Economic Impact of the Los Angeles Wildfires

Economic Impact of the Los Angeles Wildfires

Zhiyun Li, UCLA Anderson Forecast

William Yu, Economist, UCLA Anderson Forecast

Los Angeles (Updated: March 3, 2025)

We summarize the estimated economic impacts of L.A. wildfires in January 2025 as follows, acknowledging that these estimates are based on various assumptions and may be subject to future revision.

• Total property and capital losses could range between $76 billion and $131 billion, with insured losses estimated up to $45 billion.
• A 0.48% decline in county-level GDP for 2025, amounting to approximately $4.6 billion.
• A total wage loss of $297 million for local businesses and employees in the affected areas.
• Without substantial and effective wildfire mitigation efforts and investments, Californians will face increasingly higher insurance premiums and growing health risks from wildfire-related pollution.
• L.A. housing markets, in particular for rental units, will become increasingly unaffordable.
• All wildfire mitigation investments will be justified, considering the astronomical costs associated with wildfires.

In January 2025, Los Angeles experienced the most catastrophic wildfires in its history. Since January 7, a series of wildfires have ravaged L.A. County, consuming 55,082 acres due to strong Santa Ana winds and severe dry conditions. The Palisades and Eaton Fires were the most destructive, burning 23,700 and 14,000 acres, respectively. To date, the fires have claimed at least 29 lives and destroyed over 16,251 structures.[1] This report provides an initial assessment of the extensive losses and economic impact of these devastating wildfires.

Direct Property Loss

The wildfires directly destroyed 16,251 homes, commercial properties, and other structures, along with numerous automobiles and personal belongings. Of these, 6,837 structures in Pacific Palisades and Malibu were lost to the Palisades Fire, and 9,414 in Altadena to the Eaton Fire.[2] In the coming months, we will be able to determine the direct insured losses through the total insurance claims summarized by the California Department of Insurance (CDI). Until then, we use data from past insured losses from California’s most catastrophic wildfires to provide preliminary estimates for economic losses to insured homeowners.

Table 1 lists the four most devastating wildfires in terms of economic loss in California’s history prior to 2025: the Tubbs and Thomas Fires in 2017, and the Camp and Woolsey Fires in 2018. The total insurance claims were $8.76 billion, $1.52 billion, $8.26 billion, and $1.42 billion, respectively. Additionally, we know the median home prices by zip code before the wildfires occurred. By multiplying the median home prices[3] by the number of insurance claims resulting in total loss in each wildfire, we can calculate the total losses as $3.67 billion, $0.61 billion, $3.98 billion, and $1.42 billion, respectively. We then calculate the ratio between these two measurements, finding ratios for the insured loss to total median home price loss ranging from 2.1 to 2.5.

By averaging these ratios at 2.2, we can estimate the total insured capital loss from this wildfire.[4] Among the 16,251 structures lost, Los Angeles Times[5] reports that 12,585 were housing units, including single-family homes, duplexes, apartments, and condominiums—5,668 in Palisades and 6,917 in Altadena. We use this number as the estimated total-loss insurance claims. Given this number of claims (12,585) and the weighted median home price in the burned areas ($2.15 million), we calculate a direct loss of $27.07 billion (12,585*2.15). Multiplying this figure by the ratio of 2.2 gives an estimated total loss of $59.55 billion. The rationale for multiplying the ratio of 2.2 is three-fold: (1) The mean home prices typically exceed median home prices. (2) Insurance claims cover not only residences but also more expensive commercial buildings, schools, churches. (3) Insurance claims also cover personal property and living expenses.

The final insured claims are likely to be lower than our $59.6 billion estimate for several reasons. First, some homeowners—especially those without mortgages—may lack insurance coverage. Second, after years of rampant wildfires, many insurers have withdrawn from high-risk areas, forcing homeowners onto the California FAIR Plan, which may result in underinsurance due to coverage limits of $3 million for residential policies and $20 million for commercial policies per location.[6]

As of now, we have collected announced estimates of losses due to the LA fires from major insurers.[7] For those that have not yet disclosed figures, we estimate their losses based on their market share in California. Our estimate for total insured losses due to the LA fires amounts to as much as $44.5 billion, including State Farm estimated at $7.6 billion[8], California FAIR Plan at $4.8 billion, Allstate at $2.47 billion, Farmers at $2.15 billion, Mercury at $2 billion, USAA at $1.8 billion, Travelers at $1.7 billion, Chubb at $1.5 billion, Liberty at $1.4 billion, and Berkshire Hathaway at $1.3 billion.

