Industry Leaders, Congress Address Lumber Cost Consequences

Published on March 19, 2021 by Nate Bortz

This month, in response to continually skyrocketing lumber prices, lawmakers and home building organizations have reached out to various departments within the federal government in an effort to give home builders and home buyers some relief. 

In this continuation and update to last month’s blog, we’ll discuss what actions these lawmakers and organizations like the National Association of Home Builders (NAHB) are taking to resolve the issue, as well as the many ripple effects across the industry high lumber prices have caused.

Current Cries For Help

On March 12, 35 housing-related organizations, led by the NAHB, sent Commerce Secretary Gina Raimondo a letter urging her to investigate ways to fight increasing lumber costs – an issue the letter calls a threat to “economic recovery and housing affordability.”

If you don’t have time to read the entire letter, here are the highlights:

• Since last spring, lumber prices have nearly tripled and oriented strand board (OSB) prices are up more than 250%.
  
• These price spikes have increased the cost of building an average single family home by $24,000, and multifamily units by $9,000.
  
• The letter argues that increasing housing demand and a surge in “do-it-yourself” activity has caused lumber shortages and made the Random Lengths Framing Composite Price surge to $1,035. The previous pre-pandemic record high price was $582.
  
• Many home builders and construction firms have signed fixed-price contracts and are now forced to absorb the price increases and costly delays in deliveries – creating a significant risk that many of these firms will be forced out of business.

The main action the letter urges Secretary Raimondo to take is to “undertake a thorough examination of the lumber supply chain and seek remedies that will increase production.”

Earlier this month, two Representatives from California and Texas sent a letter to President Biden and the Department of Justice asking for the same thing: urge sawmills to increase production so the shortage will end and prices will go down.

Lumber Supply Suggestions 

Many builder and environmental organizations say that in order for the US lumber market to meet the current demand, rules and regulations need to change. Here are just a few ideas on the table right now.

US Lumber Production

The NAHB argues that US domestic lumber production alone has not been sufficient to meet demand during the pandemic. One of the solutions they suggest is to boost domestic production by tapping into publicly owned lands and federal forests. But is something like this sustainable? Nick Smith, the director of public affairs for the American Forest Resource Council says “yes.”

“Contractors, consumers and the American public would be better served if the federal government increased timber supplies from the forest lands it manages,” Smith argues. Since the early 1990s, domestic logging in the Pacific Northwest dramatically decreased, making the US a net importer of wood despite our “advantages in forested acres, modern milling technology, and sustainable forest practices.” 

Smith says through the use of proactive, science-based forest management, we can provide a supply of timber that meets the public’s demands while also reducing the intensity of forest fires and combats climate change.

Calls to Remove Canadian Tariffs

While not stated in the latest calls for help listed above, both the NAHB and the Associated General Contractors of America (AGC) are also advocating for President Biden to end the current trade dispute between the United States and Canada.

The NAHB says they want the Biden administration to focus on working with Canada to “develop a long-term solution to the trade dispute that will ensure American home builders and consumers have access to a reliable supply of softwood lumber at competitive prices.”

They’re also currently meeting with representatives from the Biden administration, Congress, and Canadian federal and provincial officials to ensure that any long-term solution would include a U.S.-Canada settlement regarding the current anti-dumping duties and countervailing duty cases. 

Along with creating a better trade deal, AGC CEO Steve Sandherr also wants to improve the lumber delivery process. He says the US needs to improve “cross-border truck and rail shipments, unloading at ports, hauling of logs and other raw materials to mills and engineered-wood producers.” 

Practical Consequences 

While lawmakers and various organizations are waiting on the federal government to act, the record-high lumber prices are creating dramatic consequences for America’s home builders and home buyers. 

“Our Habitat affiliate is the only agency completing major repairs — roofs, furnace and septic system replacements — and installing wheelchair ramps in our service area,” said Nancy Pellegrini, executive director of Habitat for Humanity Menominee River in Michigan. “We serve families that are at or below 60% area median income. Since the price increase of lumber, we have not been able to complete as many critical repairs as usual. We have also had numerous customers decline repairs due to the cost of materials.”

David Frandsen, owner-builder and program manager for Utah-based Neighborhood Housing Solutions, a nonprofit organization that helps individuals and families find a pathway to affordable housing, said “There are people that we can no longer help to get into a home because the costs of materials (especially lumber) continue to increase at unsustainable rates.”

Even workforce training programs that are trying to improve the industry’s labor shortage issue are struggling. 

Michael Schaffer, a building construction teacher in Illinois said “the high cost of lumber is limiting the projects and training that students need in order to become successful within the high-demand construction industry. We are completely over our school budget for our highly skilled building construction courses.”

Tips For Communicating Cost

While there’s not much you can do about your current contracts, now is the perfect time to build effective cost communication skills for future customers. Here are some tips from Contractor Magazine:

1. Build Rapport Right from the Start

Always take the opportunity during the initial call to build a relationship with the homeowner by asking probing questions in order to fully understand the project. These questions can expose “pain points” they are experiencing in planning their project. Avoid jumping to solutions right away, but give the homeowner as much time as they need to explain what they’re experiencing and why they need your help.

2. Educate the Homeowner

Be patient when explaining the homeowner’s current situation, how the problem (if there is one) occurred, and what can be done to remedy it. Explain how you go about doing your work in a way that helps the homeowner see the benefits. Be sure to explain the potential timeline of the project, and what issues might arise to delay the initial time frame so the homeowner is prepared for a realistic completion date. Ask if they understand what you’ve communicated, and encourage them to ask additional questions.

3. Provide Price Options by Good, Better, Best

When discussing costs, start by offering your best solution to the problem and explaining its benefits. Then, offer alternatives with lower costs that could also help the homeowner meet a lower budget threshold. If you offer only one cost, the homeowner will likely compare your cost to another contractor. However, if you offer three options, they may feel they don’t need to get additional bids. 

4. Establish Next Steps

After each conversation with the homeowner, set a concrete next step “action item.” Decide together if you can call back, and when. Or, if they prefer to call you, define a time frame and add, “If I don’t hear back from you by then, is it okay to follow up with you?” This provides permission for you to call and learn what the homeowner’s decision or mindset is and further cement the relationship.

Share Your Story With Us

How have the increased lumber prices affected you and your business?  What are some ways you’ve been “getting around” the high lumber prices? 

Write to us at blog@onlinecti.com and tell us about your experiences over the past year, so we can feature your stories in a future blog!