Planning applications show a booming home improvement sector

Housing refurbs and extensions are the bread and butter of many smaller practices. The data shows that the sector has ballooned since the first lockdown but will this last and how is the nature of work changing?

Around a third of improvement planning applications include extensions as with this extension to a Victorian Villa in north London designed by Architecture for London. Credit: Christian Brailey

Home improvement was flagging in late 2019, but once lockdown lifted it triggered a dramatic surge in work during the summer of 2020 that underpinned the recovery of the construction sector. However recent data has shown a wobble in workloads.

This inevitably will foster speculation that the boom times, seen for almost two years, are coming to an end. For many smaller local architects, drawing up plans or overseeing home improvement projects represents bread and butter work. So, while workloads still look robust, there may be a creeping concern that things may look a bit less rosy as the year progresses.

Starting with the good news, the level of private housing repair, maintenance, and improvement (RMI), as measured by the Office for National Statistics, reached an all-time peak in the first quarter of 2022 if measured on a four-quarter rolling total basis. This topped the high levels reached in 2003.

Chart 1
Chart 1

As Chart 1 shows, the level, especially when compared with overall construction, remains high. The 6.5 per cent month-on-month drop recorded for April looks to be a correction after a spike in March. It should be recognised that particular caution should be applied to this data. Large, uneven, and unpredictable inflation, in both materials and labour costs within the sector, makes assessment of actual workloads extremely difficult, given that the data is collected in cash terms.

The patterns within the home improvement market are complex. The drivers are diverse and vary across the UK and between different types of communities. This is clearly illustrated in the Barbour ABI’s annual Home Improvement Report, which tracks home improvement planning applications across Great Britain.

Chart 2 is taken from the report. It plots the spectacular rise in home improvement planning applications up to the end of 2021, and how the rise has outstripped by some margin the surge in private housing RMI. This clearly illustrates the extraordinary strength of demand, at least in terms of intentions to improve homes.

And Chart 3 shows how the drivers of this rise favouring more rural areas when the pandemic hit. As Chart 4 shows, London is still at the top in terms of the numbers of home improvement planning applications for each 1,000 private homes. But if we compare levels in 2021 with 2019, the north of England has seen the strongest growth, more than double that in London. Over the past year, Wales has topped the growth rate along with the East of England, reflecting perhaps the move to more rural areas.

Such a shift is in some senses echoed in differing growth rates between types of home improvement. Most improvement planning applications include extensions, which featured in around a third of all home improvement applications over the past three years; or loft works, which appeared in more than 11 per cent. Here applications rose broadly in line with overall numbers.

  • Chart 5
  • Chart 6

However, Chart 5, which compares applications for garden building and landscaping against the overall numbers, shows how the desire to improve outside space increased significantly in relative importance after the first lockdown. Between December 2019 and December 2021 there was a rise of 26 per cent in the annualised number of home improvement planning applications. The number for garden buildings and work rose by 45 per cent and landscaping by 32 per cent.

This had dramatic effects on sales of materials, as the Builders’ Merchants Building Index (BMBI) measure of sales at builders’ merchants illustrates (Chart 6). Timber and joinery sales were up more than 50 per cent in the four quarters to 2022 Q2 compared with the average over 2019, with landscaping materials up 42 per cent. Some of this will be inflation, but the surge in timber and landscaping reflects the shift in types of activity.

Chart 7
Chart 7

Meanwhile, Chart 7 reveals that there was also an increased interest in reducing energy consumption, with a rise in applications for both insulation and solar panels. Changes in interest in these tend to be driven by incentives. But with attention building globally on COP 26 at the end of 2021 and a glut of forced savings from lockdown, some households may have been prompted to invest in home improvements that might reduce their carbon footprints.

But it was applications for home offices that jumped most spectacularly in response to the pandemic, admittedly from a very low base. Between December 2019 and December 2021, there was a 250 per cent rise in the annual number of applications that included home offices. These tended to be lodged in wealth boroughs, many of which are within commuting distance of London.

Turning attention back to Chart 2, there is a discernible dip in the level of planning towards the end of 2021. This is perhaps unsurprising given the scale of increase. It is too early to ascertain whether this may be the beginning of a steady decline or just a natural readjustment to a more sustainable level after an initial surge.

RIBA Future Trends data show that private housing activity has come down significantly from the highs of 2021, when the balance of firms expecting rising workloads in the sector was 42. In the three months to May this year, the average was 12. The impact on smaller practices, which rest heavily on home-improvement work, seems clear. Expectations of future work have fallen from an average balance of 24 between those seeing growth and those seeing falls in the three months to May 2021 to 10 for the same period this year.

Chart 8
Chart 8

The overall picture that the survey paints for architects remains positive, as we see in Chart 8. But decreasing work in the private housing market is being felt by smaller practices. This sign of weakening in the home improvement market suggests there is a strong case for architects to keep a very watchful eye on activity in the sector.

Home improvement is the construction sector most directly influenced by trends in household confidence. Although, this should be caveated by noting that the better-off households are the primary investors in home improvement and will be less affected by the rising cost of living. It is also worth noting that it was the better-off households that saw the biggest increase in savings during lockdown, when shopping was restricted and holidays and eating out were denied. Spending on travel to work also fell.

Households in the upper quarter of incomes saw spending fall by around £10,000 over the year to March 2021, according to ONS figures, with those in the quartile below spending about £7,000 less. Importantly, the incomes for most of the better off held firm. The forced savings created by the pandemic are estimated by the Bank of England to have been about £200 billion, skewed towards the better off. This helped finance the surge in home improvements.

However, this pot is not inexhaustible. What is more, rapid inflation is creating a cost-of-living crisis that is squeezing households. Even many of the better off will be more cautious now than before and be less inclined to discretionary spending.

How this will play out in terms of the home improvement market is so far unknown. But two effects are at play. A comedown from the peak activity generated by the pandemic should be expected. And we might reasonably expect that there will be more caution in spending on home improvements as the cost-of-living crisis bites deeper into household finances.

This does not spell gloom and doom. The home improvement market may yet settle above its 2019 level. This would be a plus given that the sector was in decline as the nation entered lockdown. Furthermore, there are other incentives to invest in home improvement, notably the desire to reduce fuel bills.

So it may be that the market remains buoyant. But what we should expect is a change in the mix of home improvement work coming through.