These withdrawals will increase in the wake of the Palisades and Eaton fires, as insurers adjust their risk models for devastated parts of LA previously thought to be at high risk for wildfires — or write them off entirely. Insurers who live in the market will undoubtedly charge higher premiums, and many homeowners who are rebuilding may simply not be able to find a company willing to extend a policy to them.
This will force homeowners to pay more every month or go without insurance.
Supply has decreased and demand has increased
Although the final number of homes destroyed will not be tallied until the fires are extinguished, it appears that the number is speeding up to be in the tens of thousands. The number of people forced to leave is very high.
Taken together, this is a significant decrease in housing supply and a significant increase in demand.
This will play out differently depending on the market segment. Residents of Pacific Palisades are likely to have access to quality temporary housing, so they will have a significant impact on the high end of both the rental and real estate markets.
It’s actually happening. The agent told New York Times that one of his lists received 1,000 requests in the days after the Palisades Fire tore through Pacific Palisades. While those people may not have the money to buy another house while they decide what to do with their dilapidated home, there are situations where they can add competition to an already hungry market.
Middle-class residents in Altadena are more likely to turn to renting. While it is unclear how much of the damaged housing is being rented out, a wave of short-term migration will increase demand.
And landlords are already sniffing the opportunity to raise prices, despite laws designed to prevent that.
Rebuilding resilience is very expensive
Those who live and rebuild may want to take steps to reduce the risk of losing their home in the event of another wildfire, but that comes at a small cost. Flame-resistant roofs, vents and walls are more expensive than traditional building materials, and changing the location to include a fireproof area adds more to the cost while reducing the size of the house.
And those who don’t want to do so may be forced to do so if a city or state decides to implement stricter orders. However, the local politics of that will create bad spirits, and orders from Los Angeles Mayor Karen Bass and California Governor Gavin Newsom show they are not interested in that fight.
Chief among the features is that they include rebuilding at 110% of the size of the demolished home, which means they will allow for housing expansion.
Property taxes increase even if the home is destroyed
Property taxes are a major expense for Los Angeles homeowners, and those taxes still add up even if the land doesn’t have a home to live on. But homeowners have several options to help.
Proposition 13 caps property tax increases of 2% per year unless there is a change in ownership or new construction, in which case the assessment resets to its current market value. Longtime landlords benefit the most from this, although it acts as a sort 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 frequently in past wildfires. It also allows the valuation of the replacement home to return to what it was before the disaster.
This helps homeowners in the near and long term, but the medium term is less certain. It takes time to rebuild a house after a wildfire, and the homeowner will have to pay property taxes on top of the cost of building a new house and any costs associated with temporary housing, including rent.
Given the extent of the damage, it is possible that the city and state will find a way to provide relief as people seek to rebuild, but the situation will strain the central household budget.
Find out more about our wildfire coverage here.
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