Tariffs on Canadian lumber are driving up home prices

With America in the midst of a housing affordability crisis, the Biden administration has delivered a body blow to American home buyers, renters and businesses that rely on lumber products by effectively doubling tariffs on Canadian lumber shipments into the U.S. from 9% to 17.9%.

While this action has garnered little national attention, it has huge repercussions for home buyers. Lumber prices have experienced unprecedented price volatility over the past year and soared above $1,500 per thousand board feet in May, nearly three times above the previous all-time high of $582 recorded in 2018. This price spike added more than $35,000 to the price of a typical new single-family home. Though prices dropped between May and late August, they have been soaring since, disrupting the housing market and harming housing affordability. Over the past four-and-a-half months, lumber prices have roughly tripled, causing the price of an average new single-family home to increase by more than $18,600 since late summer.

This most recent lumber price upsurge is due to several factors, including ongoing supply chain bottlenecks for framing packages that are forcing more and more builders to put their projects on hold; the doubling of tariffs that increased price volatility; and domestic lumber production that has lagged far behind home construction.

The current cost of the lumber package for a typical single-family home is about $30,000 — $13,000 more than it was in April 2020. Although a price spike of this magnitude adversely impacts all home buyers, it is much more difficult for buyers of entry-level homes with modest incomes to absorb.  

In fact, higher costs have already priced out some buyers, particularly at the lower end of the market. A year ago, 36% of new home sales nationwide were priced below $300,000. In October 2021, only 21% of new home sales were priced below $300,000. While demographic-based demand remains solid, lack of entry-level supply remains a challenge for the market.

This decision to sharply increase lumber tariffs undermines the historic funding commitment made to housing in the Build Back Better legislation and erodes efforts by Commerce Secretary Gina Raimondo and other Biden administration officials to tackle the lumber and building materials supply issues plaguing the industry. Doubling the tariffs will only exacerbate market volatility, put upward pressure on lumber prices and make housing more expensive.

The tariffs were placed by the U.S. Commerce Department at the behest of the U.S. Lumber Coalition, which comprises major lumber companies, many of which are listed on Wall Street. The coalition alleged that Canada unfairly subsidizes lumber exports to the U.S. and that the domestic lumber producers were harmed by imports sold at lower prices. The issue has repeatedly been adjudicated in the past, and the U.S. has been repeatedly rebuked by the World Trade Organization and other independent international tribunals.

By fueling market volatility and placing upward pressure on lumber prices, the coalition has a strong incentive to ensure that these tariffs remain in place because this means bigger profits funded largely by American home buyers.

There is no getting around the fact that the U.S. must rely on Canada to fully meet its lumber needs. Roughly 30% of the lumber consumed in the U.S. last year was imported, and more than 85% of the imports came from Canada. This means that imports are essential for the construction of affordable new homes and to make improvements on existing homes.

And at a time when U.S. policymakers need to be taking action to open up more federal forest lands for logging in an environmentally sustainable manner to meet domestic needs, the administration has just announced steps to make lumber less accessible and more expensive for American home buyers by blocking logging in Alaska’s Tongass National Forest and reducing logging levels in the Black Hills National Forest.

Housing’s potential to lead the economy forward is limited as long as lumber remains expensive and scarce. Congress needs to push the administration to identify the causes for high prices and supply constraints, and seek immediate remedies that will increase production.

In turn, the administration needs to immediately suspend tariffs on Canadian lumber and return to the negotiating table to bring an end to this trade dispute that is harming American home buyers and industries that rely on a stable supply of lumber at a competitive price. A failure to act decisively will show that the White House has lost all credibility in its claims of fighting for housing affordability and the interests of working-class families.