Building materials costs have risen sharply in recent months, with the demand for lumber in particular increasing dramatically even as supply is tightening due to a combination of factors, including the effects of U.S. import duties on Canadian lumber, wildfires, and insect damage to coniferous trees, industry groups have reported.
According to the National Association of Home Builders (NAHB), softwood lumber prices soared to a record-high $543 per thousand board feet for the week ending May 11, and May futures contracts were selling at the “previously unthinkable” $600 range. The NAHB estimated that since January 2017, rising lumber prices have increased the price of an average single-family home by nearly $9,000 and added more than $3,000 to the price of the average multifamily unit.
A variety of factors are converging to drive up lumber prices, including increasing labor costs, rising energy prices, and a global construction boom that is causing the demand for building materials to escalate. Moreover, the supply of timber has been curtailed by large-scale deforestation in the western U.S. and Canada due to bark beetle infestations and wildfires. But among the most serious concerns expressed by homebuilders is the Trump Administration’s announcement in April 2017 that U.S. import duties on Canadian lumber would be increased. In November 2017, the final tariff level was set at 20.83%.
In May, 31% of single-family builders surveyed for the NAHB/Wells Fargo Housing Market Index indicated that they are experiencing a shortage of framing timber, the highest shortage percentage for this item since the survey was initiated in 1994, and up from 21% from last year. Respondents also reported seeing shortages of a number of other building materials, including trusses (24%) lightweight steel and OSB (20%), and plywood (19%).
The NAHB also reported that in the Index conducted in April, 43% of the single-family builders surveyed said they think cost is causing home buyers to hold back from purchasing a new home, and the vast majority said they believe lumber prices specifically are hurting affordability. While large shares of respondents agreed that factors such as the ongoing shortage of labor in construction trades and the effects of government regulation are contributing to rising construction costs, 95% of respondents said they think recent increase in lumber prices is making new homes less affordable.
On June 18, Randy Noel, chairman of the NAHB met with Commerce Secretary Wilbur Ross to discuss the growing problem of escalating lumber prices, encouraging the secretary to return to the negotiating table with Canada. “It is essential that the two sides resume talks and hammer out a long term solution to this trade dispute that will ensure U.S. home builders have access to a stable supply of lumber at reasonable prices to keep housing affordable for hard-working American families,” Noel said.
The Associated General Contractors of America (AGC) also recently expressed concerns that threats of tariffs and the imposition of new trade restrictions on materials used in construction—including the Trump Administration’s announcement on May 31 of tariffs on steel and aluminum imports from Canada, Mexico, and the European Union—are weighing heavily on the construction industry. The association’s chief economist, Ken Simonson, observed that from May 2017 to May 2018, the cost of all goods used in construction rose 8.8%, and that the producer price index jumped by 13.9% for lumber and plywood, 17.3% for aluminum mill shapes, 13.8% for copper and brass mill shapes, and 10.5% for steel mill products.
“These increases far outstripped the 4.2% rise in the price index for new construction, implying that contractors are facing a severe squeeze on costs for both ongoing and new projects,” Simonson warned.