While housing has played a leading role in helping to stabilize the economy in the wake of the COVID-19 pandemic, soaring lumber prices and ongoing supply shortages threaten to blunt momentum in the housing market and jeopardize an economic recovery.
Due to insufficient domestic production and tariffs on Canadian sources, the price of lumber has staged a staggering increase in recent months, rising more than 160% since mid-April to an average price above $925 per thousand board feet, according to Random Lengths. By comparison, in 2018 lumber prices briefly jumped and hit a then-record
$580 per thousand board feet. As the nation struggles with the pandemic’s economic fallout, today’s price spike will add more than $16,000 to the price of a typical newly-built home, thereby constraining housing supply, exacerbating affordability woes and limiting housing’s ability to lead the economy forward.
The primary drivers of the framing lumber price increases and supply shortages are pandemic-related as mills closed in the spring due to stay-at-home and social distancing measures enacted by state and local governments. When prices fell between March and April as a result of the coronavirus outbreak, mills projected that housing would be adversely affected and therefore anticipated a large drop in demand. Accordingly, mills that remained operational substantially decreased capacity utilization.
Further exacerbating the supply crunch was the fact that housing weathered the storm much better than most anticipated and lumber producers did not foresee the massive uptick in demand from do-it-yourselfers and big box retailers during the pandemic. DIY demand did not abate as most states reopened and construction demand far surpassed lumber mills’ projections.
Lumber price volatility is made worse by tariffs averaging more than 20% on Canadian lumber imports into the U.S. market. These tariffs act as a tax on American lumber consumers and drive up the cost of production. The U.S. does not have the capacity to meet domestic demand and imports nearly 30% of its lumber from Canada.
Except for the Great Recession, housing has led the nation out of virtually all economic downturns over the last several decades. And amid this pandemic, housing has been a bright spot for the U.S. economy. Single-family permits are running 3.4% higher during the first half of 2020 compared to the first half of 2019. Construction has remained an essential service in most states, despite “stay-at-home” orders. However, these sharp lumber price increases are unsustainable, particularly in light of the housing affordability crisis.
Housing’s potential for growth and to lead the economy forward is limited as long as lumber remains expensive and scarce. And the ramifications for job growth are significant. Building 1,000 average single-family homes creates 2,900 full-time jobs and generates $110.96 million in taxes and fees for all levels of government to support police, firefighters and schools. Similarly, building 1,000 average rental apartments generates 1,250 jobs and $55.91 million in taxes and revenue for local, state and federal government.
The White House can play a constructive role to alleviate this growing threat to housing and the economy by urging domestic lumber producers to ramp up production to ease growing shortages and making it a priority to work with Canada on a new softwood lumber agreement that will eliminate punitive tariffs on lumber consumers. Even if negotiations were to begin immediately, this is a process that can drag on for well over a year. Ramping up domestic production and bringing more mills online can also take several months. Given the severe supply side bottlenecks, the administration should—at a bare minimum—do all in its power to suspend tariffs on Canadian lumber for the next six months to help ease volatility in the lumber market that is contributing to soaring prices.
Congress can do its part to help boost domestic production by seeking higher targets for timber sales from publicly-owned lands and opening up additional federal forest lands for logging in an environmentally sustainable manner.
The National Association of Home Builders stands ready to work with the U.S. Lumber Coalition, which represents domestic producers, to address shortages in the lumber supply chain caused in part by the pandemic.
Housing can do its part to create jobs and lead the economy forward, but in order to do so, we need to address skyrocketing lumber prices and chronic shortages.
John “Chuck” Fowke, a Tampa, Fla.-based custom home builder with 40 years of experience in the home building industry, is NAHB’s 2020 Chairman of the Board. As founder and president of Homes by John C. Fowke Inc., he has built hundreds of luxury homes throughout the Tampa Bay area.