Minnesota’s Economic News – W/E 7/16/21
State and local taxes and spending Star Tribune: St. Cloud will use federal relief to offset lost revenue KNSI: Minnesota to Finish Fiscal Year 2021 Stronger Than Expected Pioneer Press:…
A version of this op ed appeared in the Duluth News Tribune on June 21, 2021
In March, the median price of a home sale in Duluth hit $217,000, up 14 percent from last year and 2 percent from February. It is the same story in Superior: The median sale price has risen more than 25 percent in the past year to $144,500, after reaching nearly $130,000 in February.
One reason for this is soaring lumber prices.
Lumber prices are up over 250 percent in the past year, with the price per thousand feet of board lumber hitting an all-time high last month. This is already adding an estimated average of $36,000 to the construction cost of new homes.
“In my segment of the market, the lumber prices would have been $100,000 to $200,000. Now, literally, we’re $175,000 to $300,000-plus, and then going up 5 percent month over month,” Rebecca Remick, chief operating officer for City Homes, an Edina, Minnesota-based homebuilder, said in a recent KARE 11 TV interview. “That’s not sustainable.”
The reason for soaring lumber prices is a shortage of supply. Sawmills closed by the COVID-19 pandemic have been slow to reopen, while demand for lumber has steadily climbed, driven by robust demand for new housing.
“We really need the mills and the government to figure out how they’re going to fix this problem,” Remick said.
One thing the federal government could do is cut tariffs on Canadian lumber. The administration of President Donald Trump hiked these tariffs in 2017 but then cut them, from 20 percent to 9 percent, in late 2020 amid concerns about rising lumber prices.
Incredibly, President Joe Biden’s administration is planning to do the exact opposite. The Commerce Department recently announced it was taking the first step toward hiking tariffs on lumber from Canada — the largest foreign supplier, by far, of wood into the United States — to 18.32 percent for 2019.
You read that right, 2019. The proposed tariffs would apply retroactively to purchases made for the past two years. That means American importers could be on the hook for millions of dollars in taxes they didn’t know they would owe — taxes likely to be passed down the supply chain in the form of even higher lumber prices.
This is crazy. If you’re wondering where that affordable housing went, here you go: Government is trashing it.
These tariffs are being touted as a response to Canadian “dumping,” which is selling a good at a price below its cost of production. Leaving aside the question of why we would refuse to let the Canadians subsidize our lumber, “anti-dumping” measures are supposed to be used to prevent low-priced imports from threatening domestic producers. But this isn’t a problem right now, as rocketing lumber prices demonstrate.
I often criticized President Trump’s trade policies, and so did many in the media. There has been much less comment about President Biden’s trade policies, despite the reality they are substantially similar and, in this case, worse. Lumber prices might have to go higher yet to force the media to rediscover its critical faculties.
John Phelan is an economist at the Center of the American Experiment.