The cost of a common good has clouded summer plans, and it’s not gas: Soaring lumber prices are making new homes, renovations, and even simple picnic tables considerably more expensive.
Sometimes bills come in thousands or even hundreds of thousands of dollars above the estimate. In the most extreme cases, projects came to a screeching halt as prices spiraled out of control.
Ken Kahan, president of developer California Landmark Group, said he had suspended work on an apartment project of more than 50 units in the Los Angeles area after a lumber supply tripled of the initial projection. “When you look at the commodities, do that – either the world is shifting, or there’s just a shift that just needs to take hold. “
Kahan hopes to restart the project in the coming months if timber prices stabilize, but analysts said prices are likely to remain high for an extended period due to the COVID-19 pandemic. When the coronavirus began to spread in the United States last year, lumber suppliers assumed demand would plunge and they blocked production as a result. Distributors followed suit, stopped buying wood and sold their inventory.
But the companies predicted badly. Many Americans, stuck spending more time at home, decided they wanted a change and looked to renovate themselves. Others were looking for a newly built home, including wealthy tenants who wanted more space and a yard. These types of construction require a lot of wood.
Suppliers and distributors cannot immediately reverse the effects of their decision because there are not enough skilled workers or active factories to process the wood. “It was just this crazy catching up to restart everything, but it just doesn’t work that way,” said Greg Kuta, managing director of Westline Capital Strategies, which specializes in the lumber business.
In early May, lumber futures peaked, up more than 300% from the previous year. Prices have fallen somewhat since then, but are still up over 200% from the same time last year.
Inflated prices can last for a while. “I don’t think you’ll see that level going up to probably 12 to 18 months,” said Tony Uphoff, CEO of Thomas, a procurement platform that connects businesses to industrial suppliers.
Part of the problem is that the United States depends on lumber from Canadian forests – a supply that has declined in recent years, Uphoff said. In 2017, the Trump administration imposed a 24% tax on softwood lumber imported from Canada and, in response, several Canadian factories closed. “It was actually the first step that created some of the problems we still see in the supply chain today,” Uphoff said.
Despite the constraints, new home construction is still on the rise this year, reflecting a boiling real estate market, developers say they are in a hurry to meet.
But some manufacturers are starting to slow down. If this choice becomes widespread, it could exacerbate a supply shortage that has driven housing costs up for years. Some are taking a break from existing projects, while others say it’s harder to find new deals that still work financially given rising lumber prices.
For some companies, the big issue is not even the price, but rather whether they can find supplies, be it timber or other commodities made more scarce by supply chains. ravaged by the pandemic.
Shay BenZvi, entrepreneur and owner of Green Remodeling Solutions in Canoga Park, said he sometimes goes to the store only to find two-by-fours that are warped and ruined.
“A lot of companies took out their bad stock… and they put it on the shelves so people had lumber,” he said. “But it’s not something that can work.”
At the Black Cat restaurant in Silver Lake, manager Benjamin Schwartz struggled to find affordable picnic tables for the outdoor dining section of the restaurant. When he called home improvement stores such as Lowe’s and looked online, he often found the wooden tables at double or triple the price he expected.
Finally, he found something within the normal range.
“We have picnic benches that we bought for $ 100 each that were really hard to find,” Schwartz said.
Among these paused projects are affordable housing developers who must find funding from a myriad of sources to subsidize rents.
“We’re getting to a point where we need to slow down our pipeline,” said Jesús Hernández, director of real estate development at Community Corp. of Santa Monica, a nonprofit builder. Continuing at the old pace, he said, would cut the group’s funds too deeply and prevent them from mounting projects.
In contrast, rapidly rising home prices give developers of single-family homes a better chance of continuing to build, and some developers have said they have been able to pass the price increases on.
According to the Assn. of home builders, rising lumber costs add nearly $ 36,000 to the cost of an average newly built home and some developers are getting creative to convey that.
When purchasing a newly built home, buyers before the pandemic typically signed up on a waiting list and then paid a fixed price for a builder to build the home on vacant land in a community of houses. new. But an April survey by the trade group found that a majority of builders now have “indexation” contracts that allow them – if construction costs rise – to raise the selling price after a buyer has paid a deposit.
Doug Bauer, general manager of national home builder Tri Pointe Homes, said despite the price increases he didn’t see buyer fatigue and noted his business could sell homes faster.
Timber prices have skyrocketed due to production cuts during the COVID-19 pandemic. Analysts expect prices to stay high for some time.