05
Dec

Rising Lumber Prices Add to Dallas’s Affordability Woes

Several factors are contributing to the decline of housing affordability in the Dallas area. Excessive local regulation, land prices and an ongoing labor shortage all factor into the $100,000 premium on new home prices when compared to the existing market. Now, the escalation of a decades long trade dispute between the United States and Canada is making matters worse.

On April 25, the Trump administration announced plans to impose duties of up to 24 percent on most Canadian lumber. The most recent agreement between the two nations expired on October 12, 2015, and was followed by a one-year cooling off period before a new agreement could be negotiated.

“Of course, what followed the expiration of the agreement was a Presidential election result that caught most of us off guard,” said Dallas Builders Association Executive Officer Phil Crone. “We certainly knew that striking a new agreement would have its challenges, but President Trump’s protectionist stance will certainly exacerbate this problem. It’s unfortunate because for every one job in the American lumber industry who may benefit from this, there are more than 30 in the home building industry who suffer the consequences.”

The way lumber is harvested in the two countries is at the heart of the dispute. In Canada, companies pay a fee to harvest trees from public lands, whereas, in the United States, most of the logging is done on private land since most public land is off limits. American companies argue that this constitutes an unfair advantage for Canadian companies.

Thirty-three percent of the lumber used in the United States last year was imported with more than 95 percent of those imports coming from Canada. However, only a small percentage of those imports are used in the Dallas area where species like Southern Yellow Pine are much more common.

“I’d encourage builders to have a frank conversation with their lumber suppliers and reevaluate what species they are using,” said Donnie Evans, president of Altura Homes. “Certainly this deal impacts the overall supply chain so I’d anticipate some increase, but the vast majority of the lumber we use down here does not come from Canada. Cedar prices are up about 30 percent and are not coming down so we shifted to a comparable product that saves us about $10 on every 6×6 post we install.” On average, lumber accounts for about seven percent of a home’s construction cost.

“The lack of predictability in the market presents challenges in and of itself. “Bidding jobs right now is difficult to say the least,” said Dallas BA President Michael Turner with Classic Urban Homes. “We have seen lumber prices jump nearly 10 percent two months in a row. When you bid jobs and then don’t start for another 4-5 months it’s impossible to lock in any pricing, which is a major problem for those of us working on fixed priced contracts.”

“Some of the price increases in the Dallas area are legitimately linked to the dispute, but I wouldn’t be surprised if a few suppliers are not letting a good crisis go to waste,” said Crone. “In the past, these disputes usually follow a predictable timeline starting from when domestic producers lobby for countervailing duties and concluding when a new deal is negotiated using NAFTA dispute mechanisms. My guess is that this time things will not be as predictable. In the end, that may not be a bad thing if we find ways to increase our domestic lumber supply.”