Surging lumber prices threaten housing affordability

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.

Your HBA as working for you in Washingting (here is how)

(September 20, 2017) Ever wonder what your Home Builders Association is doing for you in Washington DC and around the country?  Below is a report of the issues on which we are engaged:

1. Canadian Softwood Lumber

  • The U.S. Department of Commerce imposed a 20% countervailing duty on Canadian lumber imports in April, and added 7% antidumping duties in June. 
  • In late August, Commerce announced a delay in the final duties to Nov. 18. This will allow more time to negotiate a settlement. Collection of countervailing duties is suspended for now, but antidumping duties will continue to be collected. 
  • NAHB is meeting with representatives with the Trump Administration and Congress as well as Canadian officials to address home builder concerns regarding price and availability of lumber. 
  • These meetings are especially important because U.S. consumers cannot participate in trade disputes, although NAHB provided witness testimony during the International Trade Commission hearing on Sept. 12. 
  • Generally, lumber prices have increased, but that may be partly due to wildfires in the Western U.S. and Canada. 
  • NAHB is urging U.S. lumber producers to increase production for domestic consumption, and working to identify alternate foreign sources of dimensional lumber. 

2. Disaster Response

  • In the aftermath of two devastating hurricanes, NAHB is working closely with state and local home builder associations in those areas to help them meet the needs of members affected by the storms. 
  • We sent out an all-member email with information on how to donate to the recovery effort. 
  • NAHB issued statements on hurricane-related advocacy. Our leadership conducted media interviews on flood-related topics, including the need for the National Flood Insurance Program (NFIP) reauthorization, building codes, rebuilding efforts and labor shortages. 
  • We updated our online Disaster Recovery toolkit with new media talking points and safety information for contractors. 
  • We added resources on hiring contractors and places to donate on our consumer Web page. 
  • We are creating resources on business continuity; hiring reputable contractors; and best practices for flood damage repair work. 
  • We will continue to reach out to the affected communities to see how to help in the rebuilding efforts. 
  • With respect to resiliency, our Resiliency Working Group issued its final report and recommendations in July. Many of the recommendations are related to disaster preparedness, resiliency, recovery and communications. 
  • The hurricanes have illustrated the importance of disaster response and planning for rebuilding, and the Resiliency Working Group will now help ensure NAHB can be a resource and problem solver after a natural disaster. 

3. Electronic Recordkeeping

  • The Occupational Safety and Health Administration’s 2015 electronic reporting rule requires certain employers to electronically submit injury and illness data that they are mandated to keep under existing recordkeeping regulations. 
  • The rule also contains anti-discrimination prohibitions to protect workers who notify an employer of a workrelated injury or illness. 
  • NAHB has concerns about several elements of the rule, including the requirements for employers to submit records electronically to OSHA that would become publicly available.  In January, NAHB and other stakeholders filed a legal challenge. 
  • On May 5, NAHB and other organizations submitted a petition to the Department of Labor (DOL) seeking a stay of implementation and enforcement of the rule, and requested OSHA re-open the rulemaking. 
  • In June, OSHA announced it was extending the filing deadline for employers to submit electronic records to December, which would give OSHA more time to review the rule. 

4. Federal Flood Risk Management Standard

  • In response to the charge led by NAHB and as part of President Trump’s Executive Order to expedite federal approval for infrastructure projects, the Administration revoked Executive Order 13690 and the Federal Flood Risk Management Standard (FFRMS). 
  • Our advocacy efforts included participating in federal listening sessions and meetings; submitting comment letters to federal agencies; and requesting that President Trump revoke it. 
  • This standard would have dramatically expanded regulated floodplain areas. 
  • However, in response to the hurricanes, the Trump Administration may establish its own flood standard. 
  • If the Administration chooses to do so, NAHB will work with the White House to develop an effective standard that does not place undue regulatory burdens on residential construction projects. 

5. Immigration

  • The H-2B Temporary Non-Agricultural Worker program allows employers who cannot find local labor for short-term or seasonal jobs to fill those positions with temporary foreign workers. 
  • There is an annual cap of 66,000 on H-2B visas issued in a fiscal year, but that cap excluded workers who had participated in the program within three years. 
  • That “returning worker exemption” expired in September 2016 and has not been renewed by Congress. 
  • In May, Congress approved a spending package for the remainder of FY 2017 that included language allowing the Department of Homeland Security (DHS) to raise the statutory cap for 2017 to allow additional visas. 
  • In July, DHS announced it would make 15,000 more visas available, but only to employers who could demonstrate that their business would suffer “irreparable harm” without H-2B workers. 
  • The next round of H-2B visas will become available on Oct. 1. NAHB hosted a free webinar to help employers learn if they qualify to apply for H-2B workers and how they can become certified employers under the program. 
  • With Congress and the Administration focused on immigration enforcement, the prospect of creating a new guest worker program to benefit builders and specialty trades is highly unlikely. 
  • NAHB continues to advocate for restoration of the returning worker exemption while looking for opportunities to expand and reform the H-2B program.

