The Wall Street Journal reports that skyrocketing construction material costs are inflating home prices, pressuring homebuyers and threatening the booming U.S. housing and construction industries:
Lumber, one of the biggest costs in home-building after land and labor, has never been more expensive and is more than twice the typical price for this time of year. Crude oil, a starting point for paint, drain pipe, roof shingles and flooring, has shot up more than 80% since October. Copper, which carries water and electricity throughout houses, costs about a third more than it did in the autumn.
Prices for granite, insulation, concrete blocks and common brick have all pushed to records in 2021, according to the Bureau of Labor Statistic’s producer-price index, which measures the change in prices that producers receive for their output. Drywall and ceramic tiles are short of records but have also climbed.
Materials producers like paintmaker Sherwin-Williams Co. and flooring manufacturer Mohawk Industries Inc. as well as builders D.R. Horton Inc. and Hovnanian Enterprises Inc. have been raising prices to pass along higher costs. They can thank historically low borrowing costs, federal stimulus payments and a hunt for yield that has sent investors barreling into the home-rental business.
“Whoever the home buyers are, they have been able to pay for it,” said Todd Tomalak, who tracks building products for John Burns Real Estate Consulting.
Surely, there many factors contributing to the dramatic run-up in materials prices, but construction industry players should also "thank" U.S. trade policy for the situation. Indeed, as I noted here last July, U.S. tariffs and other trade measures currently restrict the supply of "almost everything you need to build a house, from the foundation to the roof and in between." The following table provides the current status of these measures, including a couple new import restrictions that have been added since last summer:
Back in the darkest days of the COVID-19 recession, these trade restrictions might not have mattered too much because the economy and U.S. homebuyer demand was sagging. Today, however, is a much different story: the housing market is going gangbusters, and total residential construction materials prices have increased by almost 8 percent in the last year alone:
The increasing prices of these and other building materials can have a significant impact on the price of a new home. For example, the National Association of Home Builders estimates that record-breaking lumber prices alone have added $24,000 to a home's price tag this year. To put that in perspective, the NAHB recently calculated that the total cost of framing a new home - most of which is lumber - was only 51,589 in 2019 (17.4% of the home's final sales price). And, oh by the way, the world's second-largest exporter of softwood lumber just happens to be our northern neighbor, but its exports are currently subject to U.S. duties at rates ranging from 5 to 20 percent.
Surely, there are other things - interest rates, pandemic-induced changes to homebuyer preferences, regulatory restrictions on local housing supply - affecting these trends, but it's nevertheless nonsensical to impose artificial restrictions on the supply of building materials in a time of skyrocketing prices for those same goods and the U.S. home prices to which they contribute - especially when we know U.S. consumers are footing the bill.
Unfortunately, there seems to be little hope for an immediate change in U.S. policy: President Biden's team has already voiced tepid support for his predecessor's "national security" tariffs on steel and aluminum imports and even stronger support for Trump's China tariffs, and the "exclusion" processes under the relevant trade laws are opaque, costly, and ineffective. That's too bad, because President Biden could eliminate these tariffs, and release some of the current housing cost pressures, with the stroke of a pen.
On the other hand, U.S. antidumping and countervailing duty (AD/CVD) laws are a tougher nut to crack. As I noted in July, these "trade remedies" laws have extensive procedural requirements, "expressly prohibit agencies from considering duties’ consumer harms, and – unlike other jurisdictions – lack any test for choosing the 'public interest' over domestic industry pleas for import protection." We're therefore likely stuck with these measures for the foreseeable future, regardless of what the U.S. housing market does.