Lumber Prices Fall, But Bay Area Construction Isn’t Viable

The price of lumber is crashing, but Bay Area developers aren’t dancing about it.

The cost of lumber has fallen 75 percent from its high in 2020, and more than 20 percent from a year ago, the San Francisco Business Times reported.

But Bay Area builders don’t see much of an upside.

“This is probably just a drop in the bucket compared to what’s needed,” Danny Haber, co-founder and CEO of oWOW, based in Oakland, which specializes in mass timber construction, told the newspaper.

Haber said lower wood prices are less significant for developers than two years of rising interest rates and sluggish rents. Still, “every last bit helps” to save a buck, he said.

His firm wants to break ground on a new apartment building in Oakland in the next few months after boosting the number of units to 105, from 93.

Haber said re-evaluating material costs was one way to lower the price tag on those extra units, and the lower lumber price could possibly help his company renegotiate with subcontractors.

Haber is among the few developers who have managed to start or continue projects in an era of rising construction costs and stalled or falling rents. Many residential and commerical developers across the Bay Area have put projects on hold until the financial outlook brightens.

Other developers agree with Haber that falling lumber costs alone will not make projects financially feasible.

Marc Babsin, president of San Francisco-based Emerald Fund, compared the development climate to sewing and selling a garment.

“If it costs you $10 to make a t-shirt and you can only sell it for $8, it’s not going to work,” Babsin told the Business Times. “So maybe the timber gets it down to $9.50 for your cost of making the shirt,” but it’s still not profitable.

Babsin said his firm has done tests of overall construction costs for the last few months, and “the number we get from the general contractor is nowhere near where it needs to be.”

While lower wood prices aren’t enough to increase project feasibility, Babsin, like Haber, conceded that it was a small help. “We’ll just keep piling up ‘small helps,’” Babsin said. “And, eventually, something will work.”

— Dana Bartholomew