Softwood Lumber Prices
HBAV recently sent a letter to Governor Northam and members of his cabinet about the need for action at the federal level to address the rising cost of softwood lumber. One of the most significant challenges facing our members is the increasing cost of construction and the price of materials. The most recent Producer Price Index (PPI) indicates that material costs have indeed been on the rise. In November, the PPI for input prices for construction industries rose 5.6% year over year, marking the fastest rate of growth since 2010.
Specifically, the price of softwood lumber has been one of the greatest concerns for HBAV and NAHB members.
The most recent PPI indicates that in November of 2017, the price of softwood lumber was up 17.4% year-over-year, after increasing at an average annualized rate of 5.6% per year since 2012.
To put that into perspective, the National Association of Home Builders Construction Cost Survey, which we have verified with our members, indicates that the average cost to frame a house in 2017 was 15% of the total estimated sales price of a home and the largest share of construction cost, so the impact of softwood lumber price increases are not insignificant.
At the center of this issue is the Softwood Lumber Agreement (SLA) with Canada. Since 2006, the SLA established a system of fees and quotas on Canadian imports to the United States that would be triggered in response to fluctuations in the market price of softwood lumber. This agreement brought about a period of relative stability in the trade relationship between the United States and Canada. However, the SLA expired on October 12
th
, 2015.
The residential construction industry relies on a stable and affordable supply of lumber. U.S. domestic timber production is simply not sufficient to meet demand – in 2017, the United States consumed 47.62 billion board feet (bbf) of softwood lumber while producing only 33.86 bbf – historically, we have relied upon Canada to make up the difference.
With the expiration of the SLA, combined tariffs of just over 20% on imports of Canadian softwood lumber imposed by the United States Department of Commerce have driven up lumber prices to record highs.
During the first week of March 2018, a key index for measuring the price of framing lumber hit its highest ever recorded level — $512 per thousand board feet. This represents a 25% increase from one year prior and a 43% increase since January 1st, 2017; and a 60% increase since January 1st, 2016. Estimates from the National Association of Home Builders show that the increase in the cost of lumber since the beginning of 2015 has been enough to drive up the price of an average new single-family home by $6,388, and the market value of an average new multifamily housing unit by $2,430.
Furthermore, the impact on jobs in the United States and in Virginia will be significant. Our data indicates that tariffs on Canadian softwood lumber will result in the net loss of 9,370 U.S. jobs in 2018. This figure includes an increase of 1,193 jobs in U.S. sawmills, and a loss of 10,563 jobs in all other industries because there are millions more jobs in the U.S. that depend on lumber than there are jobs in domestic lumber production. Over half the net jobs lost are in construction, but the effects are broad-based and will also impact jobs in manufacturing, wholesale and retail trade, and a variety of professional services.
Virginia’s continued economic vitality and ability to attract and retain business is dependent upon a healthy supply of housing at all price points. The challenges to meeting that demand are well documented but we have an opportunity to help alleviate that burden by calling on the Trump Administration and the U.S. Commerce Secretary to return to the table and negotiate a new Softwood Lumber Agreement with Canada.
NAHB has also set up a portal to help our members contact policy makers in Washington about this issue –
click here to learn more.