The $490 billion repair and remodeling business (details are available in our Building Product Analysis and Forecast report) just got a 2.5% ($12 billion per year) boost thanks to The Inflation Reduction Act’s Federal Tax Credits for energy-saving building products. This is the first major change to federal energy efficiency tax credits available to households in over a decade and will boost demand for remodels involving energy efficiency upgrades to the home.
Here’s what has changed:
- Maximum tax credit substantially raised: Cap raised to $1,200 per year for qualifying property on or after January 1, 2023, compared to a lifetime $500 cap previously.
- Now an annual limit, not a lifetime limit. Energy efficiency tax credits are now available annually for up to $1,200 per year. Savvy households can spread qualifying home improvement spending over a 10-year period, receiving up to $12,000 back in taxes, compared to $500 previously.
- These tax credits will materially boost remodeling spending on building product categories that improve the energy efficiency of the home.
Expecting a minimum $12 billion annual uplift to remodeling spending:
The last time a major federal tax credit was introduced for energy efficiency upgrades was in 2009 as part of the American Recovery and Reinvestment Act. We analyzed the change in the incidence of spending across eligible products before and after the act’s introduction. Assuming a similar increase in remodeling activity to that which occurred following the introduction of those tax credits, we forecast a minimum $12 billion annual increase in remodeling spending.
Impact potentially higher through industry marketing
We think there is upside potential to the $12 billion per year as well. Surveys indicate that both households and contractors express very low levels of familiarity with the program, which can change once industry groups spend money promoting the credits that also reduce utility expenses.
Many of our building products clients have been developing energy-efficient materials for years since they saw the potential for consumer demand and government mandate. We expect those with the best products and the best marketing to take market share over the next few years.
