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Study estimates future of lumber demand based on housing needs

A third of all U.S. lumber is used to build new homes or apartment buildings. Photo courtesy of R. Rosin.

NORTH CAROLINA – USDA Forest Service scientist Jeffrey Prestemon, from Southern Research Station, recently led a modeling study, published in the Journal of Forest Science. The study projects softwood lumber demand under different economic growth scenarios, represented by real gross domestic product. Real GDP is adjusted for inflation and reflects the value of all the goods and services an economy produces. SRS scientists David Wear and Karen Abt contributed to the study, along with North Carolina State University professor Robert Abt.

Prestemon already started using this model for his work under the Resource Planning Act and with the U.N. Economic Commission for Europe. The Commission is a postwar institution that keeps Europe, the U.S. and other partner countries talking about a number of issues – including housing – and their policy solutions.

“We’re always looking forward,” says Prestemon. “What could the future of the forest sector look like?”

Housing demand is a key factor. A third of all U.S. lumber is used to build new homes or apartment buildings.

How many houses will be built in 2050? How about 2070? The model uses three variables to predict the number of housing starts: the rate of economic growth, the number of houses built in the past and mortgage delinquency rates. Mortgage delinquencies, when a homeowner falls behind on monthly payments to a lender, spike during recessions but otherwise occur at fairly stable rates.

The scientists tested several future economic growth scenarios, represented by real GDP, through the year 2070. They used Monte Carlo simulations to identify confidence bands in the projected number of total housing starts, given the GDP growth assumptions.

For the past 15 years, GDP has grown by an average of 2.4 percent each year.

Currently, the U.S. is the biggest producer and consumer of forest products in the world, though still dependent on wood products imports to meet demand for construction.

Prestemon and his colleagues aim to understand how the evolution of the U.S. and world economies will affect the U.S. forest sector. As Prestemon says, “My interest is to study how the world’s forest sector evolves over time. The U.S. housing sector is a key driver of demand for wood products, and it’s also important for the broader economy.”