Devastating, often tragic as the Los Angeles wildfires have been, rebuilding could bring nightmares all its own, including murky insurance rules, material shortages and potentially higher cost for everything from lumber to bathtubs.
In terms of economic upheaval, it could be the construction industry equivalent of what the COVID-19 pandemic did to the economy just a few years ago.
The incoming Trump administration’s plans to slap new tariffs on imports from many countries including Canada — by far the biggest foreign supplier of lumber for the U.S. market — could set off new waves of inflation in home building.
Lumber is the single biggest component of homebuilding materials, accounting for about 15% of overall home construction costs. Southern California builders use wood for framing homes that’s sourced mostly from Canada and the Pacific Northwest.
And the last couple of years have left the lumber industry ill-prepared for a big surge in demand. More than a dozen sawmills have closed in Canada and Oregon, Washington and Northern California as logging operations have struggled with a shortage of skilled labor and higher costs for energy, freight and other inputs.
Additionally, lumber and other building material prices slumped after the pandemic eased and house-bound homeowners splurged on renovation projects; the lower prices left many suppliers in shaky financial condition.
The L.A. area fires have destroyed or damaged at least 12,000 structures. Most of the properties affected are single-family homes, causing severe problems for displaced people in a region that was already struggling with a shortage of houses and apartments — and the labor to build them.
Based on a rough estimate of 10,000 homes that may need to be rebuilt, that would be about double the number of new homes built annually in L.A. County in recent years.
“Adding a bunch of demand that’s unexpected and very pressing is very challenging for this market,” said Scott Wild, senior vice president at John Burns Research & Consulting in Irvine.
Just how soon large-scale rebuilding begins will depend heavily on insurance settlements — though some homeowners aren’t covered or are underinsured — and how long it will take to clear debris, restore utilities and get permits. State and local leaders have ordered a streamlining of environmental reviews, permitting processes and other efforts to speed up the cleanup and other tasks to begin rebuilding.
In addition, coordinated efforts may be needed to help free up supplies and keep a lid on prices, say some industry executives.
“People whose homes burnt down — they’re rebuilding their lives,” said Scott Laurie, chief executive at the Olson Co., which builds homes in L.A. and Orange counties. “I would hope there’s a mechanism to control the costs. It absolutely needs to be done.”
Because most of the people affected are individual homeowners, the demand for construction may not pile up all at once, but instead be staggered over multiple months.
That will help ease the pressures.
Still, rebuilding 10,000 homes in the region would require, at minimum, an additional 5,000-plus truckloads of lumber, according to estimates by Kyle Little, chief operating officer at Sherwood Lumber, a national supplier that has significant business in California. Little said he sees a “tremendous increase” in demand for the varieties of Douglas fir wood that are typically used for homebuilding in California.
“I do believe the volatility could be reminiscent of what we experienced in COVID,” said Little, who’s chair of the North American Wholesale Lumber Assn.
More domestic lumber has been produced in recent years in the Carolinas and the South, but Southern yellow pine is not considered as structurally sound for framing as Douglas and varieties of spruce and other pine trees that are logged in Canada and the Pacific Northwest.
Little and other experts estimate that lumber prices could jump 25% to 40%. And that’s even before any additional tariff increases. In the last six months lumber prices have ranged from $475 to $625 per thousand board feet, about one-third the peak in 2021.
Trump has threatened to add 25% tariffs on goods from Mexico and Canada. Duties on lumber from Canada had already risen to 14.4% this summer after the expiration of a U.S.-Canada agreement on softwood lumber.
And a review of anti-dumping could further double the duties later this year. If Trump tacks on 25% tariffs on top of that, import levies on Canadian lumber overall could top 50%.
The U.S. consumes roughly 50 billion board feet of wood a year, most of that for new residential construction. About 30% of that is imported, the vast majority from Canada, said Jesse Wade, an economist at the National Home Builders Assn.
Europe’s share of lumber imports has increased in recent years, but Trump has talked about applying 10% to 20% tariffs on goods from all countries. The construction industry also imports cement from Canada and Mexico for concrete used in homebuilding.
Frank Addiego, president of All Bay Mill & Lumber Co. in Napa County, says it’s anybody’s guess just what Trump will do on tariffs: whether it’s a tactic to win trade and other concessions or a long-term move to boost domestic production. But if Trump goes through with tariff increases on lumber, he said, it will “absolutely add” to the supply crunch.
Addiego recalled that lumber prices jumped about 50% over a few quarters following the 2017 Tubbs fire, which destroyed more than 5,600 structures in Napa and Sonoma counties.
At the same time, he noted that it’s also possible that lumber prices won’t go up much at all if Trump’s tariffs cause a slowdown in the economy and end up depressing homebuilding.
“The tariffs are a serious illness,” Addiego said, adding that he expects some builders to try to offset potential price spikes by locking in purchase contracts earlier.
Steve Kalmbach, president and chief operating officer at Thomas James Homes, a single-lot homebuilder based in Aliso Viejo, said he’s starting to get calls from owners of fire-damaged homes, with some saying they want to rebuild ASAP and others saying they aren’t sure what to do.
“We’re just at an information gathering stage at this point,” said Kalmbach, whose firm has built more than 50 homes in the Palisades area over the last decade. He said it was too early to say what the rebuilding would mean for supply and prices, but said the fires certainly aren’t what the market needed.
“Housing is challenged right now, whatever the issue. Everyone is trying to source the materials and labor,” he said.
