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  • Peter Ettro

Lumber Prices & Solar Power - Effect on the real estate industry and impact on affordable housing

As we continue to delve deeper into the current financial, political and economical issues that our country is facing with regards to affordable housing and real estate investment,  this week we’ll take a closer look at the lumber and solar industries and their impact on the current real estate and financial markets.


Earlier this year the price of lumber had hit a new all-time high. Now, several months later, and lumber prices are still skyrocketing, gaining 30%+ so far in 2018. On the surface it looks like the Trump administrations lumber tariffs against Canada are causing these unprecedented increases. The surge has continued  since the tariffs took effect last year. The biggest owner of timberland in the US is a publicly traded real estate investment trust (REIT) called Weyerhaeuser (WY). It owns a massive 12.4 million acres, more than the next six top timberland owners combined.


WY’s stock is up 9% since the Trump administration imposed the lumber tariffs, and it yields a dividend of 3.5%. When a builder orders lumber, it’s customary to get a quoted price that’s good for around 3 months. But with lumber prices out of control, sellers are having to update their prices every week. This situation is making it tough for contractors to price out jobs. On average, a house in the US takes about 7 months to build, and the price of lumber is 40% higher today than it was 7 months ago. 


Overall, the rising price of lumber has increased the price of building an average house by about $10,000, which means a buyer who puts 20% down must come up with an extra $2,000 cash. That’s no easy feat given that 62% of Americans have less than $1,000 in savings. skyrocketing lumber prices aren’t the only thing making it more expensive to build a house. At least, not out in California, which recently passed a law that requires all new single-family homes to have solar panels. The law will take effect in 2020 and will add around $10,000 to the cost of building an average house. California, like Portland, has long suffered from a lack of affordable housing. It’s already the second most expensive market in the country, behind only Hawaii. The median house price in California is $525,000, while the median household earns just $67,700. This is unsustainable and something needs to change.


Most electric utility companies hate solar. They do, after all, sell electricity. People who generate their own electricity are bad for their business. In Florida, utility companies spent some $43 million on lobbying from 2014–17, much of it aimed at suppressing solar in the Sunshine State. In fact, a big controversy recently erupted there over a proposed law that utility companies had influenced. The law was reportedly written to appear to be pro-solar, but in reality it was not.


Over time, solar is going to make life very difficult for traditional utilities. The cost to generate electricity from solar has plunged 86% since 2009. It now costs just $50 to produce 1 megawatt hour, less than half of coal’s cost of $102. A study by McKinsey found that by 2020 it will make sense for most US homes to generate their own electricity from solar and use the grid only for backup. If the rise of solar continues, that move could backfire in the years ahead. 


As you see governments are continuing to regulate and legislate laws fees and taxes that are being passed onto the homeownership.  We are seeing a continue attack on the cost of Homeownership.  With rising rates and rising costs the unaffordability gap is increasing.  We don't expect that we will have mortgage relief through lighter underwriting criteria. We may look back in 10 years and realize that we will have lost a whole generation of home buyers. 



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