If you’re building or renovating a home and are frustrated by huge delays, you’re not alone.
Australian builders are struggling to find wood. For items such as glued veneer lumber used for framing and beams, they reported a wait of up to four months. For trusses – used to build walls and roofs – up to nine months.
Fears that this shortage could lead to builders’ collapse have been exaggerated, but the pain of delays and rising prices is real enough for merchants and customers.
There is no easy solution to this crisis. This was caused by a confluence of four factors: government incentives for the construction industry; increasing dependence on imported lumber; the pressure exerted by the pandemic on global shipping; and the impact of the Russian invasion of Ukraine on the world market.
State (excessive) stimulus
If one were to pick a specific start date for the crisis, it would be June 3, 2020, the day the Morrison government announced its A$688 million housing scheme.
The scheme provided up to $25,000 to build a new home or renovate an existing one. State governments have also subsequently offered construction subsidies.
Read more: Government to provide $25,000 grants to people building or renovating homes
There was reason to fear that the pandemic would destroy housing construction. The Master Builders Association predicted in 2019 that new housing starts would drop by 3.5% in 2020/21. In April 2020, at the start of the COVID panic spiral, the decline was expected to be 40%.
The following graph shows what actually happened. Approvals for all new dwellings increased by more than 25% in 2020-21. New home building permits have risen by more than 40%.
It is clear that several factors contributed to this growth. The Reserve Bank of Australia cut its interest rate from 0.75% to 0.25% in March and again in November to 0.1%. Billions of dollars were pumped into the economy in other ways.
Higher demand, lower supply
Higher housing construction means higher demand for lumber.
Detached houses, in particular, use a large amount of lumber: softwood for the roof and light frame, hardwood for joinery and floors. Carpentry is typically around 20% of the cost of an average new home.
However, domestic lumber supply in Australia is on a different path. Deforestation of natural forests is in decline, while domestic plantation production has stopped.
The following graphs show trends in the volume of wood harvested from Australian natural forests or harvested from plantations.
You can see hardwoods (shown in dark green and dark blue) mostly coming from local forests. These volumes are in line with efforts to conserve what is left of natural forests. Supply will shrink even further when Queensland and Western Australia stop logging in 2024 and Victoria in 2030.
Softwoods are mainly sourced from commercial plantations. Softwood harvested has increased by about 40% over the past 20 years, but planted area has remained stable for about ten years.
In recent years, a minimal number of new plantations have been established. The 2019-20 Eastern Australian bushfires also affected about 130,000 ha of commercial plantations.
Waiting for more expensive imports
This means Australian builders are relying more on imported timber – at a time when most global supply chains are overwhelmed and energy prices are pushing up transport costs.
Wood products are usually shipped in containers, which were in short supply during the pandemic (due to increased demand). If you can actually find a container, shipping costs could be more than double what they were before the COVID-19 pandemic.
Another problem is that Russia is a major timber exporter, second only to Canada in sawnwood exports, but the largest exporter of sawn softwood. While generally a relatively unimportant source for Australia, it dominates the production of specific products such as glulam veneer.
In October, Australia will introduce a 35 percent tariff on “conflict wood” from Russia (and Belarus).
Read more: Relaxing Australian illegal logging laws will undermine global drive to stop deforestation
Should Australia do more to become self-sufficient? This is a difficult question.
Even if you think so, keep in mind that even the fastest growing conifer takes at least 20 years to grow.
Promoting production is difficult. Forestry enterprises must forecast demand and lock in production for decades to come. They cannot be expected to respond to short-term crises in the same way as an oil or toilet paper manufacturer.
The hard truth is that the construction industry will have to weather the storm the best it can — probably at least until 2023. By then, the housing boom should be over, and higher interest rates are likely to slow the pace of housing construction. .