If you have enough money, buy it at Gannon's shop.
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First you have to get your axe out and use it on a piece of wood
Simply pick up lumber found around the island and drop it into a line where ever you please :) this will keep animals inside the boundaries and prevent wild animals from gaining entries inside :D
In order to make lumber in Harvest Moon: Tale of Two Towns, you need to have the axe. When you find branches around the mountain area or in all the hidden areas, just equip your axe and chop the wood into lumber.
Storing lumber which you get from chopping branches with your axe. You have to get Gotz to build one for you. Hope this helps. :)
You must use your Axe you chop sticks and stumps. Once you chop it the Lumber is automatically added to your total amount.