Lumber prices slowly easing after price spike during COVID-19, but Ontario companies face challenges

Click to play video: 'Cost of materials making construction less affordable'
Cost of materials making construction less affordable
WATCH ABOVE: The pandemic has inflated the price of construction materials and that, in turn, is putting a strain on consumers' wallets. Sean O'Shea has more on what builders might end up doing if their costs go up – Jun 28, 2021

If you looked to undertake a home renovation project at some point during the COVID-19 pandemic, chances are you have noticed soaring prices for key items like wood.

While industry experts said even though there has been a recent easing of prices, construction companies — especially ones dealing with multi-year projects and locked-in supply rates — are seeing major impacts to bottom lines.

“This price volatility is causing all kinds of angst for builders who have met pre-construction financing thresholds and have sold 70 or 80 per cent at a number they are held to account for and prices on the building side are escalating, so they are seeing their margins diminish,” John Mollenhauer, president and CEO of the Toronto Construction Association, said, adding we’re unlikely to see a return to pre-pandemic prices.

“It isn’t sustainable, but we have to weather it and get through it.”

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The price of lumber has been particularly noticeable for consumers and builders alike.

Mollenhauer said before the pandemic, a typical piece of 5/8″ plywood could go for around $45. However, he said that price hit around $130 before coming down to around $100 currently.

Although Mollenhauer said he deals more with the commercial sector on a daily business, he said a typical 2,200-square-foot house built during the pandemic could have seen a $30,000 to $35,000 price increase (depending on the area) — and two-thirds of that would have been attributable to lumber increases.

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During the course of the pandemic, Mollenhauer also said sheet metal — used in ductwork as well as the manufacturing of equipment — also saw a sharp increase. In southwestern Ontario, he said, sheet metal was around 43 cents a pound before COVID-19 and went on to peak at around $1.80 a pound.

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Mollenhauer said the price spike, combined with a skilled labour shortage, means while there might be greater flexibility for residential homeowners, commercial businesses are feeling the brunt of the pressure.

“You now, as a consumer, can choose not to buy and delay your project, but on large commercial projects we don’t have that kind of flexibility — so the vulnerability is higher for builders,” he said.

For companies that signed pre-sales and pre-leasing deals, Mollenhauer said those arrangements are typically being honoured. However, where businesses still have the financial flexibility, he said those operators will likely hold off on further contracts so they don’t lock current revenue rates while prices are escalated.

But in the end, what does it mean for consumers if a builder’s costs jump?

“Once a purchaser is locked in, the builder is either going to have to deliver at that price or cancel the project – I think those are the only two options,” Bob Aaron, a Toronto real estate lawyer, told Global News on Monday when asked about the current situation, adding it’s unlikely for a developer to cancel a project solely based on supply prices.

Meanwhile, Ontario isn’t alone in feeling the pinch on construction-related commodities.

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British Columbia also dealt with soaring prices, which is believed to have, in part, fuelled thefts of wood from Vancouver job sites.

The B.C. Council of Forest Industries echoed Mollenhauer’s comments with respect to the future facing the construction industry.

“We’ve seen a lot of price volatility for sure the most ever in, I think, the history of the lumber business,” spokesperson Susan Yurkovich recently told Global News.

“I think you’re going to see solid lumber prices for quite some time because we still have very strong construction numbers and we expect those to continue on through the fall.”

— With files from Ted Chernecki and Jon Azpiri

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