6. Low-Income Housing Tax Credit (LIHTC)

  • On Aug. 1, NAHB Chairman Granger MacDonald testified before the Senate Finance Committee on “America’s Affordable Housing Crisis.” The hearing focused on the LIHTC. 
  • Chairman MacDonald also discussed how lots and labor shortages, building material price increases and regulations affect housing affordability.

7. National Flood Insurance Program (NFIP)

  • The NFIP was extended until Dec. 8 as part of a broader legislative package. 
  • During NAHB’s Leg Con in June, builders spoke to their congressional delegations about provisions in the House Financial Services Committee’s flood insurance bill that negatively targeted new construction and grandfathered properties. 
  • NAHB was able to convince the committee’s leadership to remove those provisions. 
  • After Hurricanes Harvey and Irma, discussions about changing the program were put on hold as policymakers ensured home owners and communities had short-term certainty and financial aid. 
  • NAHB will work with Congress on long-term legislation that ensures an affordable, available, predictable and financially stable NFIP.

8. Regulatory Reform

  • President Trump has made regulatory reform one of his top priorities, and has asked each agency to evaluate existing regulations and identify ones that should be repealed, replaced or modified. 
  • We have submitted recommendations to the Environmental Protection Agency (EPA), Department of Housing and Urban Development (HUD), Federal Emergency Management Agency (FEMA), National Marine Fisheries Service (NMFS), Fish and Wildlife Services (FWS), Department of Justice (DOJ) and Department of Energy (DOE), and will soon submit feedback to the Army Corps of Engineers. 
  • NAHB will provide suggestions to DOL, OSHA and others once their notices are published. 
  • We will review the 2017 Fall Regulatory Plan and Agenda upon its release and determine if our suggestions were incorporated. 
  • The Small Business Administration (SBA) Office of Advocacy is also collecting input on regulatory reform through a series of nationwide Regulatory Roundtables; NAHB has had good representation at all roundtables to date. 
  • As part of the Cleveland roundtable, NAHB member George Davis met with SBA officials at one of his construction developments. 
  • NAHB will continue its outreach to HBAs and members as additional roundtables are announced. 
  • On August 28, NAHB testified before the SBA’s Regulatory Fairness Board about the enforcement activities of federal agencies, particularly EPA and OSHA.

9. Overtime Rule

  • Under a new rule that was set to go into effect Dec. 1, 2016, the Obama Administration doubled the annual salary level used to determine whether an employee qualifies for the professional, administrative and executive exemption to overtime eligibility from $23,660 to $47,476. 
  • Under the new rule, the salary threshold would also be automatically adjusted every three years. 
  • NAHB and many other industry groups challenged the rule in federal court. 
  • We contended that DOL went beyond its authority under the Fair Labor Standards Act to allow the salary limit to automatically be re-set every year. The Administrative Procedures Act requires these updates be made through regular notice and comment periods. 
  • In a victory for NAHB, a federal judge in Texas issued a preliminary injunction that temporarily barred the implementation of the rule. 
  • On Aug. 31, the Texas federal court held the rule was invalid and the three-year automatic increase DOL included was similarly unlawful. 
  • DOL’s appeal of the preliminary injunction is now moot and likely to be dismissed.

10. Smart Market Report

  • Preliminary findings from them Green Residential Smart Market Report show that green building activity should increase over the next few years. Approximately 60 percent of surveyed builders expect it to be a significant share of their overall activity by 2022. This is nearly double from 2014, when only 32 percent of firms reported that level of green building. 
  • Single- and multifamily home builders agree that energy efficiency and healthier indoor environments are key factors in building a green home, and have prioritized these elements in the construction process. 
  • The Smart Market report found that ENERGY STAR is more popular in the single-family market while LEED and the National Green Building Standard (NGBS) are more popular with multifamily builders. 
  • The Green Residential Smart Market Report is a biannual report released by NAHB and Dodge Data and Analytics (formerly McGraw Hill). The report reviews the history and future of green home construction in the single-family, multifamily and remodeling sectors.

