Corporate Virtue-Signaling Could Be Elevating Housing Costs

Virtual-signaling by corporate executives may be causing the cost of housing to skyrocket. It is yet another example of the law of unintended consequences.

The case in point is the supersonic rally in the price of lumber over the last few months, which came despite the seemingly ample supply of trees.

Here’s the background and the skinny on a weird problem that at its roots is being caused by business leaders wanting to demonstrate the green-ness of their company.

July-dated random length lumber futures contracts were recently fetching $1,377 per thousand board feet on the CME futures exchange. That’s up over 200% from less than $600 at the beginning of the year.

Part of the reason for this spectacular rally is that there has been intense demand for new housing. After the real estate bubble popped in 2007, construction of apartments and single family homes hasn’t kept pace with population growth leading to a shortage of residential housing.

But now a surge of people wanting to live in suburban or rural areas has left home builders, such as those held by the SPDR S&P Homebuilders ETF (ticker: XHB), scrambling to build new houses and condos. Housing starts hit an annualized rate of 1.7 million units in March, the highest since the real estate bubble more than a decade ago, according to data from TradingEconomics.

In turn that housing demand has driven up the demand for lumber.

That wouldn’t normally be a problem, except for one thing: Corporations now want to make sure that they look green, not only for consumers, but also for investors. Guild Investment Management explains what’s going on in a recent report:

• “Large corporations who want to put a “carbon neutral” stamp on their investor presentations and marketing programs are locking up vast swaths of timber across the U.S. 

In short, these companies “pay timber owners to leave their trees standing,” the Guild report explains.

The problem is that in economics little is ever free. For many physical things, if you buy something, then someone else cannot buy it also. That’s definitely true and it is causing a problem in the housing market, the report explains as follows:

• “The irony is not lost on us that companies who are massaging their ESG ratings to look better to investors are contributing significantly to the inability of would-be new homeowners to afford a house.  While seeming to be virtuous, these would-be do-gooders may in fact be reinforcing the very inequality that they decry in public.”

Or in other words, the leap to bow down to corporate woke-ism may be backfiring. Worse still, this may be part of a longer-term phenomenon.

“This does not look like a transient trend — it looks more like a cultural shift,” the Guild report states.