Carlos Guido is working on a construction site in San Marino on Wednesday. (Jason Armond / Los Angeles Times)
The cost of a common good has messed up summer plans, and it’s not the gasoline: Rising wood prices make new homes, renovations, and even simple picnic tables drastically expensive.
Sometimes bills come in thousands or even hundreds of thousands of dollars above the appraised value. In the most extreme cases, projects have stalled as prices spiraled out of control.
Ken Kahan, president of developer California Landmark Group, said he paused work on a 50+ unit housing project in the Los Angeles area after a timber supply hit three times its original projection. “When you look at commodities, you do – either the world is upside down or there is just a twist that just needs to calm down.”
Kahan hopes to resume the project in the coming months when wood prices stabilize, but analysts said prices are likely to stay elevated for longer periods of time due to the COVID-19 pandemic. When the coronavirus spread in the USA last year, wood suppliers assumed a slump in demand and stopped production accordingly. Traders followed suit, stopped buying wood and selling inventory.
Contractor Chris Williams, shown at a construction site in San Marino, says that sometimes timber prices change so quickly that he cannot cover his costs on some projects. (Jason Armond / Los Angeles Times)
But the companies were wrong. Many Americans who spent more time at home decided to make a change and tried to transform themselves. Others were looking for a newly built home, including wealthy tenants who wanted more space and a garden. Such constructions require a lot of wood.
Suppliers and dealers cannot immediately reverse the effects of their decisions because there are not enough skilled workers or active mills to process the wood. “It was just this crazy chase to get things going, but it just doesn’t work that way,” said Greg Kuta, CEO of Westline Capital Strategies, which specializes in timber trading.
At the beginning of May the wood futures reached their peak and rose by more than 300% compared to the previous year. Since then prices have decreased a bit, but they are still up more than 200% compared to that time last year.
The story goes on
The inflated prices can last a while. “I don’t think you’re likely to see this level in 12 to 18 months,” said Tony Uphoff, CEO of Thomas, a procurement platform that connects businesses with industrial suppliers.
A worker walks through a construction site in San Marino. (Jason Armond / Los Angeles Times)
Part of the problem is that the US relies on timber from Canadian forests – a supply that has dwindled in recent years, Uphoff said. In 2017, the Trump administration imposed a 24% tax on softwood imported from Canada, causing several Canadian factories to shut down. “That was actually the first step that caused some of the problems we still see in the supply chain today,” said Uphoff.
Despite the restrictions, the construction of new homes is still picking up this year, reflecting the hot demand for housing that builders say they are in a hurry to meet.
But some builders are starting to slow down. If this choice prevails, it could exacerbate a supply shortage that has been driving up housing costs for years. Some are pushing for a break on existing projects, while others say that with soaring timber prices, it is more difficult to find new deals that still work financially.
For some companies, it’s not even price that is the big issue, but whether they can find supplies, be it wood or other staple food that is becoming scarcer from supply chains ravaged by a pandemic.
Shay BenZvi, a contractor and owner of Green Remodeling Solutions at Canoga Park, said he sometimes goes to the store just to find two by four that are warped and ruined.
“A lot of the companies took their bad stocks out … and put them on the shelves so people could have wood,” he said. “But that can’t work.”
Smaller projects are also affected. JeanPierre Nalbantian has been building and running a haunted house in Burbank every October for seven years. But this year he’s not sure what to afford.
After visiting Lowe’s and doubling or tripling wood prices from previous years, Nalbantian started looking on Craigslist. He also reached out to Twitter for advice on cheaper materials. “I’m driving around trying to find wood lying around,” he said. So far he has bought two sheets of plywood.
Now he is wondering what he can achieve within the budget this year. “Right now, I’m just waiting for prices to fall,” he said.
At the Black Cat restaurant in Silver Lake, manager Benjamin Schwartz struggled to find affordable outdoor picnic tables. When he called hardware stores like Lowe’s and checked online, he often found the wooden tables twice or three times as expensive as he expected.
Eventually he found something in the normal range.
“We have some picnic benches that we bought for $ 100 each that were really hard to come by,” Schwartz said.
Among these pending projects are developers with affordable housing who need to cobble together funding from myriad sources to allow them to subsidize rents.
“We’re getting to a point where we need to slow our pipeline,” said Jesús Hernández, director of housing at Community Corp. of Santa Monica, a not-for-profit construction company. Continuing at the current pace would cut too deeply into the group’s resources and prevent them from putting together future projects.
Rapidly rising home prices, on the other hand, give developers of single-family homes more opportunities to continue building, and some developers said they could pass on price increases.
According to the National Society. of home builders, the rising cost of wood is adding nearly $ 36,000 to the cost of the average newly built home, and some developers are getting creative to pass that on.
When buying a newly built house, buyers usually signed up for a waiting list before the pandemic and then paid a fixed price for a builder to build the house on a vacant lot in a community of new builders. But an April survey by the trade group found that the majority of builders now have “escalation contracts” that allow them – if construction costs rise – to increase the sale price after a buyer pays a down payment.
Doug Bauer, CEO of national construction company Tri Pointe Homes, said he didn’t see buyer fatigue despite the price hikes, noting that his company could sell homes faster.
Instead of escalation clauses, he said Tri Pointe had decided to slow down the number of lots it is putting up for sale to homeowners. He said that it will allow Tri Pointe to price the houses to a point that better covers the rising cost of wood. It’s a slow strategy that more and more builders are reporting.
Building contractor Chris Williams said he consistently raised the price of building backyard homes known as ADUs, an increasingly popular investment for homeowners, after the state eased building restrictions in recent years to alleviate the housing shortage. So far, Williams has said people are paying, but wood prices sometimes move quickly and don’t allow him to cover his costs.
“As soon as I sign this contract for that amount of money, say $ 300,000 or whatever, I’ll have to stick to it,” he said. “I just have to take a hit and then raise my prices on the next project to match them.”
Mike Moore, co-owner of Snap ADU in Oceanside, said he had to raise prices for ADUs his company built by about 30%, with a typical 500-square-foot one-bedroom model rising from $ 125,000 to about $ 170,000.
In addition to the wood problem, the costs for metal, windows and equipment are also increasing: “Our suppliers and suppliers send us an email almost every week with the words: ‘I’m so sorry, further price increases’ are coming.” “
This story originally appeared in the Los Angeles Times.