New Mexico Home Builders Association Executive Vice President and CEO Jack Milarch has seen this movie before.
And he knows it never really ends. It all just starts up again.
Milarch said the boom-and-bust cycle of rapidly increasing prices has been a constant pattern in the more than four decades he has been involved in the building industry. He has been the CEO of the NMNBA for 40 years, only the second in its history.
Jack Milarch isn’t being a Grinch, just realistic, about the damage caused by constant boom-and-bust cycles in the industry.
| New Mexico Home Builders Association
“Well, I've been here in the Home Builders Association, and I haven’t built a house in a long, long time,” he told New Mexico Sun. “But you started seeing many of these just come and go and come and go over the years, many times. And it's just tragically wasteful cycle for our industry. This isn't just lumber. I mean, think of the labor and the people we train and equipment they buy.”
Milarch said the skyrocketing price of lumber — an estimated 300% increase since the COVID-19 pandemic took hold in the spring of 2020 — is the latest chapter in an old story.
“I would say it's been going on my whole career, which is more than 40 years, but it depends on what you're talking about,” he said. “It's one of those things where it's feast or famine and it just doesn't seem to change. And right now, we're in the famine stage, which is one of the problems.
“It’s been a problem that's been getting progressively worse this year. It's been going on for way, way too long,” Milarch said. “But it's our industry — it is so cyclical. And so, it isn't just lumber, it's toilets, it’s tiles, stoves, refrigerators. It's like everything we need to build a house.”
The spike in lumber prices started in the spring of 2020 when the COVID-19 pandemic caused timber mills to close or reduce production because of shutdown orders, new safety requirements or concerns that business would slump.
“Yes, I think that certainly contributed to it,” he said. “I actually just got back from traveling around Washington (state), where they create the things we're talking about. They're going full-bore. I can tell you that I saw a load of trucks flying down the highway and you see the giant stacks 30 feet tall.”
Fields of timber ready for harvest dot the area.
“And then, you know, you see all the nice, neat piles of lumber all wrapped up in plastic at the other end of the plant,” he said. “So, they're doing their best. But I don't care what we read because basically, it's a mill problem. The mills are not going to be ramping up and building more mills because they remember, too, that this is a cyclical problem.”
Milarch said the sawmills are reluctant to boost production, wary of another turn in the business cycle.
“It’s not been that many years ago I drove all through the same area and I saw rusty mills out on the side of the mountain all over the place because we didn't need enough lumber,” he said. “So, all these mills, they just turned the lights off and let them rust. And I think they probably don't want to get caught in this cycle again because it takes about three years to get a mill up and running. About the time they do, the recession hits or something happens. We don't need their mill anymore. I think they're just tired of that cycle.”
There are other factors as well.
On May 22, National Association of Home Builders Chairman Chuck Fowke commented on the U.S. Commerce Department’s announcement that it intended to double lumber tariffs on Canadian lumber shipments into the U.S from 9% to 18.32%.
“At a time when soaring lumber prices have added nearly $36,000 to the price of a new home and priced millions of middle-class households out of the housing market, the Biden administration’s preliminary finding on Friday to double the tariffs on Canadian lumber shipments into the U.S. shows the White House does not care about the plight of American home buyers and renters who have been forced to pay much higher costs for housing,” Fowke said in a release.
“This action clearly shows the White House is disingenuous when it claims the nation’s housing affordability crisis must be an important priority,” he said. “This move certainly demonstrates a lack of courage to stand up to the U.S. lumber lobby that is already reaping record profits off the backs of hardworking American families.”
Fowke said the Biden administration was “casting its lot with special interest groups and abandoning the interests of the American people” at a particularly sensitive time.
“It knows that the lumber tariffs are nothing less than a tax on American home buyers, renters and businesses that rely on lumber products, and they could not have come at a worse time. Lumber prices are already up more than 300% from a year ago,” he said. “If the administration’s decision to double tariffs is allowed to go into effect, it will further exacerbate the nation’s housing affordability crisis, put even more upward pressure on the price of lumber and force millions of U.S. home buyers and lumber consumers to foot the bill for this ill-conceived protectionist action.”
Fowke called on President Biden to reconsider.
“A failure to act decisively will show that the White House has lost all credibility in its claims of fighting for housing affordability and the interests of working-class families,” he said.
Milarch said affordable housing is a concern in New Mexico. The rise in the cost of lumber and other material reduced home construction in New Mexico in the last year, he said.
“Yeah, absolutely, it raised prices,” he said. “It's knocked out so many people (from) buying a home. It's just gone up $60,000 from their original quote.”
Milarch said many builders are now offering contracts with flexible prices, since they can’t be sure what their costs will be when they get to work on the house.
“That's been the favorite thing that we've been sending out of here lately because we always offer contract language, sample language,” he said. “We've heard a lot of calls for what we call it the rock clause. If I have a problem with my costs, it's going to get added onto what I quoted you. That's been a very favored addendum here around the Home Builders Association lately."
When will prices stop jumping so dramatically? Milarch has a wry response to that.
“If you can tell me when the next recession hits, I'll tell you the answer to that,” he said. “And you already knew the answer. Yeah, that's the only thing. Something at some point, something happens to our market. Interest rates go crazy, or we have another recession and all of a sudden it all isn't a problem, all of a sudden overnight, which will happen again. But until then, the answer is no, it isn’t going to abate.”