Sky-High Lumber Prices Jeopardize Housing Affordability
As America begins to recover from the COVID-19 pandemic, the housing market has been resilient. Housing demand is extremely strong and home values are rising in markets across the country, providing a significant boost to the U.S. economy. But these positive trends should not obscure a problem with major implications for homeownership access and affordability: the acute shortage of the lumber needed to build new single-family homes and apartments.
This shortage has led to a dramatic spike in lumber prices, which have more than quadrupled since last Spring. Earlier this month, the price of 1,000 board feet of lumber, a basic unit of measurement in the homebuilding business, skyrocketed to an all-time high of $1,686. To put this figure in perspective: prior to the pandemic, the record high price was $582. Over the past six years, the price has typically ranged between $275 and $450.
Many home builders and construction firms have been willing to take the hit to their bottom line by absorbing these price increases. Others have simply chosen to delay construction of new homes despite strong demand. We saw these delays play out earlier this year, when starts of new single-family homes dipped significantly. But this past March, new housing starts reached their highest level since 2006, demonstrating strong demand and the lack of inventory for existing homes. Looking ahead, the need for lumber to support new homebuilding will most certainly continue to grow.
Not surprisingly, rising lumber costs are being reflected in overall building costs. According to the National Association of Home Builders, the cost of building an average new single-family home has increased by nearly $36,000 since April 2020 while that of the average new multifamily unit has increased by nearly $13,000 over the same period.
These cost increases adversely impact consumers in the form of rising home prices. Under current economic conditions, every $1,000 increase in the median price of a new single-family home effectively excludes, or “prices out,” more than 150,000 households nationwide from the opportunity to buy that home.
Members of the 75 million strong Millennial generation (those born between 1980 and 1998) make up the largest share of home buyers, so it is no surprise they are among the hardest hit by these price increases. Many are now seeking to step onto the first rung of the homeownership ladder with the goal of benefiting from the wealth-building opportunities that owning a home can provide. The recent increases in new home prices created by the lumber shortage act as a barrier to the fulfillment of these aspirations.
Forty-four percent of Millennials are members of minority groups, making them more diverse than any preceding generation. So higher prices for new single-family homes disproportionately impact young Black and Hispanic households. The result will likely be a further widening of the already-enormous racial disparities in homeownership rates—the rate for whites currently exceeds that of Blacks by nearly 30 percentage points and Hispanics by nearly 25 percentage points.
What’s creating today’s lumber shortage? There are a number of likely causes: Wildfires in the western United States have had a devastating impact on timber supply. New safety protocols in response to the pandemic have severely disrupted activities throughout the lumber supply chain. Domestic sawmill output is down and about 3,000 sawmill jobs were lost during 2020. Restarting production takes time and some lumber producers may not yet have the capacity to meet the demand that now exists in the market. In addition, imports of softwood lumber from Canada, our main source of lumber imports, have declined in recent years—in part, because of duties imposed by the United States.
There’s a lot at stake. New housing construction can help power the post-pandemic economic recovery. Ensuring access to first-time homeownership can provide a lifetime of benefits for millions of families. To secure these opportunities, the Biden administration and Congress must act with urgency to identify the causes of the lumber shortage and implement effective remedies to increase supply.
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