Lumber Shortage Slowing New Home Builds

June 10, 2021

The shortage of homes across the nation appears to be here to stay. With prices soaring on the available homes, many buyers are left on the sidelines as their budget cannot keep up. But when will the shortage of homes be able to match the current housing demand of the market? As far as existing homes, a few factors are keeping the inventory low:

  • Older generations opt to “age-in-place” instead of downsizing and selling their family homes, as seen in prior years.
  • Potential sellers are wary of covid exposure from showings, etc.
  • Potential sellers are hesitant to sell their current homes as they will have to participate in the seller’s market now as a homebuyer to find a new home.

As the stock of existing homes remains somewhat gridlocked, the unmet demand for homes would be a prime opportunity for the new housing market to ramp up production.

Home Building Also Facing Obstacles

Unfortunately for homebuyers, the building industry is also having trouble addressing the housing demand, and internally, is facing its own set of obstacles. Construction costs for new homes are also rising, causing builders to stop taking orders for new homes. According to the National Association of Home Builders (NAHB), there are “Five Ls” when it comes to determining construction costs of new homes:

  • Labor
  • Land
  • Lending
  • Laws & Regulations
  • Lumber & Materials

For builders, various issues and combinations of these factors are causing the sluggish development of new homes across the nation. However, in many situations, the skyrocketing price of lumber is being felt across the real estate industry.

A Look at Lumber

Lumber is a critical component in new home construction, and prices for 1000 board feet of lumber were stable cost around $200-$400, but recently this price has soared up to $1000. According to Emily Stewart of Vox, “A new house that would have cost $10,000 in wood to get off the ground a couple of years ago now costs $40,000 worth of wood — assuming, that is, you can even get your hands on the lumber.” Much like the shortage of homes and the fevered demand for them, sawmills are struggling to produce enough supply, causing the price to increase due to the steep demand for it. The Great Recession heavily impacted the lumber industry, forcing many to close or downsize their operations and left the lumber industry unprepared to meet the explosive demand brought on by the pandemic.

Lumber Industry and the Pandemic

Like many industries, the onset of the pandemic was a forecast that business was going to slow. And to the surprise of many in this industry, the real estate market only hit an initial hiccup when lockdowns were put into place. After that, the market quickly picked up steam, as demand for homes and new builds began to grow. Additionally, many current homeowners wanted to take advantage of their increased time spent at home due to the pandemic, which brought a wave of DIY renovations and projects to spruce up their homes.

Both endeavors require ample supplies of lumber and ended catching an already ill-equipped lumber industry off guard. For the sawmills that weathered the storm of the Great Recession, business is booming as there is plenty of raw timber to process. But for many that closed or scaled-down, it’s not as easy to ramp up lumber production. However, with these current conditions the lumber industry is primed for more growth that could lead to increased production – but that may not solve the immediate shortages.

Impact on Supply of Houses

While lumber is only one of many factors that are slowing new home productions, the lumber shortage exhibits the “perfect storm” that has developed between the post-Recession struggles for the building industry and the explosive demand from the pandemic. The deficit for homes and lumber did not happen overnight, as the Great Recession led to almost a decade of underbuilding new homes and associated industries having to downsize. Then the pandemic was the catalyst that caused many new families to opt toward homeownership, further intensifying the housing shortage. While sectors like lumber are slowly increasing output to allow for more new homes to be built, it will take a while until the supply begins to catch up to demands.


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