Latest Challenge to Housing Affordability? Wood

Over the past year prices for lumber have skyrocketed and that has put added pressure on homebuilders and apartment developers alike. From an article in the Wall Street Journal:

The bad news: wood prices are still up 67% over the past year, adding thousands of dollars to the cost of each new house.

The historic run-up in lumber prices–attributable to a trade dispute with Canada, wildfires and limited rail capacity–comes as U.S. home builders are already struggling to meet demand amid shortages in buildable lots and labor…

For a generation setting off to start families in the suburbs, pricier construction materials are another hurdle to homeownership, on top of rising borrowing costs and competition from institutional investors, who are gobbling up homes to turn into rentals in some of the country’s hottest markets.

Apartment developers are also facing skyrocketing costs and, according to several who are members of PTAA, it’s affecting their ability to do deals. One said in an email exchange that his company has passed on several otherwise good projects because cost far outpaces rental rate.

This news is not good for housing affordability either. We’re already seeing an imbalance between supply and demand which will only be exacerbated by higher costs and suppressed development. Until development can catch up with demand it’s hard to see a way in which the affordability question can be answered.