by Rob Dietz, Chief Economist, National Association of Home Builders
The most serious headwind facing housing markets today is the escalation of framing lumber prices—up 59% since the start of 2017. Recent NAHB surveys suggest the price for lumber has overtaken the availability of labor as the primary business challenge for home builders. Since the beginning of last year, rising lumber prices have added more than $7,000 to the price of a typical new home and more than $2,000 to the price of a typical apartment.
There are a number of reasons why lumber prices have jumped, including a rail car shortage in Canada, but the primary factor is the 21% effective tariff rate placed on Canadian softwood lumber. The ongoing concerns over trade wars represent a macroeconomic risk to the gains resulting from the recent tax legislation, and lumber is a prime example.
Nonetheless, builder confidence remains strong, despite total housing starts falling 3.7% in April. Though multifamily starts declined 11% last month, that market is up 10% year-to-date, outperforming our forecast. And single-family starts are 8% above their year-to-date totals from a year ago. However, recent data show a gain in average new-home size, which is an early indicator of weakness in the entry-level market due to rising input costs.
|Granger MacDonald greets Vice President Pence at the White House recently|
NAHB Chairman of the Board, Granger MacDonald, yesterday addressed the Finance Committee of the U.S. Senate in a hearing titled “America’s Affordable Housing Crisis: Challenges and Solutions.”
The focus of the hearing was tax credits for low income housing, but also touched on labor shortages, regulatory burdens, and other issues which impact housing affordability. South Carolina’s Senator Tim Scott questioned MacDonald on the labor shortage issue as it impacts housing affordability.
“We are fortunate that our national chairman, Granger MacDonald, is well versed on the subject of housing affordability,” Bob Barreto, President of the HBA of Greenville, said. “His company has built and manages nearly 5,000 affordable rental housing units in his home state of Texas,” Barreto said. “We also were proud to have Granger MacDonald as keynote speaker at our 2016 Annual Meeting.”
Click here to view the hearing. MacDonald’s testimony begins at 1:00.30. Senator Scott’s questions of Chairman MacDonald begin at 1:48.00 and continue at 1:51.00.
HBA member South State Bank announced this week a $100 million initiative to offer mortgages to consumers in low- to moderate-income and minority areas.
The $100 commitment, which is planned over a five-year period, will target the bank’s combined markets following its merger with Park Sterling Bank, another HBA member. The combined bank will serve South Carolina, Georgia, North Carolina, and Virginia, with a strong presence in the Greater Greenville area.
By Bob Barreto, President, Home Builders Association of Greenville
President, GBS Building Supply
On average, regulations imposed by all levels of government account for 24.3 percent of the sales price of a new single-family home, according to a 2016 study by the National Association of Home Builders (NAHB).
Breaking down the total regulatory costs further, the study revealed that three fifths of compliance costs, or 14.6 percent of the final house price, is due to a higher price for a finished lot resulting from regulations imposed during the lot’s development. The other two fifths, or 9.7 percent of the house price, is the result of costs incurred by the builder when building the home after purchasing the finished lot.
In the Greater Greenville area, the study indicates that a new home is $67,424 more expensive as a result of the cost of complying with regulations.
These regulations come from many sources. They include new land-use controls that reduce the potential density yield of a parcel of land, which increases the cost of the finished lot. Other regulations include significant changes to the building code that has added thousands of dollars to the price of a new home. Labor-law changes also have had an impact. As well as significant increases in building permit fees, development compliance fees, and new sewer account fees. But the greatest increase in the cost of compliance has come in the form of new and increased environmental regulations to control erosion and stormwater runoff during development and construction.
When the 2016 study is compared to a previous study prepared in 2011, NAHB found that the cost of compliance with regulations increased by 29.8 percent in the five years between the two studies. That means the cost of constructing a new home in the Greater Greenville area increased by more than $20,000, in just five years, to comply with new rules imposed by government. Meanwhile, personal disposable income in the U.S. increased by just 14.4 percent during that same time period, meaning that the average cost of regulation embodied in a new home is rising more than twice as fast as the average American’s ability to pay for it.
According to another study by the National Association of Home Builders, 521 families in the Greater Greenville are priced out of Homeownership by a $1,000 increase in the cost of purchasing a new home. If you do the math, and I have, that means the increase in the last five years in the cost of compliance with regulations has priced out of homeownership more than 10,000 families in our community.
There has been considerable discussion and debate about affordable housing in our community. Studies by the City of Greenville and Greenville County are providing evidence of the problem. Many want to blame home builders and land developers for the problem. But a reading of the studies by the National Association of Home Builders demonstrates that at least part of the problem lies with well-meaning regulations that fail to take into account the impact on a family’s ability to afford a home.
Clearly, a portion of the solution to our community’s housing affordability problem lies in a thorough review of the cost of complying with our own regulations.
The National Association of Home Builders today completed four days of productive talks with more than 100 Chilean government, trade and industry officials that focused on increasing exports of softwood lumber and other wood products to America.
“We support opening up competition in the U.S. lumber market because we know that it will benefit American families who want to buy homes and U.S. builders who are seeking a steady supply of affordably priced lumber,” said National Association of Home Builders CEO Jerry Howard.”
The talks covered several areas, including establishing contacts among Chilean producers and American buyers and identifying and dealing with any policy barriers to increasing the volume of Chilean exports from their current level.
National Association of Home Builders made contacts with two of the three largest Chilean lumber producers and a number of other smaller producers who all indicated they will work together with their government to help increase exports. In addition, National Association of Home Builders was able to meet in Chile with Swedish lumber producers who expressed an interest in continuing conversations about increasing lumber exports to the U.S. and building a stronger relationship.
The meetings in Chile come at a time when the U.S. and Canada are in discussions over a new softwood lumber trade agreement. Though U.S. home builders would ideally prefer to purchase all of their softwood lumber and wood products from domestic producers, America today does not have the domestic capacity to meet its demand for lumber. Canada is by far the largest exporter of softwood lumber into the U.S. The latest three-year average share of Canadian imported lumber in the U.S. market is 28%.
A nine-year softwood lumber agreement between the U.S. and Canada that established a system of fees and quotas on Canadian imports to the United States that were triggered in response to changes in the market price of softwood lumber expired last October. The two nations are now engaged in a one-year “cooling off” period – meaning no trade disputes can be filed by either country regarding softwood lumber imports – until October 12.
Since the 1980s, numerous disputes have disrupted trade patterns, leading to unnecessary cost increases for industries such as home building that rely on softwood lumber, and straining U.S. relations with its neighbor to the north. This short-sighted political stalemate has left the American housing sector in the lurch.
As U.S. and Canadian negotiators discuss the parameters of a new agreement, National Association of Home Builders believes that it must be mindful of the U.S. housing market to ensure American consumers have access to a stable, dependable and affordable lumber supply.
Though Chile currently holds just 1.22% of the U.S. lumber market, National Association of Home Builders sees great potential for growth because the two nations have a free trade agreement.
“As the U.S. housing recovery continues to pick up steam, the demand for softwood lumber will grow,” said Howard. “This is why expanding lumber trade with Chile can benefit both nations. Chile would have the opportunity to increase its exports and market share to the United States, while U.S. industries such as housing that depend on a reliable supply of softwood lumber would be able to meet the housing needs of American consumers and to keep lumber and housing affordable.”