Critical shortage of core materials
Australia, New Zealand (and the rest of the globe) is in the midst of a critical timber shortage due to a surge in demand during the COVID-19 pandemic on the back of devastating bushfires in Australia.
The shortage is causing timber prices to skyrocket, prompting calls for the Federal Government to review its HomeBuilder program
which grants $25k to any new build within the next 6 months.
With COVID-19 travel restrictions forcing families to postpone holiday plans, many have decided to use the spare cash on home rebuilds, making timber a rare and expensive commodity. This “Renovation Boom” is one of the core drivers for the both the supply shortage and cost increases.
Why is this all happening? Where is the wood from the trees?
Australia, which usually mills much of its timber from local plantations, has had its production stunted by bushfires, meaning builders have had to rely on what limited imports they can get their hands on. Contributing to the shortage is the Federal Government’s HomeBuilder scheme which provides grants up to $25,000 to build a new home provided construction begins within six months.
Over the ditch in New Zealand shortage of structural wood has spotlighted several vulnerabilities in New Zealand’s building supply chain. Running out of wood unfortunately only days after the Government’s major housing announcement to build more homes. New Zealand’s lack of national investment in wood manufacturing combined with record levels of domestic demand as well as a boom of log exports never seen before.
And then COVID-19 struck.
Pandemic lock downs, and in particular closed borders to travel, stimulated a historic level of demand for domestic building across the supply chain from DIY weekend warriors upgrading bathrooms and kitchens to major renovations and new builds.
The US is also seeing the same boom. Lumber prices have more than quadrupled in the past 12 months, with lumber futures last trading at $US1481 ($1914) per 1000-board feet. Two years ago, the same amount of timber would have cost just $US326.
To add further fuel to the fire, the lumber shortage has been jumped on by Reddit investors, who were responsible for the meteoric rise of struggling video game retailer GameStop. Investors on Reddit’s WallStreetBets forum have been discussing investing in lumber over recent months, despite some labelling the investment as a “boomer stock”.
We’re seeing a worldwide phenomenon where government stimulus has seen a lot of new home building activity, as well as do-it-yourself projects, and the timber prices in the US have doubled – Cameron MacDonald, GM, OneFortyOne
Timber for the future?
Unfortunately, the solution to the wood shortage is not simple. For example, importing timber from other markets as most other countries have also experienced a similar housing boom.
China’s appetite for New Zealand’s wood has risen dramatically not just for pulp, but also structural graded logs used for building houses. Forestry exports are now worth almost $7 billion a year and are the country’s third-largest export earner behind dairy and meat.
For largely geopolitical reasons China has decided to bypass Australian timber suppliers and so New Zealand logs are fetching historic record prices. Not surprisingly, many sawmills like Rotorua’s Red Stag are exporting structural timber overseas for premium prices and this is reducing the domestic wood supply.
Is there a light at the end of this woody tunnel?
New Zealand’s structural timber shortage has been looming for months and some builders have been stockpiling timber in warehouses to ensure they have enough supply, a builders’ association says.
New Zealand Certified Builders Association chairman Mike Craig said the shortage had resulted in what he called “the toilet paper effect”, a reference to toilet paper stockpiling witnessed during times of panic buying in the Covid-19 pandemic.
“Businesses have been stockpiling timber in warehouses,” Craig said.
Australian Forest Products Association deputy chief executive Victor Violante said home builders potentially faced months of delay in accessing structural timber.
“A number of processing mills are working at capacity and will continue to do so until things settle down,” Mr Violante said. “This is a good problem to have, but it highlights the need for Australia to be self-sufficient.”
Alternative sources and materials
Russia is home to one-fifth of the world’s forest and further exploiting this resource could help the country cut down its economic reliance on oil and gas. Russia launched the first factory to manufacture cross-laminated timber (CLT) panels, which thanks to the layers of wood being glued at right angles, are rigid enough to build multi-storey buildings. Adding to that a massive increase in raw log exports that, with better supply chains could be a viable supplier to Australasia during the shortage.
Steel framed housing is an obvious solution to assist in rapidly scaling housing supply and supporting a transition to a more sustainable economy. Whilst timber remains an important building product, steel framed housing is a viable alternative and a positive step towards developing a resilient supply chain that is not dependent on one material.
Steel is the material of choice for many of the world’s major construction markets – in the UK, steel commands a market share of 70%, in the US 60% and in NZ it is 50% and gaining. It is an environmentally sustainable solution when considering the products full lifecycle.