Soaring lumber prices, material shortages challenge Duluth builders

Tired of dealing with slippery hills in the winter and looking for a more comfortable place to retire, Alvin Berg decided to list his house near Skyline Parkway in western Duluth last year.

With a booming real estate market, it took little time to sell, and Berg concluded it'd be cheaper to build from scratch than try to compete with fellow buyers for existing properties. He found the perfect lot along Swan Lake Road in the Duluth Heights neighborhood, started crunching numbers and got all the permits in place.

Berg, 61, and husband Vince Nelson figured they'd come out ahead. But as the house now takes shape, they're looking at a total cost roughly 30% higher than originally projected just a few months ago.

"There was a lot of sticker shock," Berg said. "With the money we made, because the market was so good on our house, we're just having to roll it all over into the cost of construction."

Building materials — particularly lumber — have soared to record prices as the nation slowly emerges from the COVID-19 pandemic, which more than a year ago led to widespread industry shutdowns and supply chain interruptions that have yet to be fully alleviated.

Experts say near-zero interest rates, coupled with a shortage of existing houses available for sale, have more people looking to build — and the stay-at-home work model has inspired many others to consider additions, renovations, new furniture and outdoor amenities like decks and garden structures.

Lumber futures reached an all-time high last week, and hardware store customers continue to pay roughly four times the typical price this time of year for finished products like lumber and plywood, the Wall Street Journal reported .

"The price of most building materials has gone up considerably, and lumber, of course, as everyone knows, has skyrocketed quite a bit," said Don O'Connor, executive director of the Duluth Builders Exchange, a nonprofit representing more than 400 firms and individuals, primarily in commercial industrial construction.

"Everyone's feeling it," O'Connor said. "Certainly, there are projects out there that were bid six months ago or a year ago that have had to make some adjustments due to increased pricing."

Nowhere has that been seen more clearly than with LSC Flats, a proposed 87-unit, 204-bed student housing development next door to Lake Superior College. The would-be developer, Titanium Partners, was recently forced to delay the project until next year , with managing partner Brian Forcier indicating it will likely result in a slimmed-down version with fewer amenities.

Adam Fulton, deputy director of Duluth's planning and economic development authority, acknowledged the pandemic and soaring building material costs have also had an impact on the city's Rebuild Duluth initiative, which strives to bring much-needed housing to vacant, often tax-forfeited lots.

"One of the things that we've experienced post-pandemic, and I think this is directly resultant to the price of lumber," Fulton said, "is that it can be hard to obtain quotes because there's a level of uncertainty in what that price of lumber might be or, possibly, in the availability by contractors to work on these types of projects."

He expects construction to move forward this summer on many of the projects selected for free lots as part of Rebuild Duluth's first phase, which was set in motion before the pandemic. But Fulton indicated more in the second round, awarded this winter, are likely to see delays.

Despite the pandemic and increased costs, he said the city has experienced two exceptionally busy years of construction. Essentia's ongoing Vision Northland project, the multi-year Twin Ports Interchange reconstruction and last year's completion of new facilities at St. Luke's have kept contractors busy.

"There are some really positive things for the community that are having an impact on availability of things like labor for the construction industry," Fulton said. "We're really pleased to be experiencing a high level of construction, and at the same time, also experiencing the consequences of that high level of construction."

Chris Hegg, president of Grand Marais' Hedstrom Lumber Co. , said it has been a busy year for his business, though the small, family-run sawmill isn't quite raking in the profits seen by the corporations that now dominate the industry.

Hedstrom primarily supplies wholesale clients, rather than one-off retail transactions. Hegg said prices on two-by-fours and other common products are about twice as high as normal right now, and customers are paying three or four times as much by the time retail yards take their cut.

"The supply just can't catch up with the demand," Hegg said. "It's like any commodity."

Hegg, who closely monitors the lumber industry, said a massive pine beetle infestation in the western U.S. and Canada has led to a continental shortage, with the southeastern U.S. now being relied upon. He said the closure of Duluth's Verso mill, along with a general decrease in paper production, has had an impact on Hedstrom, which has a network of many specialty contracts.

"We're a small mill; we're a tenth of the size of Potlach, so we had to find other niches," he said. "So we're trying to scramble and produce as much two-by as we can, but we still have to keep our customers because this will end in a year or so, would be my guess."

For Berg, who was placing roof trusses on his new house this week and hopes to have it completed by July, it's been more than just lumber bringing unexpected challenges.

Copper wire prices have gone up, his window and garage door orders are taking seven to nine weeks to fulfill, and he's been advised to start ordering appliances due to a backlog associated with last year's production stoppage. He said he's fortunate to have locked in prices on lumber and other materials earlier this year, before the current peak.

Berg, who owns the Flame Nightclub in Superior, said material costs were still significantly higher than the early months of the pandemic, when he used a government-mandated closure as an opportunity to do some remodeling at the business.

While not revealing exact figures, Berg said it will end up costing more to build his roughly 2,100-square-foot home than he spent in 2016 to put up his other business, Luxury Imports & Auto Sales, which occupies twice the footprint in Hermantown.

"I'm not building the Taj Mahal, either," Berg said. "It's a pretty simple, one-story, no-basement, ranch-style home."