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Lumber Dispute Drives Up Construction Costs

The ongoing trade battle between the U.S. and Canada is making it more expensive to build houses, but opinions differ on exactly how much

Posted on May 26 2017 by Scott Gibson

An ongoing trade battle between Canada and the U.S. over softwood lumber has pushed up the cost of building a typical single-family home by several thousand dollars, according to the National Association of Home Builders, and prices could be going higher yet.

As reported by Construction Dive, the Softwood Lumber Agreement between the two countries expired in October 2015 and a subsequent grace period ended a year later. Fears that the U.S. government would impose new tariffs to compensate for subsidies paid by the Canadian government to lumber producers pushed prices up by 7.2% in the first quarter.

In late April, the U.S. Commerce Department announced countervailing duties for Canadian producers that averaged 20%, with additional anti-dumping duties expected to be announced on June 23.

NAHBNational Association of Home Builders, which awards a Model Green Home Certification. Chairman Granger MacDonald told Construction Dive that the tariffs will make houses less affordable for American buyers without doing anything to solve underlying trade issues. With a typical house using 15,000 board feet of lumber, according to MacDonald, the first quarter price hikes alone could add nearly $3,600 to the typical construction bill.

Other estimates were much less dire.

The U.S. Lumber Coalition, which represents softwood lumber producers here, says that the total cost of lumber in a $350,000 house is $6,000, with the new duties adding about $400. “An average home uses 13,000 board feet of lumber,” Zoltan van Heyningen told Construction Dive. “With an average composite framing lumber price of $435 today, it adds up to $5,655 total in the cost for lumber, which makes it impossible for a 20% duty on one-third of that lumber to result in a cost increase of $3,600 to the consumer.”

NAHB said in an Eye on Housing report that April's 3% increase pushed the softwood lumber price index to its highest level in more than a decade. The price of softwood lumber climbed 10.4% in the first four months of the year.

NAHB also said that gypsum, ready-mix concrete, and OSB all showed price increases.


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1.
May 26, 2017 12:20 PM ET

Edited May 26, 2017 12:20 PM ET.

tariffs on competition to prop up uncompetive production
by Brian Croston

usually doesn't end well. I'd like to buy that cheap Canadian lumber already subsidized by the Canadian taxpayers. I guess I'd better get started on my double stud wall build. Thankfully, my house plan is relatively compact and lumber prices have decreased pretty steadily since early April peak.


2.
May 29, 2017 9:44 AM ET

"subsidy" has been claimed by
by Ryan Magladry Ottawa, Ontario

"subsidy" has been claimed by the US dating back to the 60's. The Canadian lumber industry does not receive a direct subsidy. The dispute stems from the fact that most canadian lumber is harvest from crown land, owned and controlled by the provinces. The provinces set a fixed charge for permission to harvest. The US considers this a subsidy, since in its own markets, the forests are owned by private land owners and must be purchased/leased at fair market rate in order to produce and harvest. Remember fair market rates are simply whatever the land owner is willing to accept. US Lumber resources are much more scarce than Canada's, making its own lumber more valuable. While labour costs are significantly lower in the US, Canadian lumber benefits from a (typically) lower exchange rate, and cheaper access to forests (claimed subsidy by US).

The only subsidy was to cover losses and legal expenses in 2005 after 3 years long disputes and was entirely based on the invalidated duties.


3.
May 31, 2017 11:43 PM ET

Edited May 31, 2017 11:45 PM ET.

Absolutely Correct Ryan.
by Burke Stoller

Ryan's comments are exactly correct. Canada has cheaper lumber for three reasons: they have much more available forestry land (larger supply means lower prices); the land is not typically owned by private companies that have an interest in reaping larger profits off it's use; and the Canadian dollar is worth less, so any readily available commodity that Americans buy from Canada is cheaper than if it comes from their own country. It is not unfair trade practice; it's just inherent differences between the geography and socio-economic paradigms of our countries that make it look like the practice is somehow unfair. Because the US government is caving into the outcry of the lumber suppliers in the States, every single builder and housing consumer in the country is going to suffer for the benefit of those very few lumber suppliers. But, this happens every single time the softwood lumber agreement needs to be renewed, so it's not exactly news. . .


4.
Jun 1, 2017 6:04 AM ET

Edited Jun 1, 2017 6:10 AM ET.

Response to Ryan Magladry and Burke Stoller
by Martin Holladay

Ryan wrote, "Canadian lumber benefits from a (typically) lower exchange rate."

Burke wrote, "Canada has cheaper lumber for three reasons: ... the Canadian dollar is worth less."

These statements show a fundamental misunderstanding of currencies and exchange rates.

Let's imagine three countries: The U.S., Princistan, and Denzostan.

The currencies are the U.S. dollar, the Princistan peso, and the Denzostan dinar.

One U.S. dollar = 2 pesos.

One U.S. dollar = 0.50 dinars.

Where is lumber cheaper?

There is no way to know. Although it's true that a dollar can buy 2 pesos, that doesn't mean that a 2x4 is cheaper in Princistan than in the U.S. Maybe a 2x4 costs $2 in the U.S., but it costs 6 pesos in Princistan. The exchange rate matters when doing the calculation, of course, but the exchange rate tells you nothing about the cost of living or local prices.

Americans get confused on this point because the name used for Canadian currency is the dollar. But the principle applies to all countries and prices.

Having a currency called "the dollar" does not help Canada. Nor does the fact that the exchange rate may be 1 U.S. dollar = 1.10 Canadian dollar. The exchange rate tells us nothing.

In Princistan, a 1-pound loaf of bread might cost 2 pesos. The same loaf of bread might cost 0.50 dinars in Denzostan. But it would be silly to say, "Wow! Bread is so much cheaper in Denzostan than it is in Princistan!"


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