Rising Material Prices Remain a Concern for Canadian Home Builders
Housing demand in Canada has remained resilient during the pandemic, bolstered by record-low benchmark interest rates and the shift to remote working, says GlobalData. The data and analytics company notes that although demand has seemingly relaxed in 2022 and rate hikes are on the horizon, the demand-supply gap for housing remains substantial. As a result, upward pressure on the price of lumber will persist.
According to GlobalData, residential construction output in Canada will grow by 4.8 percent in 2022, following an expansion of 15.4 percent in 2021.
The price index for logs, pulpwood, natural rubber and other forestry products rose 4.1 percent in Month-on-Month (MoM) terms and in Year-on-Year (YoY) terms by 27.7 percent in December. Comparatively, excluding crude energy products, the Canadian raw materials index rose 0.4 percent from October and 18.5 percent over the year.
Jack Riddleston, economist at GlobalData, says, “Record levels of rainfall have caused major disruption in British Columbia as flooding and landslides swept through the region in November 2021. Rail networks that were used to transport lumber across the region were destroyed, which has resulted in delays to lumber shipments.”
Labor shortages and wage hikes maintain a grip on productivity, as the lasting effects of COVID-19 have producers struggling to find skilled labor in Mills and Haulage. Other, longer-term environmental issues have come to fruition, such as beetle infestations and persistent wildfires, which, in turn, has created a shortage of trees.
“Supply issues for lumber are unlikely to be resolved going into 2022 and additional issues such as the truckers strike in late January will continue to put pressure on the supply chain and lumber prices. This has resulted in homebuilders suffering the consequences and passing cost hikes directly onto consumers," Riddleston says.
Price pressure is intensifying for home builders across the border after a longstanding trade dispute between the U.S. and Canada has led to the U.S. putting a 17.99 percent tariff on lumber imports.
“The price increases reflect the complex supply constraints lumber producers have faced over 2021 and this will likely continue throughout 2022,” says Riddleston.