-highest level on ­record as rock-bottom interest rates, excess savings and more time at home inspired many to undertake upgrades.

Despite a slight drop of 3.9 per cent in 2022, $44.8bn of work was completed, with higher construction and borrowing costs expected to slow demand following the pandemic boom, according to the Housing Industry Association.

Master Builders Australia chief executive Denita Wawn said a lot of renovation activity was brought forward in recent years due to stimulus packages being available.

“People forget that in Covid, other than a HomeBuilder, we had JobKeeper and an economy that effectively tanked but nowhere near to the extent that we expected because most people kept doing their jobs,” Ms Wawn said.

“Also, no one could spend their discretionary dollars on going out, including the $60m dollars that Australians spend each year on overseas travel alone.”

The bottom of the renovation slump is expected to emerge in 2026 – valued at $41.9bn – with spending still higher than any year before 2021.

Part of the trend is because homeowners are staying put longer, with the average ­ownership tenure rising from 9.3 years to 13.5 years through the 2010s on the back of housing ­affordability challenges, little choice in the property market and the associated costs of transacting, such as stamp duty and agent commissions.

Master Builders Association chief executive Denita Wawn. Picture: Richard Jupe

As a result, work is being done sooner than normal.

HIA senior economist Tom Devitt said the average age of a bathroom fell from around 17 years to less than 14 years.

“People were also adding higher-end finishes and appliances to their kitchens,” he said.

“In a boom that was dominated by owner-occupiers, rather than investors, it is perhaps unsurprising that people chose to spend the extra money on accelerated and higher-end renovations that they would get to enjoy themselves.”

Between 2019 and 2022, the average cost of the standard kitchen and bathroom renovation jumped by 47 per cent and 40 per cent respectively.

But that dynamic has begun to shift, with residential property investors taking out considerably bigger loans of $221,700 than owner-occupiers ($194,800) right now. The trend comes as an increasing number of recent investors are finding themselves negatively geared.