By Andrew Khouri, Carly Olson, Andrew Mendez
From the Los Angeles Times
The cost of an ordinary commodity has plunged summer plans, and it’s not gas: rising wood prices are making new homes, renovations and even simple picnic tables drastically more expensive.
Sometimes bills come across thousands or even hundreds of thousands of dollars. In the most extreme cases, projects have stalled as prices get out of control.
Ken Kahan, president of developer California Landmark Group, said he had stopped work on a 50-unit apartment project in the Los Angeles area after a lumber supply tripled the original projection. “If you look at commodities, do it – either the world is turning upside down or there’s just a joy that just has to lie down.”
Kahan hopes to restart the project in the coming months if the price of woodwork stabilizes, but analysts said the price is likely to increase for a long time due to a COVID-19 pandemic. When the coronavirus started spreading in the United States last year, timber suppliers assumed that demand would fall, and they halted production accordingly. Distributors followed this lead, stopped buying wood and selling stock.
But the companies predicted incorrectly. Many Americans have spent more time at home and decided they want a change and are trying to cultivate it. Others were looking for a newly built home, including wealthy tenants who wanted more space and a garden. These types of construction require a lot of wood.
Suppliers and distributors cannot reverse the consequences of their decision immediately because there are not enough skilled workers or active mills to process the wood. “It was just this crazy catch-up to lift everything again, but it just does not work that way,” said Greg Kuta, CEO of Westline Capital Strategies, which specializes in timber trading.
In early May, timber contracts peaked at more than 300 percent from a year earlier. Prices have fallen somewhat since then, but are still rising by more than 200 percent compared to this time last year.
The high prices can last for a while. “I don’t think you’re going to take it down for 12 to 18 months,” says Tony Uphoff, CEO of Thomas, a procurement platform that connects companies with industrial suppliers.
Part of the problem is that of the United States. relying on wood from Canadian forests – a stock that has shrunk in recent years, Uphoff said. In 2017, the Trump administration imposed a 24 percent tax on softwood imports from Canada, and in response, several Canadian mills closed. “It was actually the first step that created problems that we still see in the supply chain today,” Uphoff said.
Despite the restrictions, construction of new homes is still underway this year, reflecting a hot developer of the housing market saying they want to assemble quickly.
But some builders are starting to slow down. If the choice becomes widespread, it could exacerbate a shortage of supply that has increased housing costs for years. Some keep pressure on existing projects, while others say it’s harder to find new deals that still work financially, given the rise in timber prices.
For some companies, the big problem is not even the price, but rather whether they can find supplies, whether it is wood or other staples that are made scarcer by pandemic-stricken supply chains.
Shay BenZvi, a contractor and owner of Green Remodeling Solutions in Canoga Park, said he sometimes walks into the store to find just two-by-four that were skewed and destroyed.
“A lot of the companies took out their bad stock … and they put it on the shelves so people could have wood,” he said. “But it can not work.”
At the Black Cat restaurant in Silver Lake, manager Benjamin Schwartz struggled to find affordable picnic tables for the dining area’s outdoor section. When he calls home improvement stores like Lowe’s and looks online, he often finds the wooden tables at double or triple the price he expected.
Eventually he found something in the normal range.
“We had some picnic benches we bought for $ 100 each, which were really hard to get,” Schwartz said.
Among the disruption projects are affordable housing developers who have to raise funding from numerous sources that enable them to subsidize rents.
“We’re at a point where we need to slow down our pipeline,” said Jesús Hernández, director of housing development at Community Corp, Santa Monica, a nonprofit builder. If he continues at the previous pace, he will cut too deep into the funds of the group and prevent it from compiling projects.
On the other hand, rising house prices give single-family home developers more chance to keep building, and some developers have said they could pass on price increases.
According to the National Assn. of homebuilders, rising wood costs increase nearly $ 36,000 to the cost of an average newly built home, and some developers get creative when they pass it on.
When buying a newly built home, buyers usually subscribed to a waiting list before the pandemic and then paid a fixed price for a builder to build the home on a vacant lot in a new home community. But an April survey of the trading group found that a majority of builders now have ‘escalation’ contracts that allow them, if construction costs rise, to increase the selling price after a buyer has made a payment has.
Doug Bauer, CEO of national home builder Tri Pointe Homes, said that despite the price increases, he does not see copper fatigue and noted that his company can sell homes faster.
Instead of escalating clauses, he said Tri Pointe decided to delay the number of lots it makes available to homeowners. He said it would enable Tri Pointe to price the homes at a point that better covers rising wood costs. This is a slow strategy that more and more builders are reporting.
Contractor Chris Williams said he has consistently increased the price he charges for building backyard homes, ADUs, an increasingly popular investment for homeowners after the state weakened development restrictions in an effort in recent years to alleviate the housing shortage. So far, Williams has said that people pay, but sometimes wood prices move quickly and do not allow him to cover his costs.
“Once I sign that contract for the amount of money, say $ 300,000 or whatever it is, I have to stick to it,” he said. “I just had to hit a hit and raise my prices with the next project to adapt.”
Mike Moore, co-owner of Snap ADU in Oceanside, said he had to increase prices by about 30 percent on the ADUs his company builds, with a common 500-square-foot one-bedroom model rising from $ 125,000 to about $ 170,000 has.
In addition to the wood issue, he said the cost of metal, windows and appliances is also rising: ‘Almost weekly, our warehouses and sellers send us an email with’ I’m sorry, more price increases are coming. ‘”
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