Why is Lumber so expensive? | Supply chain issues explained

April 19, 2021

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Supply chain issues. One of the most talked about phrases over the last year and apparently the reason behind every shortage. Whether it was toilet paper, microprocessors, spray foam raw material, rubber for car tires and, of course, wood.

Introduction

The global pandemic and subsequent lockdowns caused sawmills and lumber dealers to reduce production by 30% and lay off workers. Social distancing rules led to limited shift work, further impacting supply. Surprisingly, the housing market experienced an unexpected boom. Remote work prompted people to move from cities to suburban houses, fueled by low-interest rates for mortgages and new construction financing. Homeowners engaged in DIY projects, such as porch additions, decks, and bathroom remodels, leading to a negative supply shock and positive demand shock.

Supply chain disruption

Several other factors also played a role in the lumber shortage. An active Atlantic hurricane season in 2020 led to thousands of rebuilds, and wildfires destroyed 10.3 million acres, affecting lumber supply. Additionally, 20% tariffs on Canadian lumber imposed in 2017 may have contributed to the price surge, though the tariffs were reduced to 9% in December 2020. The mountain pine beetle infestation in British Columbia further diminished log supplies, enough to build nine million single-family homes.

Interestingly, lumber consumption in 2020 was still below the peak of 2005, yet lockdowns caused the supply to tighten significantly. The unpredictability of the pandemic and lockdowns created long-term ripple effects in the lumber market.

Prices

Looking at lumber futures, these financial contracts are traded at the Chicago Mercantile Exchange and involve legally binding two parties to the delivery of lumber at a future date and price. Futures for standard 2×4 pieces have soared from the usual $300 per thousand board feet to over $1200, marking a 275% increase in just one year.

Real-world price increases have been drastic. A 2”x4”x8’ pine stud, for example, that used to cost $2 now costs $7, while 4’x’8 7/16” OSB increased from $8 to $42. These surges affect the construction industry, with the average cost of single-family homes increasing by $24,000.

To alleviate the situation, shutdowns in the lumber industry must end, and suppliers should operate at full capacity to meet current and future demand. Some builders have started switching from stick framing to ICF framing to control costs. Additionally, the US has increased lumber imports from Europe, particularly from countries like Austria, Germany, and the Czech Republic, to fill the gap in supply.

Conclusion

Despite the challenges, this supply chain disruption could push the construction industry to be more resourceful and environmentally conscious. Collecting and recycling wood scraps into engineered wood products, exploring automation and prefab construction methods, and diversifying building materials could help mitigate future issues.

In conclusion, the lumber shortage has been a complex issue, but with careful consideration and innovative approaches, the construction industry can navigate these challenges and work towards a more sustainable and resilient future.