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We’ve all heard about the timber shortages and are feeling the impact of delays in construction but what is the real cause and when can we expect to see improvement?
An unprecedented increase in demand for timber in 2021 is a root cause of the issue. This year it is anticipated that the number of new homes commencing construction in Australia will increase by 26.9 per cent compared to that in 2020. The Home Builder Grants that were implemented to support homebuyers and the construction industry during the pandemic had a much larger uptake than anticipated and contributed to timber demand at an unexpected speed.
A similar market dynamic has been observed in other countries and this too has impacted the Australian market. Domestic production of structural timber has required supplementation from international markets for over 20 years. Over the past 5 years up to 20 percent of timber used for the construction of new homes was imported.
Additional mills were developed and milling capacities increased in Australia this year with domestic timber production rising 17% to April 2021 compared to the previous year. Initiatives to encourage additional domestic timber production are also being explored such as further increased milling capacity, transporting timber to under-utilised mills and harvesting of timber that has not reached maturity or is bushfire affected. Despite these initiatives being implemented, this will result in increases in costs and importation of timber will continue to be necessary to meet the record level of demand in Australia.
Of course, there are alternatives to the use of timber for home building such as the use of steel frames which some builders are exploring; however this impacts their efficiencies and requires new trades/varied skills. Steel framing typically accounts for around 10% of new home construction. It is likely that there will be a higher usage of steel in 2021/2022 compared to previous years but we are unlikely to see a permanent shift.
The good news – Global timber production is increasing to meet the rise in demand and we have seen a fall in US timber prices from its peak in May which indicates we are returning to equilibrium. That being said the increased supply is still expected to be at a higher price than that observed prior to the COVID recession.
In summary it is expected that the Australian timber shortage will improve significantly over the next 6 months but increased timber costs may be here to stay.