The Reason The Cost Of Lumber Is So High
Published on Jun 4, 2021General
In the last few months if you have had to do any renovations, or construction on your home or rental properties, or if you have been reading the news, you are well aware of the drastic increase in the cost of lumber. In the last year, the coast of lumber has shot up over 250 percent. If you have any plans to renovate any of your rental properties or add accessory dwelling units, this will impact the cost of your project.
What is the reason for the increase in prices?
When it comes to the cause of the increase in the cost of lumber, there are a number of factors. Some of the factors are systemic, and will persist for a long time. Some are temporary, and the cause of unique dynamics over the last year which likely will not be a problem down the road.
There has been some concern that the cost of lumber has increased due to inflation. That likely isn’t the case. One major factor is just simple supply and demand. There is currently a huge demand for lumber, and the supply has been unable to catch up to the demand. So why has there been a huge increase in demand?
Anything that has happened over the last year needs to be viewed through the lenz of a global pandemic. For that reason, it is safe to assume that there will be some big fluctuations in both the supply and demand for various goods until the global economy has had a chance to return to normal.
When the pandemic hit, many people who were renting homes and planning on purchasing a home in the future decided to not wait and purchase homes. The low interest rates were also a contributing factor. These people purchased and renovated their new homes which is part of the cause for the increase in the demand for lumber.
Because people were no longer spending money on vacations and going out to eat, combined with the stimulus checks, they were flush with cash. This is a pandemic related cause which led to a number of people stuck at home who decided to work on projects and renovations around their home. This goes from room additions to tree houses as well as decks and other projects that require a large amount of lumber.
As far as supply goes, there are a number of reasons both related and unrelated to the pandemic that explain why it has been unable to keep up with demand. One factor is an ecological plague that has been taking place since long before the global pandemic.
In Canada there has been a plague of tiny mountain beetles that has destroyed 15 years of log supplies. That would be enough wood for 9 million single family homes. Canada has been unable to stop the spread of these mountain beetles because of the warming climate and it continues to destroy even more lumber stock as it spreads to different regions.
Because the demand for lumber has been steadily increasing, lumber mills have been attempting to increase capacity to keep up. Lumber mills typically take around two years to be built and many began being built in 2018 and 2019. The demand continued to increase in 2020 which means the attempts to match the supply with the current demand is still about a year or two away.
Covid related outbreaks over the last year have also been a cause in the slowdown of production. As the pandemic comes to an end and there are fewer and fewer outbreaks, the production of lumber should become more consistent.
Unrelated to covid, there is also a labor shortage for lumber mills. As most young adults are encouraged to go to college in order to be qualified for most jobs, it creates a labor shortage for manual labor jobs like at lumber mills. The labor shortage is also a factor when it comes to the transportation of lumber as there is a shortage of truck drivers as well.
Another factor, though not the main cause, is trade related. The cause has to do with the lumber tariffs in place. The system that is currently in place creates a lot of uncertainty for lumber prices that causes companies to search for countries that aren’t impacted by the tariffs, leave the US market entirely, or pass the high costs on to the customers. This would only get resolved through legislation and doesn’t appear to be changing anytime soon.
What to expect in the future?
Some of these factors will eventually work themselves out, especially those related to supply and demand and the pandemic. Another cause is the seasonality of the cost increase. Prices tend to go up in the spring as construction projects increase, then decrease in the fall and winter. Because of the supply issues, those prices in the winter may not fall the same as the usually do, but should level off eventually.