Editor's Note: Since the publishing of this article, lumber prices saw a sudden, stark drop, with the cash price down 20% from its high set on May 28, 2021. Read more about the latest changes in FORTUNE.
Material shortages in the construction industry are continuing to impact multifamily development, as cost increases due to the sky-high price of lumber are expected to persist, causing further project delays and influencing the housing market into the indefinite future.
Builders have been forthcoming about the impact of material shortages in an ongoing survey from the National Multifamily Housing Council (NMHC), with as many as 40% of respondents expressing concern related to price increases of upwards of 20% on critical materials. Lumber prices had already been increasing for some time in relation to rising tariffs, but temporary shut-downs in production and the unpredictability of the housing market at the start of the COVID-19 pandemic have accelerated the issue. According to the NMHC, lumber prices today have increased by close to 90% year-over-year since previous high points in late 2018, and have gone up nearly 35% in just the last five months.
Offering analysis on the survey data, NHMC vice president of research Caitlin Walter admits that lumber prices “[are] creating a serious impediment for apartment developers and construction firms.” She goes on to suggest that builders might find a short-term solution in the use of substitute materials, or by making more room in their budgets for the increased cost of lumber on a temporary basis, hoping for a fortuitous shift in prices in the coming months. However, given the volatility of the economy due to the pandemic, as well as the complexity of causes involved in material shortages, it remains difficult to predict when a cool-down on inflation might occur, and this has huge implications for the housing market. Walter stresses this point in her analysis, insisting that “[these] disruptions could challenge the already supply-constrained market and threaten to derail housing affordability efforts.”
Today’s housing market is in fact already reflecting the impact of high lumber prices on multifamily development. The National Association of Homebuilders (NAHB) recently reported that lumber prices alone have added close to $36,000 to the average price of a single-family home, as well as nearly $13,000 to average market values. When you consider other contributing factors, such as increased buyer competition, or the similarly rising prices of other critical materials including steel, copper, and brass, the market seems poised to face a number of unprecedented challenges in 2021. Absent serious efforts to mitigate a wealth of supply chain issues, inflation is likely to persist for as long as multifamily housing remains in high and increasing demand.
The Biden Administration Responds
Concerns around rising lumber prices and material shortages took center stage at a May 6 House Appropriation subcommittee hearing, in which representatives pressed Commerce Secretary Gina Raimondo on the Biden administration’s plans to address the issue. Citing recent NAHB data, Representatives Ben Cline and Robert Aderholt both emphasized the impact of material shortages on the construction industry, the housing market, and the US economy in general, requesting that the Commerce Department make an effort to work with Congress and industry stakeholders to do something about it.
Addressing the Secretary directly, Aderholt pleaded for more resources to be dedicated to the issue, noting that current lumber prices and production concerns “[are] putting a lot of folks in a very difficult position for home building and various construction projects.” In response, Sec. Raimondo insisted on her department’s awareness of the problem, expressing the Administration’s intentions to identify the root causes of inflation surrounding lumber and other materials, and ultimately pledging to make the issue a priority going forward.
Rising lumber prices are clearly taking a toll on builders and families across the country, however, it’s difficult to determine how current levels of inflation will impact multifamily development in the long-term. While various factors are at play, the COVID-19 pandemic has contributed a significant amount of uncertainty to the market, and many are hopeful that as outbreaks subside, and Americans continue to be vaccinated, some stability will eventually return to the national economy. In the meantime, experts will continue to evaluate causes and seek solutions, and should be looking to the posture of homebuyers as well as the activity of supply chains for signs of encouragement.