How the Lumber Shortage Is Affecting Construction Costs

By May 27, 2021 News
CHI Blog

How the Lumber Shortage Is Affecting Construction Costs

The quarantine has convinced many homeowners with more time on their hands than ever to consider renovations and other works that require wood. The result is an explosion in demand for lumber and suppliers scrambling to keep up. Many industries are starting to feel the consequences.

It’s estimated that the cost of constructing a wooden home has likely quadrupled recently, and even procuring enough lumber is a challenge for some customers. COVID-19 has accelerated this trend even further.

As lumber prices surge in response to a supply shortage, the construction market’s impact cannot be ignored. If you’re interested in building, say, a new restaurant or nightclub
soon, the price of lumber is going to be a heavy consideration in the coming months.

How the Industry Runs

The life of construction wood, as expected, starts with the tree. Timber is the raw material that comes from forests. Once it gets cut down, it’s sent to the mill where it’s processed into lumber, the finished manufactured product sold at hardware stores.

There’s no shortage of trees and, by extension, timber. The lumber shortage we’re talking about refers to the finished product only. The supply chain of the lumber industry requires a lot of planning since regrowing trees and transporting the logs to the mills takes time. This long lead time emphasizes the importance of inventory management for client businesses. If you need the lumber sooner, expect to pay a much higher price for it.

The Surge Due To COVID

Even before COVID-19, the lumber market has been in a suboptimal state for nearly a decade. 2019, in particular, has been called a “collapse” by some publications. The start of the pandemic has unsurprisingly not helped matters. Many lumber industry managers believed that there was an incoming recession and loss of jobs would result in a decrease in lumber market activity and prepared accordingly. However, with extra time spent indoors, many people have chosen to move homes, buy new ones, or even renovate their current ones. The result is an increase in lumber needs as many projects involved building new wooden decks, fences, and other structures.

Major storefronts like Home Depot have reported stellar sales numbers. There was, for instance, a 25% increase in sales in 2020 compared to a year ago. Compounded by rising demands even overseas, the recent trend has put a strain on the lumber industry.

The Reaction of the Lumber Market

When the market began surging, many producers chose to wait and see whether the boom would last before ramping up production. Even the ones who did still encountered hurdles as quarantine measures were enacted.

Sawmills, in particular, had a hard time getting enough employees on board. According to Oregon sawmill owner Steve Swanson, the mills themselves are incredibly expensive to build, costing around $100 million and nearly two years of creating one. Even then, it’s not always guaranteed you’ll have enough raw materials to keep it running. Combined with the uncertainty of how long the demand surge will last, it’s not surprising why the industry’s response has been lukewarm.

Problems with Sourcing North America’s lumber sources are pretty limited. Most of the United State’s lumber comes from British Columbia, Canada, and wildfires, legal restrictions, and even a local beetle infestation have hurt production lines. The opposite issue occurs in other sources like the Southern U.S., where a shortage of working sawmills has restricted lumber production despite high amounts of timber. Wood is also not interchangeable, as the use cases for Canadian wood might differ from that of U.S. wood. This disconnect between raw materials and processing means that changes in the market are rarely spread out through the entire supply chain.

Where We Are Now

The current state of lumber can be described as “volatile,” with low supply failing to meet rising demand. Many sawmills are selling boards before they’ve even finished processing, and the few customers who can find lumber to purchase are buying at a high price.

Industry professionals say that they cannot predict when the market will return to “normal,” but many agree that the issue primarily has to do with supply

By building more sawmills and producing more lumber, the future can be smoother for those needing new construction materials for their homes or businesses.

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