These are all ways the wildfires could make LA housing more expensive

This withdrawal will increase in the wake of the Palisades and Eaton fires, as insurers will adjust their risk models for devastated parts of LA that were not previously thought to be at high risk of wildfires – or withdraw altogether. Insurers who remain in the market will undoubtedly charge higher premiums, and many homeowners remodeling a home may simply not find a company willing to extend a policy to them.

This forces homeowners to pay more monthly or go without insurance.

Supply has fallen and demand has increased

Although the final number of destroyed homes will not be counted until the fires are extinguished, it appears the number will be in the tens of thousands. The number of people forced to evacuate is even greater.

All told, this is a major drop in housing supply and a huge increase in demand.

Depending on the market segment, this will work out differently. Residents of Pacific Palisades likely have the resources for higher quality temporary housing, so they will have a greater impact on the higher end of both the rental and purchasing markets.

In fact, it’s already happening. An officer told the newspaper New York Times that one of her ads received 1,000 sign-ups in the days after the Palisades Fire ripped through Pacific Palisades. While those people may not have the liquidity to buy another home while they decide what to do with their destroyed home, there are scenarios in which they add competition to a market already hungry for inventory.

Middle-class residents in Altadena are more likely to turn to rental housing. While it is unclear how much of the destroyed housing stock consists of rental properties, the wave of short-term migration will increase demand.

And landlords are already sensing an opportunity to raise list prices, despite laws designed to prevent that.

Rebuilding for resilience is more expensive

Those who stay and rebuild may want to take steps to reduce the risk of losing their homes in the event of another wildfire, but that comes at a cost. Flame-resistant roofs, vents and walls are more expensive than traditional building materials, and changing the landscape to include defensible space increases costs while shrinking the size of the home.

And those who don’t want to may be forced to do so if the city or state decides to implement resiliency mandates. The local politics of doing so, however, would create serious backlash, and executive orders from Los Angeles Mayor Karen Bass and California Governor Gavin Newsom indicate they are not interested in that fight.

The main signs are that they limit rebuilding to 110% of the size of the destroyed house, which means that they will allow the expansion of houses.

Property taxes add up even if the house is destroyed

Property taxes are a major expense for Los Angeles homeowners, and those taxes continue to mount even when the country has no home to live in. But homeowners do have a few options for lighting.

Proposition 13 limits property taxes to 2% per year unless there is a change of ownership or new construction, in which case the assessment resets the current market value. Longer-tenured homeowners benefit significantly from this, although it serves as another kind of “golden handcuff” that keeps potential sellers out of the market.

Proposition 50 allows homeowners to apply for property tax relief in the event of a disaster, and has been used extensively in previous wildfires. It also ensures that the valuation of the replacement home returns to what it was before the disaster.

This helps homeowners in the short and long term, but the medium term is less certain. It takes time to build a home after a wildfire, and the homeowner will have to pay property taxes on top of the costs to build the new home and any costs associated with temporary housing, including rent.

Given the extent of the destruction, it’s likely that the city and state will find a way to provide relief as people try to rebuild, but it’s a scenario that will strain middle-class family budgets.

You can find more information about our wildfire coverage here.