Housing Prices and Tariffs on Canadian Softwood Lumber

by Brent Sohngen (Sohngen.1@osu.edu)

Click here for roughly 5 minute podcast version of this post [Global Forest Podcast]

Understandably, there has been confusion and concern in the marketplace due to the weekend decision by the Trump Administration to impose tariffs on imports from Canada and Mexico (although the tariffs from Mexico have subsequently been paused). While exposure is significant in the automobile manufacturing sector, the housing sector will also be affected. Since the Great Recession earlier this century, the US has not built enough houses to keep up with demand. Due to limited supply of new homes, housing costs have risen disproportionately in the economy.

One factor possibly limiting the supply of new homes may be the high cost of wood, which makes up 15-25% of the cost of building and finishing a home in the U.S. A few years ago, buyers in the US experienced two significant, but short-term run ups in the price of lumber. Although we think more about our next meal than the wood frames supporting our living rooms, these price increases drove home just how important wood is in our daily lives.

What may come as a surprise to many is that the US imports about 30% of our softwood lumber, nearly all of which comes from Canada. It’s not like we don’t have enough trees in the US. We have more than enough actually. According to the US Forest Service, we grow nearly twice what we remove for timber every year. Even for softwoods – the preferred wood for framing a house – we harvest only about half what grows every year. Yes, fires have been increasing, but they are not coming close to putting a dent in the massive supply of wood piling up in US forests.

We import so much wood from Canada for a couple of reasons. First, Canada has an abundance of spruce, pine, fir (SPF) species that are extremely well suited for the US housing market. Since the Canadian market is so much smaller than the US market, much of their wood harvest makes its way through the US border. The dominant softwood type in the US, Southern pine, can be used to build houses too, but is less preferred by builders.

The US has similar types of trees in its northern tier – from Maine to Minnesota and the Pacific Northwest – but not enough is available on private land to compete with the sheer volume available in Canada. Significant quantities of the preferred SPF types are available on federally owned Forest Service lands, but timber harvesting on those lands has been limited since the 1990s. In fact, the US began importing large quantities from Canada in the 1990s precisely because the US shut down timber harvesting on federal forestlands in the west when the Northern Spotted Owl was listed as threatened.

A second reason why we import so much wood from Canada is that they subsidize timber harvesting. Nearly all forest land in Canada is technically owned by the King of England, but it is managed by the provincial governments. Timber harvests happen on land that is leased to the timber sector. When companies pay less than market rates for the timber they harvest, they are gaining a subsidy at the expense of Canadian taxpayers. When this wood makes its way to the US, it lowers prices, and benefits consumers, but it harms woodland owners and timber mill owners.

This issue of subsidies for Canadian softwood has been a long-running dispute between the US and Canada, reaching back into the 1980s at least. Since then, there have been periodic tariffs imposed by the US government and voluntary export limits by the Canadian government. During the first Trump administration, tariffs were imposed on Canadian softwood lumber. The Biden Administration maintained tariffs and increased them from 8% to 14.5% in August 2024. This most recent act seems to increase tariffs to 39.5%.

It is hard to imagine that these subsidies will not cause further increases in prices for lumber in the United States, especially the SPF material that is used so widely in construction. Most of us recall the very high prices for lumber from 2021 and 2022. These price spikes were driven by market factors well beyond the tariffs – including constraints in labor markets, difficulties in shipping goods from country to country, and other factors – but tariffs took their toll. And prices haven’t fallen back to their pre-pandemic levels. The most likely effect of tariffs on lumber prices it that they will increase. Estimates with the Global Timber Model suggest that US lumber prices could increase 2-5% in the coming weeks.

The effect on housing will take some time to play out, but higher prices will not be inconsequential. Framing lumber is 15-20% of the cost of building a new home in the United States. Other wood products are used throughout modern homes, in cabinets and other components. If wood prices increase 2-5%, the cost of a house could increase up to 1%. This does not sound like much, but in a market that is already “behind” in producing enough houses to keep up with American demand, it can have an important impact.