HB295: Promote NC Sawmills

Background

On May 3, 2023, the North Carolina House of Representatives passed HB295: Promote North Carolina Sawmills Act with near unanimous support (115-2) among its members. The bill helps everyone in N.C.— by bringing home prices down, increasing the value of timber in the state, and allowing the state’s businesses to work together to address North Carolina’s housing shortage. The bill recently moved to the NC Senate Agriculture Committee, where it was passed on Tuesday, June 27. As of July 2023, the bill was set to be considered by the Commerce Committee.

What Would HB295 Do?

HB295 would allow N.C. sawmills to sell inspected and certified local lumber to builders for use in code-approved construction. The bill includes three key parts: (1) it would empower the North Carolina Cooperative Extension, Forestry Extension, and North Carolina Forest Service to develop a lumber grading certification and training program for sawmills interested in supplying North Carolina’s builders; (2) it would amend NC Building Codes to allow for the use of inspected and certified (but non-grade stamped) lumber for residential construction; and (3) it specifies that this lumber must meet the same grading requirements as grade-stamped lumber. For a line-by-line analysis of the bill, see this annotated Deep Dive into the text. You can also see the Senate Summary here.

NC Housing Crisis, and How HB295 Helps

North Carolina is in the midst of a housing crisis. According to an Urban Institute report, not a single N.C. county has enough affordable homes for its residents. This is a problem that is hampering businesses, deterring investment, and dragging down the state’s economy. The crisis can be seen in the numbers: North Carolina’s population is rising at 9.7%, but its new housing is growing at only 8.8%. Demand exceeds supply. A Cato Institute study estimates that the state needs more than a million new homes over the next decade, but it will fall short. How did we get here? Ask home builders and they will tell you they want to build but several factors discourage them from doing so— overly burdensome regulations, material shortages, unpredictable markets, lack of labor, and price-gouging among monopolistic suppliers. Given lumber’s centrality to home construction, it bears asking: how can North Carolina help its builders meet the state’s need for new housing?

Why N.C. Trees Go To The Dump, While Our Homes Are Built With Imported Lumber

Like most states, North Carolina’s lumber market is international, not local. Most of the lumber that people get at big box stores is shipped across the continent from clearcuts in the Pacific Northwest and Canada. Sometimes it comes from as far away as Romania, Sweden, and Germany. Meanwhile, local logs often get dumped in the landfill. Why? Most big lumber companies have contracts with international log suppliers; they rarely source from local loggers, landowners, farmers, and arborists. For those N.C. wood-based businesses, the prices they get for their logs is so low that they rarely make a profit hauling them. Sometimes, local log haulers get as little as $25/ton for their loads. As the Wall Street Journal has pointed out, most small landowners and loggers are getting 1990s prices for timber.

Regulations related to lumber-use is partially to blame. The only type of lumber that can be used in residential construction —apart from the rare circumstance of landowners building their own home— must be grade-stamped by a licensed grader. But that grade-stamp right is affiliated with a company, not an individual, which means there are very few graders-for-hire in N.C. If a local sawmill wanted to hire a grader to stamp the lumber, the process is prohibitively expensive. After milling, an inspector must approve all four sides of every board at a cost of roughly $1000/day. Such a process effectively wipes out the sawmill’s profit, disincentivizes the use of local lumber, and perpetuates the monopoly of international lumber companies.

Imagine if every restaurant not only had to be inspected, but it was legally required to have a health inspector check every piece of food on every plate served to every customer. Technically, this process would ensure public safety. But if there are a handful of inspectors serving a state that needs a million homes, and over 1.6 billion board feet of lumber, you can see how current lumber regulations are burdensome and are contributing to the housing crisis.

Why Our Current System Makes Homes Less Affordable (and Weaker)

For N.C. builders, this international lumber system has had two results: first, because big lumber sellers have very little competition, the lumber quality can decrease without any impact to their bottom lines. Ask any older builder about the current quality of lumber versus lumber they used ten years ago. What used to be rejected grade-3 lumber (full of compromising knots) is now grade-2 lumber approved for construction. The second impact, which we saw in 2022, is that there is no check on price-gouging. The few suppliers who sell code-approved lumber were able to increase their prices 4x without any penalty in the marketplace. North Carolina’s sawmills had grown so anemic after years of being shut out by excessive regulation that there was no one to check these monopolistic practices. According to an NC State study, nearly half of the state’s sawmills went out of business between 2001 and 2020.

The rise in lumber costs translates into higher prices for homeowners. In 2022, builders saw their materials costs increase weekly — and they transferred that cost onto their clients. In some cases, the home’s materials costs surpassed the home’s value— which disincentivized banks from offering mortgages or insurance companies from offering coverage. Some custom home builders in 2022 responded by focusing on higher-dollar, higher-margin homes, which further diminished affordable housing.

This monopoly is having a disproportionate impact on North Carolina’s rural and young communities. Builders in rural parts of the state are finding it hard to get metropolitan lumber suppliers to send them material. When and if they are able to get the lumber, the delivery costs are so high the resulting homes are unaffordable. Would they use a nearby sawmill for their lumber needs? Yes, but excessive regulations prevent rural sawmills from supplying neighboring rural builders.

Additionally, young folks looking to buy their first homes in urban areas are finding home prices astronomically high. In Orange County, NC, the median home price is over $660,000— far more than ordinary hardworking couples can afford. This is resulting in metropolitan communities that don’t have housing for firefighters, teachers, and nurses. One of the only local suppliers who could help bring this price-gouging down —North Carolina’s sawmills— are boxed out of the commodity chain— even if they have access to the incredible volume of urban wood being cleared from cities. In Durham, over 750 urban trees need to be removed every year for the next two decades. Such wood often currently goes into landfills because excessive regulations keeps it out of the construction supply chain.

Other States’ Models for a Thriving Local, Wood-Based Economy

New Hampshire and Wisconsin have figured out ways to support local sawmills and build more robust wood economies. Sawyers can receive training in lumber grading, prove proficient by taking a test every five years, and certify and sell their lumber. Here’s information about New Hampshire’s model and Wisconsin’s. North Carolina would be lucky to implement this kind of program.

Relief (and Clarity) for N.C. Landowners

North Carolina does have a law that has provided some relief for landowners. Current N.C. law (0602.1.1) allows landowners to use unstamped lumber derived from their own properties to build their homes, barns, and related projects. Despite this allowance, there are two barriers that prevent those landowners from fully using their local lumber. First, this rule only applies to landowners who have timber. Neither the landowner nor a sawyer can sell that lumber to others to use at another location. Second, if the landowner decides to use his/her own lumber, there’s a caveat in the administrative codes (105.1-2) that gives discretion to a local building inspector to approve the "alternate materials" (aka, local lumber). Therefore, the landowner is technically at the mercy of individual inspectors— which has put a damper on local lumber use. There are ways around this: In NC, a licensed engineer or architect can approve the lumber over and above a building inspector. But this option is often too expensive and burdensome for a budget-conscious home builder. A licensed grader could theoretically grade-stamp the lumber; however, there are very few graders-for-hire in NC, as mentioned. HB295 would clarify to R.602.1.1 builders that their lumber can be used in their home construction, and also can be inspected, certified, sold, and used in other residential projects.