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RENO, Nev. — Tariffs enacted on softwood lumber imported from Canada are helping create a “perfect storm” of escalating construction costs in Northern Nevada.
In December 2017, the U.S. Department of Commerce imposed tariffs on five of Canada’s largest producers of softwood lumber such as fir, spruce and pine, which are commonly used to build single-family homes and multi-family apartment complexes.
And as anyone who has driven around greater Reno-Sparks or Carson City during the past year can attest, there’s no small amount of new construction going on.
The tariffs — set at 20.8 percent for the majority of Canadian softwood producers, and a bit higher for a few companies that were singled out for individual duty fees — are leading to increased construction costs for projects throughout Northern Nevada.
Don Tatro, executive director of the Builders Association of Northern Nevada, says the tariffs amount to additional materials costs of nearly $6,400 per single-family home and $2,400 per multi-family unit.
Coupled with white-hot demand for new housing and rising prices for fuel, land and labor, and it’s no wonder why housing and apartment prices across Northern Nevada have gone haywire.
“All of this has had significant impact and contribution to the increased price of constructing a home,” Tatro says. “When the cost of a home goes up $1,000, there are 2,077 families priced out of a house in Nevada, and 348 in Washoe County. Just with the lumber price increases, that is more than 2,000 people priced out of a home.”
Massive increases in lumber prices
Canada is the largest exporter of lumber to the United States. In 2016, the U.S. consumed 47.1 billion board feet of lumber, the National Association of Home Builders reports.
American mills produced 32.8 billion board feet of lumber, meaning it imported 14.3 billion board feet of lumber. About 95 percent of that wood was imported from America’s northern neighbor.
According to the National Association of Home Builders, framing lumber prices have spiked 60 percent in the past 27 months. In January 2016, the Random Lengths Framing Lumber Composite price was $312. In March of 2018 it was $502.
The price is an aggregate of 15 commonly used framing materials, such as 2x4 studs and other common lengths, calculated per one thousand board feet of material. The composite index does not include plywood and other types of sheathing common in residential and multi-family construction.
Regional homeowners are bearing the burden for additional materials costs in residential construction, and it’s the same for developers of commercial projects.
General contractor Frank Lepori says any increases in lumber costs typically are passed through to clients, but his team works diligently with subcontractors and vendors to lock in pricing and avoid potential cost increases for clients.
“At this point we have not felt any effects to our schedule and work load,” Lepori says, (but) at some point clients may stop building projects if the costs do not work in our clients’ pro formas.”
Boosting U.S. timber production is one way to counter the tariffs; however, any increases in the domestic supply of timber products requires a deep look at potential environmental impacts of increasing production on public lands, Tatro says.
More at play than just lumber
Lumber is just one aspect of rising construction costs. Perhaps more concerning to regional tradesman and advocacy groups such as BANN is the continued shortage of qualified labor.
Lepori says the strain of a tight labor market has had a greater impact on regional construction efforts than the duty fees being imposed on imported materials – although that could change if imports dwindle and materials become harder to source.
“Our biggest impact is the tight labor market,” Lepori says. “In our industry it takes years to be a first-rate foreman or supervisor, and that is the person most companies can’t find. Rising fuel costs are a concern, but they are not a show-stopper.
“Rising material prices (also) are a problem, but the bigger problem is the lead times on products or not being able to find the product that you need.”
Increasing regulatory costs and delays are the final piece of the puzzle that are pushing up construction costs. Tatro says tightening restrictions and lengthening delays on the regulatory side, coupled with the higher costs for homes and apartments, already has priced thousands of Nevadans out of the American Dream of home ownership.
The solution, he adds, is for regional construction experts and business leaders to focus on changing aspects of regional development that are within the industry’s control, such as creating additional training programs and speeding up the approval process for new development.
“We need to act fast,” Tatro says. “Whether it’s increased production of U.S. timber, or creating a pipeline of labor through through smart immigration and education of younger Americans in the trades – the average age of plumber in the U.S. is 57 years old – or increasing the speed at which we can move projects through and still conform to all local standards and master plans.
“If we don’t find solutions to increasing costs and delays, we are stuck with an unaffordable product that is in significant need and substandard housing for those who should be able to afford it,” he adds. “It’s critical that regulators and elected officials understand that these costs are real and have a direct impact on every one of their constituents.
“We can’t focus on a single type of housing; we need to focus on all types because we have demand for all types of projects, from infill housing to starter homes and luxury homes — we need them all.”
