FreshBooks x HomeStars: How COVID-19 Fueled The Canadian Construction and Renovations Industry
COVID-19 has not only changed how work gets done, but where work happens. Nearly 40% of employed Canadians are in jobs that can plausibly be done from home. And more home time has prompted many remote workers to permanently adapt their spaces to a new normal. In fact, HomeStars’ recent Reno Report found that during July 2020, there was a 600% increase in service requests for inground pools compared to July 2019. On top of that, in 2020, 20% of Canadians homeowners surveyed said they spent over $20,000 in home renovations, some owners even taking from their unused vacations funds! Despite many businesses closing and industries being locked down across the country, if there’s one industry that is benefiting, it’s the Construction sector - especially with over 80% of HomeStars’ homeowner panel saying they would prefer to hire a pro, as opposed to taking on a DIY project.
FreshBooks looked at key performance indicators of small businesses in the Construction sector (including metrics like new clients added, new revenue, and new invoices generated) to understand how these businesses are faring during COVID-19.
Despite declines early in the pandemic, the sector:
Performed above average when compared to historical norms and other sectors
Saw 10% more clients added than any other sector
Showed normal spending habits as expenses remained within historical ranges
Recovered slightly faster than the Construction Industry in the U.S.
Coming Out Ahead: A Quick Rebound Thanks to Work From Home
The Construction sector benefited from COVID-19 following the initial downturn, as seen in overall industry health. The sector fell below historical norms for a 7-week period in April and May, but then began consistently performing above the historical average by the end of the summer.
This may not be surprising, considering that with less travel, many homeowners likely started spending their disposable income on home projects such as renovations and decorating. When you compare the two graphs below, you can see that the Construction Industry experienced a significant upward trend which was maintained until the winter. This is compared to the health index of all industries which had multiple consistent weeks out of range, and largely did not surpass historical averages.
A Strong Foundation: New Client Growth and Stable Revenue
When looking at some of the key inputs to business health, such as new clients added, the industry suffered a downturn during the initial COVID-19 pandemic restrictions. But it soon recovered, rising above the historical range through most of the year.
As illustrated below, the Construction sector has experienced higher than average new clients added. When compared to the total market, the Construction industry is experiencing much better performance versus the historical average. You can see in the graphs below, that the Construction industry did not experience any disruption in their ability to add new clients, however they did experience an initial, but short-lived slowdown.
Total revenue is also showing a positive trend for the Canadian Construction Industry. It follows a similar pattern to that of the overall health index: Following the initial downturn in the spring of 2020, revenue recovered and then overshot the historical average in the last half of the year.
One reason new client additions may be more pronounced than total revenue earned in the same period is that new home projects taken on may be smaller and less time-consuming than usual job sizes. By foregoing more extensive renovations, homeowners may experience fewer disruptions when working from home.
In comparison to the total market, the Construction sector only had one week completely out of range from historical averages, with a quick rebound. The total market had three weeks of out-of-range revenue reporting, and did not see the strong upward trend in revenue, instead just maintaining their historical average revenue.
Spending Habits: Expenses Increased Slightly
The Construction sector has not seen a major impact on the expenses logged due to COVID-19, with the trend line being close to historical averages. With the exception of the beginning of the pandemic, expenses have stayed largely consistent. There was a drop in the latter part of the year, but this is likely due to expenses not being entered and will correct as time passes.
Meal expenses declined and stayed below historical averages, with a slight downturn at the end of 2020, which may be due to a delay in expense entry. There are multiple reasons why meal expenses declined which the data doesn’t tell us. It could be that people were avoiding fast food places due to rolling lockdowns, or perhaps people were cooking more, leading to more employees bringing their lunches from home.
Gas expenses saw a huge decrease with very little recovery through to the end of the year. This could be due to contractors taking jobs closer to home, or also because in general gas prices decreased significantly during 2020.
Given the higher than average number of new clients added and steady revenue gains, it’s clear there was more demand for renovation and repair work. With a higher volume of smaller jobs to travel to, combined with tightened travel restrictions, one possible reason why travel expenses declined significantly is because contractors were taking jobs closer to home.
