Another D.C. Error That Could Needlessly Drive Up Housing Costs

Another D.C. Error That Could Needlessly Drive Up Housing Costs
Jeff Siner/The Charlotte Observer via AP
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Potential home buyers who feel rocked by recent proposed changes to tax deductions for mortgage interest payments and state and property taxes ain’t seen nothin’ yet. They may not realize it, but they are also being hit by another decision in Washington, D.C. By imposing new duties on softwood lumber from Canada, the Commerce Department has significantly added to the cost average American families must pay to buy a home. And the steepest price would be paid by those least able to afford it.

The amount of the tariff itself, set Thursday at between 20.8 per cent and 22.1 per cent depending on the lumber company, represents only one of the ways the move would drive up the price of an affordable home. Costs have already gone up since November, based on concerns that the Trump Administration would pull out of the North American Free Trade Agreement. The benchmark random-length lumber futures contract jumped last month to $440 per thousand square feet, its highest level in four-and-a-half years. In 2016, there was a significant deficit between the volume of lumber produced by U.S. industry and volume the construction market consumed, demonstrating a need for imports.

Based on a typical requirement of 20,000 square feet of lumber for a new home, the price increase in the past year has added $2,000 to the cost of construction, about 1 percent of the median price of a home, according to Matthew Pointon, a property economist at Capital Economics. But the actual cost of the tariff is only a small part of the likely price impact of the softwood tariff. Already encountering labor and land shortages, builders would face additional pressures to protect their profit margins by shifting production from small, low-cost homes – already in short supply in many large cities – to more expensive housing, Capital says. That will drive down overall construction costs, while prices are held up by a strong economy – creating a pincer that would keep many first-time buyers trapped in rental housing.

The Commerce Department is imposing punitive tariffs because it alleges that softwood lumber from Canada is underpriced. Unlike in the United States, the forest lands the industry uses in Canada are owned by the Canadian provinces, which charge a stumpage fee to softwood companies. The U.S. lumber industry alleges the price is set artificially low, constituting a subsidy.

But if the price is a subsidy, doesn’t that just mean Canadian provinces are subsidizing U.S. homebuyers? If they are willing to make it easier for American families to own their first home, why is Washington complaining? If the sandwich shop down the street offered to sell you lunch for less than it costs them to prepare, would you complain?

The duties set last Thursday, which will be permanent if no trade deal is reached to supersede them or they are not overturned on appeal, are lower than the preliminary tariffs issued in January, which were as high as 31 per cent in total. But when taken in tandem with the pressures they would create on builders to focus on bigger houses, the impact could be significant on those seeking to own affordable homes.

In imposing the tariff, the Commerce Department is seeking to protect the jobs of a few in the U.S. softwood lumber industry. But it is doing so at the cost to far more Americans who wish to buy a home.

As is often the case, the decision-makers are forgetting that we don’t live to work, we work to live. It does Americans little good to cling to a few jobs, at the cost of many being denied a home of their own.

Allan Golombek is a Senior Director at the White House Writers Group. 

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