11. Stormwater

  • NAHB launched an online toolkit in August to help HBAs advocate for programs that provide a clear path to compliance, reduce redundancy and meet water quality goals. 
  • The toolkit provides simple checklists that compare pros and cons of different regulatory approaches based on climate, geography, and local land use patterns. This data will help our members in conversations with state regulators. 
  • As part of the toolkit launch, NAHB released A Developer’s Guide to Post-Construction Stormwater Regulation. This report provides a state-by-state breakdown on the top permitting issues affecting builders.

12. Tax Reform

  • A team of congressional leaders and Administration officials known as the “Gang of Six” is developing a structure for tax reform, while President Trump is trying to garner nationwide support on the issue. 
  • House Speaker Paul Ryan intends to move tax reform this fall. 
  • Before Congress can address tax reform, it must pass a budget resolution to set up the procedural process known as reconciliation. This will allow tax reform to pass the Senate with only 50 votes. 
  • However, there is growing resistance in the House to passing a budget resolution before members see the Gang of 6’s tax framework. To use the reconciliation process, the House and Senate must pass identical budget resolutions, which will be challenging.

13. Waters of the U.S. (WOTUS)

  • On Oct. 11, the U.S. Supreme Court will hear oral arguments on whether the 2015 WOTUS rule should be litigated in federal trial court or the appellate court. 
  • NAHB has argued that challenges to the WOTUS rule must be first heard at the trial court. 
  • We need this clarity so we do not have to file two lawsuits when we challenge an EPA Clean Water Act regulation. 
  • Meanwhile, the EPA plans to use a two-step process to develop a new WOTUS definition. 
  • In the first step, the EPA has proposed to withdraw the 2015 WOTUS Rule and revert to the status quo. We expect the agency to finalize the withdrawal by early 2018. 
  • The EPA also plans to develop a new WOTUS rule, and will soon take comments on the proposal. 
  • NAHB is taking advantage of its unprecedented access to EPA Administrator Scott Pruitt, and is working with the agency on a new rule that is clear and limits jurisdiction of the Clean Water Act consistent with congressional intent. 
  • In August, NAHB and the Dallas Builders Association hosted a meeting with Administrator Pruitt in Dallas to voice concerns and offer insight about the new rule. 
  • NAHB and the Colorado Association of Home Builders are planning a similar meeting with Administrator Pruitt in Colorado Springs in October. 
  • In late October, NAHB will provide recommendations on a revised WOTUS definition at a business-focused in-person listening session at EPA headquarters. 

For more information about these or other Federal government affairs issues, contact Michael Dey (mdey@hbaofgreenville.com).

Hurricanes Harvey and Irma may pose challenges for Home Builders in the Upstate

By: Michael Dey, CEO, Home Builders Association of Greenville

Hurricane Harvey directed the bulk of its punch on Texas, and Irma is headed our way.  However, Approved Professional Home Builders in the Upstate may not be free of the impacts of these hurricanes.  Hurricane Katrina should be a guide to the potential impacts that Harvey may have in store for the Upstate in the coming weeks.

Fuel prices and availability
The first impact is already being felt, and may continue for days or weeks: gasoline availability and price.  Half of the nation’s oil refineries are located in Texas and Louisiana, and they are all closed.  As a result of the lack of flow, the Colonial Pipeline, the means by which gasoline is shipped to the Southeast from the Gulf Coast, has been closed also. This is the source of half of our state’s fuel.  Gasoline prices have already jumped, and shortages may follow.

Building materials shortages
Following Katrina, building materials, particularly lumber and plywood, were in short supply for several months as these materials were diverted to devastated areas following Katrina.  Approved Professional Home Builders can expect the same with Harvey and Irma.  Texas and Florida get some of their lumber from the same suppliers as South Carolina.  These suppliers are in Louisiana, Alabama, and Georgia.

If you are not using an escalation clause in your contract with your customers, you should consider using one.  Your attorney can help you add one to your contract.  Your Home Builders Association can provide you with a sample.  Simply email eo@HBAofGreenville.com.

Labor shortages
Another issue Approved Professional Home Builders experienced following Katrina was labor shortages as subcontractors traveled to hurricane-effected areas to help and in search of bigger pay days.  No matter the reason, some of your labor may head to Texas and Florida to work on clean up and repair efforts there.

In a meeting yesterday with Federal Reserve officials, labor availability was front and center as the number one concern of business people in all industries.  Labor availability is reaching crisis levels, and Harvey could be a catastrophe that pushes the labor problem for construction in the Upstate to a crisis situation.

