All the ways wildfires can make LA housing more expensive

That retreat will increase in the wake of the Palisades and Eaton fires, as insurers adjust their risk models to — or remove altogether — devastated parts of LA that weren't previously thought to be at high risk for wildfires. Insurers who remain in the market will undoubtedly charge higher premiums, and many remodeling homeowners simply cannot find a company willing to extend them a policy.

This will force homeowners to either pay more monthly or go without insurance.

Supply decreased, demand increased

Although the final number of homes destroyed is not tallied until the fires are extinguished, it appears to be in the tens of thousands. The number of evacuees is more.

Taken together, this is a huge drop in housing supply and a huge increase in demand.

This will play out differently depending on the market segment. Residents of Pacific Palisades have access to higher quality temporary housing, so they will have greater exposure to the upper end of both the rental and sales markets.

In fact, it is already happening. An agent said New York Times One of his lists reportedly received 1,000 calls in the days after the Palisades Fire tore through the Pacific Palisades Islands. While these people may not have the liquidity to buy another home while deciding what to do with their destroyed homes, there are scenarios where they add competition to an already inventory-starved market.

Although it's unclear how much middle-class residents in Altadena are renting more of the depleted housing stock, a wave of short-term migration will boost demand.

Despite laws designed to prevent this, landlords are already smelling an opportunity to raise their list prices.

Rebuilding for durability is more expensive

Those who stay and rebuild may want to take steps to reduce the risk of losing their home in another wildfire, but there's a premium. Fire-resistant roofs, vents, and walls are more expensive than traditional building materials, and modifying the landscape to include a defensible space adds more to the cost while reducing the size of the home.

If a city or state decides to implement forbearance mandates, those who don't want to do so may be forced to do so. However, the local politics of this will create serious headwinds, and Los Angeles Mayor Karen Bass and California Governor Gavin Newsom say they are not interested in the fight.

Chief among the signs is that they limit rebuilding to 110% of the size of the destroyed house, meaning they will allow for house extensions.

Property tax is levied even if the house is destroyed

Property taxes are a major expense for homeowners in Los Angeles, and even if the land doesn't have a home to live in, these taxes are still collected. But homeowners have several options for relief.

Proposition 13 increases property taxes by 2% each year unless there is a change in ownership or new construction, in which case the assessment resets to current market value. While it serves as another “golden shackle” that keeps potential sellers out of the market, longer-term homeowners benefit significantly from it.

Proposition 50 allows homeowners to apply for property tax relief during a disaster and has been used frequently in previous wildfires. It also allows the appraisal of the replacement home to return to its pre-disaster status.

This helps homeowners in the near and long term, but the medium term outlook is less certain. Rebuilding a home after a fire takes time, and the homeowner will have to pay property taxes on the cost of building the new home and any expenses related to temporary housing, including rent.

Given the scale of the devastation, it's likely the city and state will find a way to provide relief as people try to rebuild, but it's a scenario that will strain the budgets of middle-class households.

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