The U.S. Department of Commerce last month nearly doubled tariffs on lumber imported from Canada from 8.9% to 17.9%, which will constrain U.S. supply chains and increase construction costs for senior housing developers and others, Beth Burnham Mace, chief economist at the National Investment Center for Seniors Housing & Care, told the McKnight’s Business Daily.
Lumber prices have been “erratic” since the start of the pandemic, she added, noting that between increased tariffs on imported lumber and the wildfire-related devastation of some U.S. lumber, the supply is stressed. Additionally, some heavy rain storms in western Canada in the past week or so are further exacerbating the issue “in terms of putting lumber on trains in flooded areas,” Mace said.
“We saw a basic supply-and-demand phenomenon happening. After COVID, the demand for construction materials fell because there wasn’t as much construction going on … and then demand turned around and got really strong now,” she said.
“The market has been pretty volatile. So what that does to construction, and that would apply to senior housing, is that it just adds a level of uncertainty to development plans and processes,” Mace continued.
The senior living and care industry saw a slowdown in construction starts during the pandemic, partly due to lenders’ reluctance to finance new projects. Banks, however, are interested in lending again, Mace noted.
“Higher costs mean reduced return on investments, so the development world is much more complex today than it had been because of the supply chain disruptions.,” the economist said.
At the same time, she said, developers aren’t likely to back off on new construction projects at this time.
“I think that most developers are taking it [higher costs] into account when they’re doing their plan,” Mace said.
Due to supply chain issues, companies now are taking a “just-in-case” rather than a “just-in-time” approach to purchasing what they need, she said — buying whatever materials they might need in the future rather than just buying what they need right now — although it increases overhead costs related to storage.
“For example, refrigerators are hard to get, so if I’m constructing a senior housing project and I need to buy 100 refrigerators for 100 rooms, I might buy and store them rather than risk not having them when I’m ready to open,” Mace said.
“That will change once we get these supply chain issues worked out, but for now, we’re seeing a lot of that happening,” she added.