As of February 5, 2025, a total of 33,717 insurance claims had been filed for homes, businesses, living expenses, and other disaster-related needs, with $6.94 billion paid out to policyholders for residential and commercial claims. Estimates of insured losses from various institutions range from $20 billion to $45 billion. Schniepp (2025) of the California Economic Forecast estimates that, based on assessed property improvement values—excluding land value—the total value of destroyed or damaged structures from the L.A. fires amounts to $9.6 billion. Given that the estimated cost of rebuilding reaches up to $1,000 per square foot in some areas, the total capital loss could be as high as $25.2 billion.

 

In addition to insured, uninsured, and underinsured property losses, the wildfires also damaged infrastructure such as roads, bridges, power lines, and sewage systems, all of which require repairs. Furthermore, there are substantial environmental and cleanup costs to consider. To estimate the total capital loss from the L.A. wildfires, we draw on data from previous large-scale natural disasters. First, we examine the estimated total property damage from Hurricane Katrina, which was $108 billion in 2005 dollars.[9] We compared this figure to the median home prices in August 2005 ($175,665) multiplied by the total number of homes destroyed (217,000), totaling $38.1 billion. The resulting ratio is 2.8. Applying this ratio to the estimated L.A. loss of $27.07 billion, we arrive at an estimated loss of $76 billion (27.07*2.8).

Second, Wang et al. (2021) estimated that the total capital loss from California wildfires in 2018 was $27.7 billion. Their capital loss method is based on the cost to repair, replace or reconstruct the assets that have been damaged or destroyed in the wildfires. With the CDI reporting total insured losses for the 2018 California wildfires at $12.36 billion, the ratio between these figures is 2.2 (27.7/12.36). Using this ratio, we estimate the total capital loss from the L.A. wildfires could be up to $131 billion ($59.5 billion * 2.2). Wang et al. (2021) also address additional health costs and other indirect costs from wildfires. These impacts will be discussed in subsequent sections.

In summary, the total property and capital losses from the L.A. wildfires could range between $76 billion and $131 billion, with insured losses estimated at $45 billion. One caveat of our estimates is that they are rough approximations, derived from a series of assumptions. These estimates are subject to uncertainty due to the dynamic nature of wildfires and variability in regional factors such as population density, housing prices, fire suppression efforts, and recovery costs.

Impacts on Home Value and Housing Affordability

For most Americans, homes are their largest source of wealth. Homeowners affected by wildfires might receive full or partial compensation from insurance companies to rebuild. However, it is essential for homeowners and local governments, which rely on property taxes, to consider the potential impact on home values after wildfires. Properties exposed to natural disasters like wildfires are likely to decrease in value due to reduced demand and increased insurance premiums, compared to similar properties that are not at risk.

Figure 1 illustrates the median home prices in zip codes affected by California’s most destructive wildfires from 2000 to 2024. The vertical dashed line marks the occurrence of each wildfire. Data indicate that in most of these areas, home prices either declined or remained subdued for two to three years following a wildfire. For example, in Malibu (Zip code: 90265), median home prices fell by 11% from $2.39 million in November 2018, when the Woolsey Fire occurred, to $2.15 million by July 2020. Prices then began to rise, surpassing $3 million by December 2022. Amidst a national trend of rising home prices over the past six years, most areas affected by wildfires have eventually seen an increase in home values. However, Paradise (95969), devastated by the Camp Fire in 2018, remains an outlier, with home prices halving from $600,000 to $300,000.

 

Figure 2 compares the home price index of wildfire-affected zip codes (red line), adjusted to a baseline of 100 at the time of the wildfire, to that of surrounding metropolitan regions (blue line). The differences are in a varying scale for each region. For example, areas like Paradise, impacted by the Camp Fire, have seen home values appreciate 44% less (87 vs. 131) compared to the surrounding Chico MSA as of December 2024. Areas affected by the Tubbs Fire show an 8% lower home value appreciation (127 vs. 135) compared to the nearby Napa and Santa Rosa MSAs. Similarly, regions impacted by the Woolsey Fire have a 3% lower appreciation (143 vs. 146) compared to the Los Angeles MSA, including Orange County. Surprisingly, areas affected by the Thomas Fire exhibit a 12% higher appreciation (160 vs. 148) compared to the surrounding Ventura MSA until 2024.

 

Areas impacted by the Woolsey and Thomas Fires, which boast prime locations with stunning views of the Pacific Ocean and mild weather, share similarities with Pacific Palisades, affected by the Palisades Fire. Therefore, historical trends suggest that home values in Pacific Palisades could continue to rise over the long term.

