Monday, February 09, 2009

The Impending Affordability Crunch for Log Homes

The very idea of living in a log cabin conjures up all sorts of feelings and sentimental romance. The log cabin home is as ingrained in our culture as Apple Pie and baseball but is the viability of this mainstay of rural living on the verge of disappearing. Some may think that it is not, that the log home will always be an affordable and viable home choice for those looking to return to their roots; but I think that the log building industry is in for some rough road in the coming years.

One only has to look at the dramatic increase in the cost of building materials and the scarcity of skilled labour in the wake of recent events both natural and man-made to get a sense of the coming crunch in the log building industry as a whole. The cost of plywood, for example, has risen nearly twenty percent in the last year adding dramatically to the cost of a new home. General contractors and homeowners alike are getting caught in the squeeze as prices for materials skyrocket during the course of construction making it necessary for charge backs and change orders. This volatility in the building materials market directly influences the log home building industry as they must compete with the lumber producers for the same raw logs from which they build their log cabins with.

The typical log home producer must buy its logs on a project by project basis so as not to tie up scarce resources in carrying an inventory of logs. Given this, the producer must go to the market to purchase logs at market price and thus must compete with the large mills for the same high grade logs. Practically speaking, his means that the log builder must in fact pay a premium for its logs because their quantity of wood fiber purchased does not afford them the same economies of scale as the large mills. So in the end the log builder can pay as much as double for the same logs as the large mill. The log builder of course cannot absorb all this cost so it must pass this cost along to the consumer who ultimately will bear the brunt of this volatility.

If the premium for logs wasn't enough for the log builder to contemplate; add in the scarcity of skilled labour and it is clear to see why the price of log cabin construction is on the increase. There was a time when building a log cabin was simple because you were doing it your self probably and if you made a mistake then – oh well you could live with it. But today in our overly litigious society where every consumer expects nothing but the finest quality at all price points the pressure on the builder to do quality work is immense. A typical log builder will require four to five years of hands-on experience under the direction of a journeyman log smith to be able to work independently. During this training time the apprentice will be exposed to all sorts of different scenarios and situations and must develop his problem solving skills in order to achieve competency. The problem face by most log home companies is that the craft of log home building is not as glamorous as a University Degree or a Tradesman Qualification so they have a hard time attracting quality employees due to the stiff competition from the other trades and professions. The only way the log home producer can compete is to increase the wage scale in the hopes of retaining quality personnel

What does all this mean for the log home building industry? It means that their cost of raw materials is steadily increasing as they are getting squeezed out by the large mills and producers for the raw materials they need to build their homes. This coupled with the scarcity of skilled labour means that the log home producer must raise his prices to be able to stay profitable. This increase in prices then puts the affordability and feasibility of a log cabin out of reach of the average person and thus thins the market for the producer. Under these kinds of conditions the producer may at first lower his prices to close more sales but this is not a long term solution because the producer's profit margin is slowly eroded as the cost of materials and labour steadily rises but the price point does not. In the end if the consumer does not accept the higher prices but instead chooses a different style of construction the log home building industry will experience a sharp decline until the costs of inputs normalizes and the viability of the business is certain.

About The Author
Darwin Forcier
Log Home Builder for 15 years and owner of Coast Mountain Log Homes

Labels: , ,


Post a Comment

<< Home