The construction industry is navigating rising costs of lumber and other materials

When the pandemic struck last year, shutdowns caused sawmills to halt production at the same time that quarantining Americans rushed to Home Depot and Lowe’s to buy up materials for do-it-yourself projects. That supply-and-demand mismatch caused lumber inventory to plummet. Aided by recession-induced record-low interest rates, the housing market boomed in summer 2020. As that market got hotter and existing home inventory fell, buyers turned to new construction. Of course, new homes require a lot of lumber, thus exacerbating the shortage.

“We’ve certainly seen significant cost movement in the multifamily space, most obviously driven by the runup in lumber pricing,” says Nathan Schubert, managing director at Crow Holdings Capital. “The good news is, rents have been growing at an accelerated pace over the last six months as well, which helps keep development yields at attractive levels. There isn’t as much of a concern with value-add, as the costs associated with val