Approved Professional Home Builders should plan for these contingencies, and prepare for the customers for possible delays in their projects.

NAHB: New Southern Pine Design Values Take Effect Tomorrow

New design values for #2 and lower grade Southern Pine and Mixed Southern Pine 2×4’s will become effective on June 1, 2012. These reduced values, developed by the Southern Pine Inspection Bureau (SPIB), were approved by the American Lumber Standard Committee’s Board of Review in January. At the urging of NAHB and other industry stakeholders, an effective date of June 1 was provided to allow the industry some time to transition to the new design values while avoiding project delays and market disruptions.

As part of these efforts, the American Wood Council has developed addenda to the National Design Specification for Wood Construction, the Wood Frame Construction Manual, and the Span Tables for Joists and Rafters reflecting the new design values, and has also developed recommended amendments to prescriptive tables in the International Residential Code and International Building Code.

The new values were reduced by 25-30% and will primarily affect the design of roof trusses. Though the maximum allowable spans for 2×4 headers, joists and rafters will be shorter, they are not commonly used in those applications, and so will have minimal effects on most builders. In addition, 2×4 studs used in conventional construction are not affected by this change.

It is NAHB’s understanding that any such adoption would apply only to new construction. Projects already under construction or submitted to the building department prior to an adoption date should not be affected. However, builders are advised to consult with their local jurisdiction regarding any plans to adopt and enforce the new design values.

Going forward, SPIB is testing additional sizes and grades of Southern Pine. A submission to ALSC is expected in late summer or early fall, which may propose reductions to design values for larger sizes (e.g. 2×8 and 2×10) and higher grades (#1 and Select Structural). ALSC has also directed that the other major species (Douglas Fir, Hem-Fir and Spruce-Pine-Fir) should undergo sampling and testing to assure there are no changes to their current design values.

NAHB has created a special web page titled Information and Resources on Propposed Changes to Southern Pine Lumber Design Values that is dedicated to keeping our members updated on this issue. A “Frequently Asked Questions” document is in the process of being developed and will also be posted on that web page.

For additional information, email Gary Ehrlich at NAHB or call him at 800-368-5242 x8545.    

NAHB urges Congress to improve Lacey Act to protect consumers and businesses

The National Association of Home Builders (NAHB) this week called on Congress to amend the Lacey Act so that individuals and businesses that unknowingly purchase illegal wood products from overseas do not have their property seized and are not exposed to civil and criminal liability.

Testifying before the House Natural Resources Subcommittee on Fisheries, Wildlife, Oceans and Insular Affairs, Barry Rutenberg, chairman of NAHB and a home builder from Gainesville, Fla., said that NAHB supports the goals of the Lacey Act and the prevention of trade in illegally harvested plant and wood products.

“Unequivocally, we do not support illegal logging in any place at any time,” he said. “However, honest business owners, including home builders who exercise due care and had no knowledge that a seized product contains illegal wood, should have the right to seek the return of those goods.”

Under the current statute, innocent companies are left without legal standing to challenge a government taking in court. As a result, both builders and consumers who buy products that encompass the entire supply chain dealing with imported wood products (lumber, cabinets, guitars, etc.) are held personally liable to certify that the timber product did not come from plant material that was taken, transported, possessed or sold in violation of any foreign law.

“Builders have no way of knowing the origin of a particular piece of lumber, a component of a cabinet, a closet door or crown molding,” said Rutenberg. “The sheer number of different sources of wood that could be included in the finished home makes it nearly impossible for a builder or remodeler to know with certainty where and under what circumstances the individual components were sourced.”

With this in mind, NAHB is urging Congress to amend the Lacey Act to include reaffirmation of civil forfeiture law so that innocent consumers and businesses would have the opportunity to seek the return of their property in court if it was seized as a result of any enforcement actions under the Lacey Act.

NAHB also commends Rep. Jim Cooper (D-Tenn.) for his efforts to propose much needed reforms to the Lacey Act while at the same time seeking to improve and protect the integrity of the law.

H.R. 3210, the Retailers and Entertainers Lacey Implementation and Enforcement Fairness Act, or “Relief Act,” recognizes the essential need to hold harmless those who unknowingly and without any culpability, are found to be in possession of products that run afoul of the Lacey Act.

“H.R. 3210 represents an important first step and we look forward to working with Rep. Cooper to improve the bill as it moves through the legislative process,” said Rutenberg.