Lumber shortage impacting affordable housing in Indiana

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INDIANAPOLIS — First toilet paper, then microchips, now lumber.

After an unexpected surge in demand as people began remodeling projects and building new homes, lumber yards faced a shortage in one of the biggest components for any build.

A national report from the National Association of Home Builders (NAHB) says lumber prices have been volatile in the wake of the COVID-19 pandemic due to increased demand and supply-side constraints. Nationally, lumber prices have skyrocketed more than 300% since April 2020.

National Association of Home Buiilders

While there is a shortage in lumber, the Indiana Builders Association said the logs are there, mills are just not being able to keep up with the demand.

Near the start of the pandemic, lumber mills laid off employees due to stay-at-home orders and social distancing measures and scaled back production. However, when people started remodeling and buying new homes, they were unable to keep up with the demand.

“Everyone was expecting a slowdown in the economy, and we had the opposite,” Schwinghammer said. “Demand went high. As the months went on, it kept going up and up and up, and yet they couldn’t get the lumbar produced quickly enough to meet that demand.”

With supply not being able to meet the demand, prices began to rise.

By now, many people that visit community garage sale pages on Facebook may have seen posts lightheartedly offering a trade of a sheet of plywood for a new vehicle. Schwinghammer reports this material, primarily used for floors, siding and roofing has more than quadrupled in price.

“You can go to Lowes, you can go to Home Depot, you can go to any lumber retailer and buy materials, you’re just going to pay a lot more for it,” Schwinghammer said.

An eight-foot-long length of 2×4 that would have sold for $2 this time last year is now costing people close to $8. A 4×8 sheet of plywood that would have sold for $10 is now anywhere from $45-$60.

“When you have that, and you have the prices of every bit of lumber going through the roof, it makes housing unaffordable,” Schwinghammer said. “At the Indiana Builders Association, our main goal is to make housing safe and affordable for Hoosiers. And we can’t do that when prices are at these levels.”

Data from the NAHB shows nearly one in five builders say they have had to delay building or sales when costs spike. Other builders are including clauses in contracts in case prices continue to rise.

One organization feeling the impact of the skyrocketing lumber costs is Greater Indy Habitat for Humanity. The nonprofit buys raw materials at market rate and often does not get donated lumber. While they had plans to double the output of homes this year, the high prices are preventing them from doing so.

“This convergence of expenses and material going up to such a degree, and demand for what we do is hitting at a time that we’ve never experienced,” Jim Morris, President and CEO of Greater Indy Habitat for Humanity said.

The high lumber costs can usually be passed on to the consumer through mortgage or rent. The NAHB said the price hike has added nearly $13,000 to the market value of an average new multifamily home, translating into households paying $119 a month more to rent an apartment.

However, for organizations like Habitat for Humanity, they are dealing with a low-to-moderate income working family, so they can’t pass the costs along necessarily all the time.

“We still gotta figure ways on how to keep that affordable, so a lot of times we have to go and hopefully raise more money, but that’s not an immediate response or solution,” Morris said. “Our concern is that we’ll have to not do as many homes as we would like to do to meet the demand of those coming to our program.”

While prices have skyrocketed in the last year, there is still hope for prices to stabilize. Doug McCoy, the director for the Center for Real Estate Studies at IU Kelley School of Business says there are a lot of things factoring into the issue, and it will take time to correct.

“In the next year will it solve itself? No. In the next 2-3, we’ll start to see a lot of improvement and in the next 3-5 will hopefully be back to a more normal situation and the market will adjust,” McCoy said.

Even if it does stabilize within the next few months, Schwinghammer says we will still be feeling the impact into next year.

“If we don’t have sales today, next month, and the month after that, we’re not going to have construction jobs and construction projects to build in 2022,” Schwinghammer said.

McCoy says there are a lot of issues factoring into the lumber price issue and it takes time to correct them.

The NAHB is working with the Biden administration to address the lumber price issue and supply shortages. During a May 6 House Appropriations subcommittee hearing, Rep Ben Cline (R-Va.) cited the NAHB data, asking Commerce Secretary Gina Raimondo what resources would be available to look into the issue and its impact on the economy.

“A lot of supply chains have been disrupted during the pandemic. It isn’t just lumber. Recently ITA [the International Trade Administration] has been doing a good deal of convening of stakeholders to try to learn exactly why this is happening,” Raimondo said in response to Cline’s question. “

For those considering building a new home, McCoy said they should be careful to avoid doing something they may later regret.

“It may be better to be patient right now than it is, in my opinion, than to get anxious and do something that you really don’t feel comfortable doing,” McCoy said.

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