LA fires: What we know so far, and what’s ahead for housing
Brokerage leaders, data scientists and other experts have helped paint a picture of the scope and impact of the California wildfires on the LA housing market.
The wildfires that have devastated parts of Los Angeles this month already rank as one of the most expensive natural disasters in U.S. history. As the region starts to move forward, many questions remain.
Over the last few weeks, Real Estate News spoke to industry leaders and experts who shared their perspectives on the area's housing future. Some are pushing for policy changes that will allow communities to rebuild faster, while others believe certain areas should not be rebuilt at all. Though opinions differed, they conveyed a common sentiment: This is a time for unity, empathy and resilience.
A historic disaster
Just two days after the fires broke out, some experts were already predicting it could be the most expensive wildfire in U.S. history, with early damage estimates of around $50 billion. At that time, roughly 2,000 structures had been affected.
Now, with more than 18,000 structures damaged or destroyed, those estimates exceed $250 billion. That number is likely to grow as local leaders, government agencies and private insurers get a clearer picture of the destruction.
By comparison, Northern California's 2018 Camp Fire — the costliest U.S. fire to date — resulted in losses of around $12.5 billion, the WSJ reported. And the country's most expensive natural disaster of all time was Hurricane Katrina in 2005, with $102 billion in insured losses (adjusted for inflation).
Agents asked to serve — and protect
Mauricio Umansky, CEO of The Agency and star of Netflix's Buying Beverly Hills, told Real Estate News that agents need to "give extraordinary service to the people that need housing." But he had no sympathy for property owners who were trying to profit from the situation.
"I have asked my agents that if they have any landlords that want to price gouge, that we fire them," Umansky said. "I don't want to work with those motherf*****s."
Price gouging is prohibited following an emergency declaration, but that hasn't stopped some landlords and agents from attempting to take advantage of displaced families. California's attorney general has sent more than 650 warning letters to potential violators, and in some cases, has pressed charges.
While some real estate agents were on the front lines trying to help clients locate housing, others found themselves displaced along with their neighbors. "So far, we know of over 100 people within the real estate community who have lost their homes," Heather Ozur, president of the California Association of Realtors, said a week after the fires began.
How do we rebuild — and should we?
In the aftermath of a disaster, the focus often turns to rebuilding. But some experts caution against rebuilding in the same way — or even rebuilding at all — in places with a high risk of future wildfires or other environmental dangers.
"I mean, to me, it's just very obvious what's happening — it's nature rebelling against us. We maxed out the credit card," Seydina Fall, a senior finance lecturer at Johns Hopkins Carey School of Business, told Real Estate News.
But the Los Angeles area remains a major economic engine, and rebuilding is inevitable. The best way to reduce future risk? "Building to a building code that includes wildfire mitigation measures will be number one," said Lindsay Brugger, VP of resilience at the Urban Land Institute.
California's home insurance crisis
As climate-related disasters have increased in frequency and severity, the state's insurance troubles have also become more dire. Some major insurers have stopped issuing new homeowner policies in California or dropped existing policyholders — decisions affecting thousands of residents.
While the California FAIR Plan — the state's "property insurer of last resort" — has been an option for those unable to get coverage elsewhere, the recent wildfires could effectively bankrupt the program, and legislators are scrambling for a solution. If the plan cannot be sustained, the state's insurance woes could reach critical levels.
Going forward, Californians may have to consider alternative insurance models where individual communities "start insuring themselves," said Seydina Fall.
A call for real estate 'unity'
The tragedy in LA moved Marc Davison, co-founder of 1000WATT, to connect with a couple of friends in the real estate industry and music industry. The goal? To quickly produce a song that could spread positivity and hope — and raise money for affected families. He worked with John Heithaus, CMO of Ocusell and the owner of a Grammy-nominated record label in Nashville, and David Charron, former CEO of Bright MLS and a current board member with Collabra, on a track titled "Santa Ana Fury." Visitors to the song's Bandcamp page are invited to donate to The Realtor Relief Foundation.
"The idea of the song was to create unity, to unify our industry around something positive, as opposed to all this negativity," Davison told Real Estate News. "We're going to fight over Clear Cooperation. Some people want it. Some people don't want it. People hate this. People hate that. So much hate. Can we just do something together?"
Evaluating damage 'a big hill to climb'
Current cost estimates of the wildfire damage are just that — estimates — and it will take considerable time and effort to accurately assess the number of homes lost and the cost to rebuild.
"We're eager to initiate the restoration and start understanding how big the hill is we have to climb," Dr. Tom Jeffery, senior hazard scientist for CoreLogic Location Science, said during a webinar to industry professionals this month.
Data scientists and experts like Jeffrey will "start at the parcel level," he explained, looking at individual properties, their size and when they were built to help gauge the cost of rebuilding. They also utilize aerial imagery and compare it to what those on the ground are observing to get a more holistic view.
But not everything is easy to measure or predict.
"Let's be frank," Jeffrey said. "We don't have a society that is used to the fact that there are going to be a lot of inefficiencies and wait times for getting plans approved, getting buildings permitted and inspected — and all of those inefficiencies will be contributing to a higher-than-average reconstruction cost."