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AccuWeather has estimated the cost of the LA wildfires to be $250 billion to $275 billion, making it the costliest blaze in U.S. history. However, finding an accurate number is hard because the economic toll will extend far beyond the damages to expensive real estate.
“These fast-moving, wind-driven infernos have created one of the costliest wildfire disasters in modern U.S. history,” AccuWeather chief meteorologist Jonathan Porter said in the AccuWeather story. “Hurricane-force winds sent flames ripping through neighborhoods filled with multimillion-dollar homes. The devastation left behind is heartbreaking, and the economic toll is staggering.”
With the median cost of homes from Santa Monica to Malibu being $2 million, it’s easy to see how the numbers can add up. However, there’s no way of confirming the AccuWeather figure. It has not publicly made its methodology available, citing “proprietary” reasons. It said it considered long-run health impacts and short-term losses such as lost wages and loss in value of companies exposed to the disaster.
The upended lives, businesses, and jobs lost in a matter of minutes mean that the true extent of the loss will continue to be felt for many years to come. There are multiple factors to consider when estimating the damage’s cost.
Physical Destruction
Over 12,000 structures have been damaged or destroyed to date during the LA wildfires. However, the cost of the properties hugely inflates the financial loss over other parts of the U.S. Zillow values the average home in the Pacific Palisades ZIP code at $3.4 million; in Altadena’s ZIP code, it’s $1.3 million, accounting for the estimated $30 billion in insurance losses.
Insurance carriers have dropped thousands of policies in the affected areas in recent years. The state-backed insurer of last resort, the FAIR plan, caps coverage at $3 million per residential property; the costs that fall on individual property owners could be extensive. Although the median annual household income in Pacific Palisades is around $200,000—far greater than the rest of the country—the cost of rebuilding will be extensive, and many homeowners will not be able to pay without insurance help.
The higher tax base in many of the LA neighborhoods affected could help repair and reconstruct public sewer systems, power lines, and roads. However, fires of this magnitude affect areas far outside the actual fire-damaged regions. For example, drinking water affected by ash will need to be treated, which will be an additional cost.
Employment
The wildfires will have an immediate effect on employment. People without homes will not show up for work, which could affect multiple businesses and industries, including healthcare, education, and retail. While some of these employees may be able to return to work, others who have to relocate will not.
According to the New York Times, even though the fires haven’t hit major employment centers or industrial facilities, the number of total hours worked in Malibu and Pacific Palisades declined 57% the week the fires started relative to the prior week, according to Homebase, an operations platform for small businesses.
Analysts at Goldman Sachs predict the fires would eliminate 15,000 to 25,000 positions from the Labor Department’s employment report for January. This is not unusual in natural disasters, with people quickly returning to work. However, the expense of living in these parts of LA could mean the jobs won’t be filled as quickly as other areas.
The New York Times points to a study published this month in The Journal of Environmental Economics and Management that found that large fires depress job creation in the affected counties. According to one of the authors, Raphaelle Gauvin-Coulombe, an assistant professor of economics at Middlebury College, a fire of this magnitude, on average, reduces monthly employment growth by 1.46 percentage points over three years.
“If you rely a lot on visitors for your economy, the reduction in consumer demand will be especially important for the region,” Dr. Gauvin-Coulombe said.
Long-Term Health
Twenty-five people have been confirmed dead from the fires, and the long-term effects of fire and the destruction of buildings are bound to affect far more than the total body count. Wildfire smoke from the burning of buildings and their contents causes a broad range of ailments, including asthma, cancer, and preterm births, with children and those with respiratory conditions most at risk.
Research has shown that natural disasters trigger events that can dramatically shorten the lifespan of those affected. The effects of displacement, job loss, financial hardship, and loss of access to healthcare, along with stress, can result in many additional deaths besides those who were initially killed in the disaster.
Increased Cost of Living
As if the housing crisis in California were not bad enough, we have already seen landlords increase rents after the fire, despite the anti-gauging laws in place in Los Angeles, to take advantage of the displaced. In some instances, rents on listing sites have doubled since the fire. The New York Times reviewed Zillow listings on LA’s Westside and found asking rents rising between 15% and 64% from Jan. 7 through 11.
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An increase in Property Insurance
Property insurance affects real estate values in more ways than most people might know. When insurance is prohibitively high or unavailable, it immediately affects the value of a home. When home values fall, it can have a draining effect on the property owner’s financial standing, whose primary asset is equity.
For a home to be more insurable, there needs to be a community effort to make the neighborhood less wildfire-prone. Adding sprinklers, clearing brush hardscape, and retrofitting roofs and siding all cost money and involve upkeep.
“Do you really want to live there? Then you better invest in way more hazard mitigation than you’re doing,” Margaret Walls, director of the Climate Risks and Resilience Program at Resources for the Future, an environmental think tank, told the New York Times. “They aren’t really pricing the risks appropriately in California.”
Final Thoughts
There’s no going back in time to prevent the LA wildfires of 2025, but there can be actionable steps to protect against them in the future. New building codes and eliminating vast swathes of flammable dried vegetation are some of the concrete measures that can be taken immediately to ward against such tragedies.
However, technology can also play an important part. Artificial intelligence (AI) can improve weather forecasting at a regional level for short-term weather events. Thus, thunderstorms, which can spark wildfires, can be better predicted.
Equally, specific AI technology is now available to better predict wildfires, using a digital twin to achieve staggering accuracy as to how an area will be affected. Machine learning technology can only learn from past events. The data from the recent wildfire will enable the fire department to use AI to better prepare for future fire events.
One of the most worrying takeaways from the wildfires was that firefighters were not able to fight the blazes due to high winds, which let them burn out of control. Again, technology can help, as robot technology will enable machines to fight dangerous blazes instead of humans.
“We need these robots to go firefighting ASAP,” Jim Fan, a senior research manager of embodied artificial intelligence at Nvidia, which includes humanoid robots, wrote in a social media post, as reported in Barrons.
That will come as scant solace for the family members who have lost loved ones or their homes, but if we are to prevent such catastrophic losses in the future, we must learn from our mistakes.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
Jeff Vasishta
BiggerPockets
Career journalist and active real estate investor who has written for publications over two decades.
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