The Question of Lumber Prices
May 11, 2021|
CONTACT: Zoltan van Heyningen
[email protected] | 202-805-9133
The question is not what have lumber prices done to housing, but what has the unrelenting demand for housing done to lumber prices — and to the prices of plywood, oriented strand board, sinks, plumbing, and just about every other building material, as well as homebuilder profits.
Despite the challenges of COVID, lumber producers are producing as much lumber as they possibly can, as any rational supplier would in response to such strong pricing. Since 2016 when the softwood lumber trade cases against subsidized and unfairly traded Canadian imports were brought by the U.S. industry and initiated by the U.S. government, U.S. sawmill investment capacity expansion has been robust, which has produced an additional 11 billion boardfeet of lumber over that period. That is enough lumber to have built 730,000 single-family American homes.
And more capacity-creation is underway, creating more American jobs, not just in the mills themselves but also in typically rural communities that support those workers. Any consideration of the value of the softwood lumber trade case to the U.S. economy must consider the lumber supply situation had this new capacity not been added since 2016.
The Canadian side is also operating at full capacity, yet lumber prices in Canada have moved up in lockstep with U.S. lumber prices: there is no magical supply of surplus lumber available from Canada to build more U.S. homes. At today’s prices, Canadian exporters are earning margins on their U.S. sales many multiples of the duty deposits they are paying to the U.S. Treasury as a result of the softwood lumber trade case.
Homebuilders argue that home prices – new and existing – are rising because the duty on subsidized imports from Canada. This is false. While it is true that demand-driven rising lumber prices have increased the cost of lumber in a newly built home, The National Association of Homebuilders (NAHB) triples the correct estimate of that cost by including plywood, OSB, delivery costs, and so on. These non-lumber products, which together are much more costly than lumber, are not made by sawmills and are not subject to import measures; they belong to a different industry.
The actual arithmetic for lumber is simple: there are 15 thousand boardfeet of lumber in an average new house (according to NAHB itself), and the lumber price is $1,400 per thousand boardfeet – that’s 15 times $1,400 = $21,000 per house, total cost. Canada supplies about a quarter of U.S. lumber consumption, and the duty is 9 percent. So even if Canadian exporters passed-along the entire duty to the U.S. importer (they usually don’t) the math shows that, at most, only $32 of today’s lumber price is a Canadian duty ( = 25% * 9% * $1,400).
By comparison, Census reports average new home prices in March at $398,000, up $38,000 since a year ago. Homebuilders’ output, earnings, and stock prices have continued to soar alongside the lumber-price complaints.
NAHB suggests the U.S. government should lower the duty and encourage U.S. lumber producers to make more lumber. That is a contradiction: lowering the duty would not further accelerate booming U.S. construction – particularly in the face of so many other building constraints.
Eliminating the duty would shift the duty-deposit funds from the U.S. Treasury to Canadian companies (thus better fortifying them to compete with U.S. producers during the next building recession).
Failure to fully enforce the trade laws would only undermine long-term confidence in expanding U.S. sawmilling capacity and jobs in the American softwood lumber industry, contrary to any widely shared policy of supporting U.S. manufacturing infrastructure competing against subsidized and unfairly traded imports.
The legal proceeding to address Canadian lumber subsidies and unfair trade spanned the Obama and Trump Administrations. Unlike an import tariff, the resulting duty cannot be removed without U.S. industry consent.
Continued full enforcement of the U.S. trade laws is exactly what everyone knows must happen to expand U.S. lumber manufacturing and availability to meet strong building demand to build more American homes.
Zoltan van Heyningen is the Executive Director of the U.S. Lumber Coalition, an alliance of large and small softwood lumber producers from around the country, joined by their employees, and woodland owners, working to address Canada’s unfair lumber trade practices.