Canadian Mill Towns Pay For U.S. Housing Collapse

MACKENZIE, B.C. -- For a time, the snow-dusted forests ringing this picturesque mill town might as well have been made of gold.

Eager U.S. construction companies scooped up Canadian lumber in record volume during the great American housing boom of the middle of the decade. As prices spiked, sawmills cashed in, spending millions to increase production. They upgraded factories and enticed laborers with salaries upward of $80,000 a year, adding third shifts to pump out wood for McMansions in Miami and instant subdivisions in Phoenix, 24 hours a day.

The lumber bubble brought to this sleepy town of 4,500 people about 600 miles north of Vancouver a rush of wealth, still easily visible in the freshly minted Ski-Doo snowmobiles and $60,000 pickup trucks, now idle in driveways. "Everybody went out and bought new toys," said Mackenzie's no-nonsense mayor, Stephanie Killam. "Nobody thought it would ever end. They were wrong."

As the ripple effect of the U.S. subprime-mortgage collapse spreads around the world, the boom times for Mackenzie and dozens of other towns built on the legacy of the Canadian lumberjack have come crashing down as fast as you can say "timber." It underscores fears of a broader global fallout from the bursting of the U.S. housing bubble as tens of billions of dollars in losses hit economic interests as diverse as Swiss bankers and Mexican villagers.

In this era of interconnected economies, when globalization can take away as fast as it can give, the bite of the U.S. subprime-mortgage crisis is perhaps as visible in this Canadian town as in any U.S. community. With wood demand and prices plummeting along with U.S. housing starts, three of Mackenzie's five sawmills have shut down indefinitely, while the others have cut shifts -- propelling the town's unemployment rate from single digits to more than 70 percent since August.

That includes the loss of Mackenzie's largest employer, the two AbitibiBowater mills, which closed so abruptly Jan. 11 that thousands of felled tree logs remain piled up on its icing lot, awaiting processing by new multimillion-dollar saws that now sit dormant. Six of Mackenzie's eight logging camps, where tree cutters and haulers dined on early morning breakfasts of flapjacks before gathering wood in the sub-zero mountain air, have closed. Five of the seven town councilors or their spouses have lost their jobs. Laid-off locals cluster in Mackenzie's recreational center to tap the newly created job assistance center and debate over coffee whether to follow those who are abandoning town in search of work.

The squeeze is working its way through the town economy. The local Curves gym lost 75 percent of its clients and is about to close. The quaint homemade candle and gift shop across from the Evergreen Mall let three of its five workers go because of a 50 percent sales drop. Local banks are renegotiating with mill workers to restructure home loans and avoid foreclosures.

Similar events are playing out across the Canadian hinterlands, where at least 139 sawmills -- many of which depend on the U.S. market for most of their sales -- have been forced to close indefinitely or reduce shifts over the past 18 months, according to Canadian government statistics. Thousands of forestry workers are jobless, creating what analysts are calling the industry's worse shakeout in modern history.

Prices and exports of Canadian lumber rose to an all-time high in 2004 as U.S. housing starts shot above 2 million a month. With housing starts falling to a 17-year low of 1 million in December, however, wood exports to the United States have followed suit. Their value in Canadian dollars, which takes into account their appreciation against the U.S. dollar in recent years, fell 41.6 percent, to $10.5 billion, in January through November 2007, compared with $18 billion in the comparable period in 2004, according to Canadian government statistics.

"They were selling $250,000 houses [in the United States] to guys who worked at McDonald's, and guess what, they couldn't afford them," said Gerald Girard, 45, a laid-off Mackenzie lumber worker. "So now, who's paying the price for it? It's not just them, aye. I'll tell you who. It's us."

Girard, mustached and solid-bodied, moved to Mackenzie with his parents as an toddler when the town was founded in 1966. They were the tenth family to settle here. "This town was my life, it's all I know, but I can't stay now and neither can many people," he said. "Within a year, I wouldn't be surprised if we're down to a third of our population in Mackenzie."

Fallout Is Global

Spooked markets from Frankfurt to Mumbai shed untold billions of dollars in capitalization last month on fears of the so-called American contagion.