“The Year of the Home”: How Homeowners and Increased Renovations Fueled the Canadian Construction Industry
HomeStars’ recent Reno Report does a deep dive into the attitudes, intentions, and spending of Canadian homeowners when it comes to home improvements. Despite the global pandemic, the report found that nearly 80% of homeowners surveyed planned to take on home improvement projects, with 20% of those surveyed taking on large projects.
In fact, the most-common reason homeowners were not planning on doing renovations were due to fears of having outsiders in their homes (64% of respondents), while financial concerns were a marginal factor (18% of respondents). Below you’ll find the top 5 most-requested renovations, compared to 2019.
Forty-seven per cent of Canadian homeowners polled said they invested in general repairs to the home. This stands to reason as we are spending more time at home and are there to notice those smaller jobs that needed to be done or had previously been put off. It was also much easier for homeowners to undertake these jobs as they were at home and available to meet home service professionals and help oversee projects. Thirty-nine per cent of those polled said they spent between $500 and $5,000.
With homeowners putting off their yearly vacations, they wanted to recreate the resort feeling at home, so outdoor projects led the way with 50 per cent of the jobs. Inside the home, the bathroom was getting a lot of love with 16 per cent of Canadians undergoing a renovation. That was followed by basement renovations at 10 per cent.
Implications for Business Owners
Stay on Top of Cash Flow
In 2021, as vaccines roll out and COVID-19 continues to spread, owners need to plan ahead for government measures that may affect their businesses.
If lockdowns persist, the Construction sector may need to keep cash reserves on hand to ensure expenses can be maintained. For example, if a project is put on hold for a month, expenses like trailers, scaffolding, and portable toilets still need to be maintained.
Business owners also need to prepare for increased project costs due to potential supply chain disruptions, labor shortages, or decreased productivity due to distancing or other safety measures.
Using a cloud accounting tool like FreshBooks can help owners stay on track and keep their books up-to-date. This is especially important come tax time if you want to take advantage of government SMB relief or incentive programs, such as interest-free loans or employee subsidization. Tax payment deferment is also an option to help with short-term cash flow.
Capitalize on Increased Homeowner Demand
Business owners should capitalize on prevalent changes in consumer behaviour and increased homeowner demand for reno and repair projects by leveraging solutions like HomeStars to connect with project-ready homeowners and fuel their businesses amid COVID-19.
Anticipate Different Projects for Changing Demand
It’s no surprise that COVID-19 has changed the needs of the economy. It’s more important than ever to understand how consumer demand is affecting the new home and condominium markets, as well as what effect supply chain slowdowns could have on the ability to produce new builds.
Financial institutions are also a great place to start looking at trends with respect to lending rates. They may increase rather than decrease as a result of COVID-19: Banks anticipate a rise in mortgage default rates as unemployment increases and economic uncertainty continues. This could slow demand for new and resale home purchases.
Reduced spending may increase demand for renovations, since consumers have more disposable income to put towards improving their home offices or other long-awaited projects.
All of this spending is a silver lining for the Construction industry. And any negative impact on the overall SMB Construction sector does not appear to have lasted past the initial downturn. But keeping an eye on consumer demand, business shutdowns, and supply chain disruptions is essential to maintaining a healthy pipeline of work, and sustaining a business in 2021 and beyond.
HomeStars Survey Methodology:
HomeStars surveyed its homeowner base from October 9 - October 13, 2020 for a total of 351 Canadian responses. Data pulled from HomeStars included the top ten service requests from March 15, 2020 to October 15, 2020 and 2019 as well as total service requests during both periods. Random interviews with home service professionals took place in Toronto, Calgary and Vancouver.
In the Canadian Trades Resiliency Report, the FreshBooks data science team examined a range of metrics (e.g., revenue, expenditures, invoice amounts) to infer the impact(s) of COVID-19 on businesses in the trades and Construction industry.