Housing Construction Costs Rise Significantly as the Pandemic Continues to Push Lumber Prices Higher
The global pandemic has affected almost all industries, with some businesses having no choice but to shut down. The same cannot be said of the lumber industry, though. As homeowners are forced to stay home, they are more inclined to get some work done on their houses. Unfortunately, lumber supply has been low – adding up to $30,000 to the typical cost of construction.
According to Kevin Lee, the Canadian Home Builders Association CEO, housing costs are more expensive now by at least $30,000. They can go much higher depending on how massive the project is. As if the country’s housing industry isn’t already volatile as it is, COVID-19 drives the nail deeper even further.
The supply and demand aren’t balanced. When the pandemic spread, lumber mills had to be shut down, but homeowners had also started to be more active with small-scale construction as they try to cope with working from home. The limited supply of lumber cannot keep up with the growing need for materials, so contractors have no choice but just to pay the higher price. Lumber distributors are worried, as well, because it’s a sadly missed opportunity not to have the lumber to provide to a sector that badly wants it.
The Contractors’ Dilemma as Costs Rise
As of this writing, the price of two-by-fours per thousand board feet is over $1,400. Before COVID hit, it was just at $550. This means that if you’re building or renovating a 2,500 square-foot home, you can instantly add more than $30,000 to your overall investment – and this will come from lumber alone. If you have a smaller property, the overall cost could still go up by a minimum of $10,000.
This leaves contractors trapped in the middle. Do they absorb the high cost of lumber themselves, share the load with their clients, or pass the increase to the homeowner? If they charge everything to their clients, there’s a high risk that the client will look elsewhere that offer cheaper services. But there really aren’t any options available, are there?
Not Just in Canada
The unfortunate (yet unsurprising) fact is that the issue with lumber prices is not exclusive to Canada; it’s happening in the United States. But Jerome Powell, chairman of the US Federal Reserve, doesn’t seem too fazed with the situation, though, as he stresses that such bottlenecks are just temporary.
“The supply side cannot NOT adapt to the pandemic forever; eventually, the market will clear, and prices will go down. It will just take a while to get there,” said Powell in an interview with CBC Canada.
For now, the recommendation is just to ride the tide unless the dust settles. That’s easier said than done for lumber suppliers, though. If the high prices deter people from buying, what will they do with the lumber they have on hand, but if people do shrug the increasing costs off and build anyway, how will they keep up with the demand?
The industry still hangs in the balance, but there isn’t really anything much anybody can do. Once COVID settles (and we don’t know that will happen), people will start moving around again. But, for now, that’s all just speculation.