The Legacy Of The Los Angeles Fires

On today’s show we are talking about the legacy of the latest California wildfires. Wildfires are not new to California. We’ve seen them in the North and in Southern California. There was the Camp Fire in Northern California in 2018. There was the Cedar fire in 2003. There was the 2020 fire season in which more than 4 million acres burned throughout California. 

The unusual Santa Ana winds that come off the mountains are often hurricane force winds that make the spread of fire difficult to contain. Flying embers are virtually impossible to contain. Unless we start building entirely out of non-combustible structures and cladding, the spread of these fires is inevitable. 

The devastation in a dense urban area is hard to fathom. This type of thing is not supposed to happen in places where there is a fire hydrant on every street corner.

When we look at real estate after a major disaster, there are several effects.

People need a place to live. There is an immediate acute shortage of places to live. Those who had a waterfront home on the beach in Malibu, often own a second home somewhere else. They’re probably not homeless. So the demand for housing in the immediate are shoots up against a limited supply. Pricing shoots up in response to that local supply demand dynamic Some people will leave the area. They may go to other parts of California, or they may leave the state altogether. There have been more than 12,000 structures destroyed and rising. That’s a huge number, but still a relatively small percentage when looked at the size of LA County. If they leave California, the most likely destinations are the traditional ones of Arizona, Nevada, Idaho, Colorado and Texas. Some will seek a location that has a lower incidence of natural disasters. No more fires, hurricanes, earthquakes or snow storms please.  It’s going to take time to rebuild. Some people had their insurance coverage cancelled in the last 30 days by insurance companies that had a crystal ball indicating higher risk. Reports I’ve seen in the media suggest that over 70,000 properties in the area had their insurance policies cancelled by insurance companies very recently. If there was a state component to the insurance plan, some policies had a limit of $3M in coverage. One beachfront property made headlines where there will be only $3M in insurance to cover more than $20M in recent improvements.  There will be a shortage of trades in the local area to rebuild that number of properties. As a result we may see a jump in labor pricing and we may also see a surge of construction workers coming into the area looking to help with the rebuilding process. 

There were thousands of properties destroyed. But there are over 2.5M properties in LA county. I’m not an insurance expert. But I would expect the remainder of these 2.5M properties to be experiencing a surge in fire insurance premiums. In fact, anywhere in the western states that is in an area of elevated fire risk could see their premiums skyrocket.

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