The devastating Los Angeles wildfires are the latest in a string of extreme events pushing the financial impact of natural disasters to the forefront. More than 55,000 acres have been burned and 16,000-plus structures destroyed in the recent fires in Eaton, Palisades, Hughes, Hurst, and other areas, according to the California Department of Forestry and Fire Protection.
According to Morningstar DBRS, the Los Angeles–area wildfires have caused record property damage, with insured losses that could reach more than $30 billion. Despite many uncertainties on the path ahead for recovery and rebuilding of property and infrastructure, solutions are likely to require a lot of time and capital, as well as public and private stakeholders working in tandem.
Urban Land: In your view, what are some of the biggest potential economic impacts of the recent L.A. fires across different areas, such as insurance, construction costs, affordable housing, commercial real estate finance, and public policy?
Patrick Douville, vice president for global insurance and pension ratings at Morningstar DBRS
The recent wildfires are expected to have a detrimental effect on the already problematic affordability and availability of home insurance in California. The significant economic damage and insured losses, which could exceed $30 billion, demonstrate how significant the risk is for property insurers, especially in areas adjacent to wild land. The insurance regulator in California put restrictions on how much insurers can increase property insurance rates and on their ability to deny coverage on renewal, which is making it uneconomical to insure many properties in the state. This has led some major insurers to stop issuing new policies, and some homeowners are no longer able to get any insurance and must rely on the California FAIR Plan, which is designed as a last resort. Recent fires only worsen this situation, and if insurers are unable to raise rates and decide instead to further reduce their exposure to California, the remaining insurers will find it increasingly difficult to provide the coverage.
Victor Calanog, global co-head of research and strategy, Manulife Investment Management
The speed and extent of how Los Angeles will recover from this are driven by three factors: One, infrastructure that wasn’t destroyed (the type and quality of which will determine the base of rebuilding). Two, the will and capability of government and policymakers, which drive how quickly legal issues are settled and what the path forward will look like. And three, the relative endowment of both public and private sectors—wealthier places with stakeholders clamoring for recovery fare better. Los Angeles checks the box for the third factor; the first two factors are still to be determined.
For the real estate sector in the short run, rents for existing real estate will likely spike, given how much supply was reduced. The bigger question in the long run is whether high-income households and businesses will choose to come back, rebuild, and repopulate or choose to move elsewhere. This long-term demand is what will determine whether real estate in various forms are rebuilt. It appears that the Palisades and Eaton fires destroyed mostly single-family homes on the residential side (15,000 units, or about 75 percent to 85 percent of the residential structures, and the remainder, around 3,500, are condos, duplexes, or multifamily rentals). Will these owners and renters settle elsewhere in Los Angeles or out of state? Will new households flock to areas that are rebuilt? For now, there are more questions than answers.
Christopher Thornberg, PhD, founding partner at Beacon Economics
The only thing unprecedented about the recent Los Angeles fires is that we are acting as if they were an unprecedented event. Fires are nothing new to California. It has been part of the landscape for thousands of years. Global warming has simply increased the frequency of the events. The state had record fire years in 2017, 2018, and 2020, including the massive conflagrations that ravaged Sonoma, Napa, and Butte counties. Important lessons learned from those tragedies were seemingly quickly forgotten after just a few wet years. Hopefully, this will be the event that causes local policymakers to refocus on these issues to prevent future fires from having the same impact on our communities.
What should those lessons be? Clearly, the first is to be better prepared through better management of wildfire-prone wilderness areas; doing a better job hardening the edges of our communities that abut these areas; and making sure that public agencies are providing the resources necessary to have an effective firefighting force at the ready when fires do break out. It also means having a standard set of post-fire policies in place that allow for rapid recovery and rebuilding. No one should be asking, “What do we do now?” Rather, they should have premade plans. And yes, the state needs to ensure a functional insurance market, even if that means allowing the true rising risks of fires to be passed through to homeowners. State regulators need to understand that the key to keeping costs down will be less about regulating the insurance companies and more about making sure that local government is doing what it needs to do to reduce the risks of fires.
Daniel Aldrich, director, MS Resilience Studies Program, and Dean’s Professor of Resilience, Northeastern University
The L.A. fires will disproportionately impact lower-income communities and those with limited social networks, hindering their recovery due to lack of resources and support systems. Marginalized groups, including racial and ethnic minorities, may face additional barriers in accessing aid and housing. Renters risk displacement and difficulty finding affordable homes, with elderly and disabled residents more vulnerable during evacuation and emergency shelter processes.
Recovery efforts should prioritize both social and physical infrastructure by strengthening community bonds through local organizations and community engagement. Equitable distribution of aid and resources is crucial to addressing the specific needs of marginalized groups and preventing discrimination. Affordable housing solutions, both temporary and permanent ones, are essential to avoiding concentration in areas already proven vulnerable. We must avoid making this a top-tier recovery, one for those with wealth, and another for those without.
