Homeward Bound

The Housing Economy is Gearing Up, it’s Time to Stop Throwing Wrenches in it

By JACK SIMPSON

Can you believe we’re already a quarter of the way through 2018? Time has been flying right on by here, as our team has been had at work bringing you this very special edition of Builder and Developer magazine. I say very special as it is our annual Sourcebook, which combines all of our usual content with extensive (some might say painstaking) lists of homebuilders from across the country, along with all of the incredible number of other products and services that go into creating a home.

Speaking of homes, products, and services, the economy is doing quite well by most markers. So well that newly appointed Chair of the Federal Reserve, Jerome Powell, increased interest rates to the highest level in a decade on March 21. The turning of the interest rate dial should come as no real surprise on the heels of Trump’s tax cuts; the Fed employs this tactic to cool the economy whenever it looks like it’s getting too hot and inflation might raise its ugly head. Increased rates raise the cost of borrowing for banks, which is then extended to consumers, eventually affecting spending at all levels of the economy. But that’s neither here nor there.

What is here, and there, and everywhere around us, are housing issues. It’s no secret that we are in the grip of a worsening affordable housing crisis; the optimism of late last year and earlier this year has already given way to a tempered, more grounded realism. There are just way too many factors lining up for something of a perfect storm in the industry. And, on top of all that, Trump’s special brand of wheeling and dealing hasn’t done a whole lot of favors for the industry.

On November 2, 2017, a roughly 21 percent tariff was imposed on Canadian lumber. This tariff has reduced the amount of Canadian lumber being imported into the U.S., which in turn has increased domestic production, as was intended. However, the tariff has also resulted in significantly higher lumber prices. Higher prices, of course, affect consumers. And who are the largest consumers of lumber? Homebuilders.

The tariffs have led to a nationwide rise in construction costs for single and mid-family homes, as builders have been forced to raise prices, cut back on how much lumber they use, switch to other materials such as steel (which just got slapped with an even higher tariff!), or redesign their homes to use less materials. Either way you look at it, it is costing them. And when something costs producers, it costs consumers even more. Which means we’re going to be looking at even fewer, more expensive homes. That’s okay, I wasn’t looking to buy a house anytime soon, anyway.

But, beyond that, The National Association of Home Builders (be sure to check out our interview with NAHB Chairman Randy Noel in the back of this issue!) estimates that these tariffs will result in a net loss of $577 million in wages for U.S. workers in 2018, along with another $404 million in taxes and revenue for governmental agencies, as well as 9,370 full-time U.S. jobs. To take a quote from Noel’s interview, “Considering that home builders are already grappling with tariffs of more than 20 percent on softwood lumber from Canada and the prices of lumber and other key building materials are near record highs, the announcement of proposed tariffs could not have come at a worse time.”

Then we have Trump’s solar tariffs which went into effect February 7, 2018. Lest we forget, the solar industry lost nearly 10,000 jobs in 2017 during Trump’s first year of presidency, ending a seven-year-long growth streak. Now, even more solar jobs are at stake. A few weeks ago, in March, SunPower, a leading U.S. solar company, laid off about three percent of its workforce as a reaction to Trump’s 30 percent tariffs on imported solar materials, a number somewhere in the neighborhood 150 to 250 workers.

Also following in the wake of the tariffs, SunPower has shelved its plans to invest $20 million in factory expansions – factories which would provide hundreds of new jobs. All in all, SunPower estimates that it will lose $50 million this year as a direct result of Trump’s solar tariffs and that next year will be even worse, with losses approaching $100 million. It could be that SunPower is overreacting to what could be just a minor hiccup (they do call it the “solar rollercoaster”, after all), but forgive me if I don’t think that’s the case.

All of this is to say that, now that the U.S. economy and homebuilding industry are finally doing well (as a result of years and years of carefully thought-out and measured policy making), ill-advised decisions with the potential to cause widespread damage (you know, like instigating trade wars) are not the best way to keep the gravy train rolling.

Jack Simpson is the Editor for Builder and Developer magazine. He may be reached at jack@penpubinc.com

Leave a Reply