However, comparing wildfire-affected areas to their surrounding metros or the entire state may not be entirely apt. One could argue that the entire region and California are under wildfire threat, and insurance premiums are distributed among all state residents. Indeed, from 2018 to 2024, home price appreciation in the U.S. as a whole is slightly higher (154) than most of California.

Figure 3 displays the median home price index for New Orleans, adjusted to 100 in August 2005 when Hurricane Katrina struck, alongside nearby metros—Baton Rouge and San Antonio—and the U.S. It reveals that New Orleans, facing higher flood risks and insurance premiums, has experienced lower home price growth compared to other cities and the nation in the long run.

 

Housing affordability

While wildfires are likely to diminish housing demand in fire-affected areas due to increased risks and rising insurance costs, the loss of properties reduces the housing supply, which could boost demand, particularly for rental units, in nearby regions in the short term. Local news outlets have reported an increase in rents post-wildfire, as displaced households urgently seek temporary accommodation[10]. Over the past decade, L.A. County has issued permits for approximately 20,000 to 25,000 new housing units annually. However, L.A. wildfires have eliminated two-thirds to three-quarters of the yearly housing supply.

According to California Department of Housing and Community Development (HCD) Regional Housing Needs Allocation (RHNA) for its 6th cycle, spanning from October 2021 to 2029, L.A. County is required to construct 812,000 units to meet housing affordability goals.[11]  Midway through this cycle, only 71,000 units have been permitted, completing just 8.8% of the RHNA target. The wildfires have further exacerbated the already critical issue of insufficient housing supply in L.A.

In response, Governor Newsom issued an executive order on January 12 to expedite the reconstruction of homes and businesses destroyed by the fires — this order suspends permitting and review requirements under the California Environmental Quality Act (CEQA) and the California Coastal Act, aiming to speed up the rebuilding and recovery process, fast-track temporary housing solutions, and protect tenants and homeowners. Similarly, the L.A. Mayor Bass has issued a corresponding executive order to facilitate quicker rebuilding efforts.

Despite these measures, the housing affordability issue is expected to worsen in the short term. If L.A. fails to meet its RHNA obligations, housing affordability challenges are likely to persist in the long term.

Home Insurance Markets in California

In the past decade, California has faced significant challenges with insurance availability as companies have canceled hundreds of thousands of policies and stopped issuing new ones. As a result, many residents have turned to the Fair Access to Insurance Requirements (FAIR) Plan for coverage.[12] To address the state’s insurance crisis, the California Department of Insurance (CDI) announced the upcoming implementation of the Sustainable Insurance Strategy on December 30, 2024.[13]

This regulation will affect the impact of L.A. fires on the home insurance market. In this section, we examine the regulatory changes introduced by this regulation, explore potential responses from insurers, and assess its impacts on various stakeholders, including the FAIR Plan and homeowners.

New regulation

The new regulation permits insurers to: (1) Use forward-looking probabilistic models for setting premiums, (2) Include reinsurance costs in their rates, and (3) Seek approval to assess all state policyholders if claims exceed the FAIR Plan’s capacity. In exchange for the regulatory changes they sought, insurers are required to expand coverage in high-risk wildfire areas, which are often challenging to insure. Specifically, they must increase the number of policies issued annually by 5% until they reach 85% of their statewide market share in wildfire-affected areas.

Insurers

Before the new regulation, insurers were facing significant rare but massive risk due to climate disasters.[14]Specifically, insurers’ traditional risk models might underestimate the likelihood of extreme events, leading to insufficient reserves or capital to cover losses. Now the new regulation allows insurers to use forward-looking models to better manage fat-tail risks. Before the LA wildfires, insurers had planned to request major rate increases. After the wildfires, which caused $75 billion in estimated insured losses, even larger increases are expected.

However, while insurers can now increase rates to cover costs of extreme risks, they still face other regulatory changes in the future. The growing frequency and severity of wildfires due to climate change still pose a significant threat. Insurers’ losses might continue to climb, potentially outpacing their ability to increase rates.

To mitigate climate risks, insurers could offer financial incentives, such as discounts, to homeowners who invest in climate resilience measures like sprinkler systems. While these discounts come with costs, they can reduce the risk of homes being destroyed by wildfires. As a result, homeowners will be less likely to file claims, ultimately benefiting insurers by improving their expected revenue.

The FAIR Plan

The FAIR Plan provides basic fire insurance coverage for properties at high risk when private insurance is unavailable. However, it did not clarify how it would cover claims that exceeded its available reinsurance and cash reserves. According to the new regulation, the first $2 billion beyond what FAIR can cover will be split evenly between assessments on insurers in the state and policyholders. The insurers would contribute proportional to their market share in the past two years.