Existing community networks are the foundation of resilience, with local members providing critical information, resources, and the potential for collective action. Engaging residents and local leaders in recovery planning is vital, as they know their needs and visions best. Policies supporting long-term resilience should be developed now for the next disaster: funding local organizations, programs, and infrastructure, which make our communities better able to mitigate, adapt, and transform in the face of shocks. Policymakers must acknowledge that social capital—the ties that bind us together and drive recovery—is unevenly distributed, and they need to work to build places and spaces, like libraries, parks, and community spaces, where people can build trust and relationships. Finally, mental health support is crucial for survivors—especially those who face greater social vulnerability—in helping them return to jobs and regain a sense of normalcy.
Nadia Evangelou, senior economist and director of real estate research, National Association of Realtors
The Los Angeles fires have profound implications for affordable housing, especially in an area already facing a severe housing shortage and low housing affordability. One major impact is the loss of affordable housing stock in fire-affected areas. This disproportionately affects lower-income families, who will struggle to find alternatives in an already tight market. The loss of homes further exacerbates the supply-demand imbalance, driving home prices and rents even higher in the coming months. As a result, even more families will be priced out of the market. Targeted policy measures, such as incentives to rebuild affordable units and support for displaced families, will be critical to address these challenges.
Another critical impact is the rising cost of insurance, with repercussions extending beyond the affected areas. As insurers face rising claims due to fire-related damage, homeowners across California may see premiums increase significantly. These rising insurance costs could exacerbate housing affordability challenges for homeowners.
Chad Littell, national director, U.S. capital markets analytics, CoStar Group
The Palisades and Eaton fires have scarred Los Angeles, but their impact on commercial real estate is more focused. Roughly 80 percent of the commercial properties in the affected areas lie within evacuation zones, so far spared from direct fire damage. Within the burn perimeter, an estimated 374 commercial structures—representing 4.5 million square feet that consists predominantly of apartment and retail properties—have been directly affected. While this is a significant loss, it accounts for a relatively small portion of the region’s commercial inventory.
Displaced residents have driven immediate shifts in housing dynamics. Apartment occupancy rates spiked as evacuees rushed to secure temporary shelter, filling vacant units before landlords could respond by inflating rents. Across the metro, rents have risen modestly, but in high-demand areas like Santa Monica, near the Palisades fire, rents are climbing at twice the pace of the broader Los Angeles market. Hotels, too, have absorbed the impact. Near the Eaton fire in Pasadena, occupancy jumped from 60 percent last year to 83 percent as residents sought emergency accommodations. Average daily rates have increased, though not as sharply as anticipated, except in luxury markets like Beverly Hills, where residents of the high-income areas impacted by the Palisades fire are landing.
Longer-term implications hinge on whether evacuees choose to rebuild or to relocate. Lessons from Hurricane Katrina offer perspective. A 2008 Bureau of Labor Statistics study revealed that 73 percent of evacuees returned to their prestorm counties, driven mainly by age, marital status, and education. Older, married residents with higher education were more likely to rebuild their lives in place. This outlook resonates with the demographics of the fire-impacted areas. According to Homes.com, the median age in the Pacific Palisades is around 50, with 78 percent holding college degrees. Near the Eaton fire, homeowners in their 40s and 50s dominate. These communities are poised to recover. For commercial real estate, this suggests that resident retention will anchor the rebuilding process, reinforcing the region’s capacity for renewal.
Curtis Dubay, chief economist, economic policy division, U.S. Chamber of Commerce
The fire devastation is in Los Angeles, but the scale of the rebuild means two major impediments to economic growth at the national level will play a role: one, a shortage of workers; and, two, slow and onerous permitting processes.
Despite recent improvement, the labor market remains historically tight, and employers across the nation continue to struggle to fill their open roles. In California, there are only 92 available workers to fill every 100 open jobs, about the same as the national average. The L.A. area will need workers to rebuild homes and businesses destroyed by the wildfires, but the labor shortage will cause difficulties and delays. An onerous permitting process for homeowners could also slow rebuilding . . . . On a national level, slow permitting processes are a contributing factor to the housing shortage. L.A. and California are no exception.
It is vital that community members, small business owners, and officials at every level have a firm grasp of how national economic factors could delay rebuilding and growth. A recent study from the U.S. Chamber of Commerce and Allstate found that up-front investments in preparedness can substantially reduce the economic costs of disasters. Attracting workers to the area, reducing permitting costs and times, and investing in preparedness should be top of mind while L.A. rebuilds and looks to prepare for any future catastrophes.
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