According to FAIR Plan statistics, it has significant exposure in high-risk areas like the Pacific Palisades, with $5.9 billion at risk.[15] Early last year, it reported only a $200 million surplus and $2.5 billion in reinsurance, indicating that it could face losses exceeding its reserves and reinsurance. This scenario could lead to a $1 billion assessment on insurers, which would then be passed on to all policyholders across the state, compounding significant rate increases for Californians.   

Homeowners

In the short to medium term, homeowners are likely to face significant insurance rate hikes post-wildfires, as the costs associated with the L.A. fires will be passed onto homeowners in ways previously prohibited. However, the new regulation aims to attract more insurers to wildfire-prone areas, potentially easing reliance on the more expensive and less comprehensive FAIR Plan. This shift could lead to a more competitive insurance market, offering more comprehensive policies at more accessible rates in the long term, especially with other regulatory changes granted to insurers.  

Fiscal Impacts on Governments

Here we examine how L.A. wildfires will impact the budgets of municipalities that have suffered significant losses, specifically Pacific Palisades, Malibu, Topanga, Altadena, and Pasadena. We reference the study by Liao and Kousky (2022), which offers empirical estimates of the impacts of wildfires on municipal budgets. A limitation of this study is that it relies on data from 1990 to 2015. However, the California wildfires in 2017, 2018, and January 2025 were considerably more destructive than those in previous periods. Therefore, the estimates provided in this paper likely represent the minimum potential impacts of the recent LA fires on municipal budgets. Key estimates from this paper include:

Negative overall impact:

• Budget surplus: down $97 per capita
• Probability of a budget deficit: up 25 percentage point
• The negative effect is larger when the wildfire is more severe

Higher revenues:

• Total general revenues: up 10.5%
• Property tax revenues: permanently up; this appears due to CA’s Proposition 13 that limits the reassessment of property values until the property is sold. And there are more housing and parcel transactions following wildfires.[16] However, note that State Board of Equalization (BOE) has announced on January 14 that property owners affected by the L.A. wildfires may qualify for various property tax disaster reliefs. [17] This necessary relief implies that L.A.’s property tax revenues may be lower than expected in 2025 and 2026.
• Sales tax revenues: temporarily up due to rebuilding activities

Higher expenditures:

• Total expenditures: up 17.3%
• Public safety, such as firefighting: up 18.5%. Note that, even before the January wildfires, L.A. County voters had approved Measure E in November 2024. [18] The measure imposes a 6-cent-per-square-foot increase in parcel tax on certain property projects, aiming to generate approximately $152 million annually for the L.A. Fire Department.
• Community development: up 40%
• Transportation: up 17.8%

Pollution and Health Impact

The economic impact of L.A. wildfires extends far beyond property destruction. Wildfires produce large smoke plumes that can travel long distances, posing significant threats to public health. Data from the Copernicus Atmospheric Monitoring Service (CAMS) [19] indicates that L.A. fires have released substantial amounts of carbon and air pollutants.

As shown in the left panel of Figure 4, starting on January 7th, 2025, the observed total fire radiative power, an indicator of fire intensity, surged sharply in California, significantly exceeding the average levels recorded from 2003 to 2024. The right panel depicts a dramatic spike in estimated carbon emissions from January wildfires in 2025, markedly higher than the emissions recorded in the same month over the previous 22 years in California.

 

Extensive studies have shown that wildfire carbon emissions pose significant health risks to those breathing smoke downwind. For example, research has found that smoke from fires contains harmful chemicals, including carcinogens and metals such as lead and arsenic. These substances can damage multiple body systems and lead to mortality, emergency room visits, respiratory hospitalizations, and learning outcomes (Holder et al. 2023; Gould et al., 2024; Miller & Zou, 2024; Liu et al.,2015).

Exposure to smoke can also have long-lasting effects on health, potentially persisting for years among people with underlying respiratory conditions, the elderly, children, and pregnant women. Connolly et al. (2024) estimate that wildland fire PM2.5 caused 52,480 to 55,710 premature deaths in California from 2008 to 2018, resulting in economic costs of $432 to $456 billion. With wildfire smoke increasingly contributing to pollution trends in the U.S. in recent years (Burke et al., 2023), urgent mitigation efforts are needed to minimize its health and economic impacts.

Impacts on GDP, Business and Labor Markets

Wildfires can also negatively impact local economic production through the destruction of productive capital and out-migration. For example, businesses might have to close temporarily if the area is under evacuation orders, or permanently if their capital is destroyed. Additionally, employees may not be able to work due to personal evacuations, health concerns, or transportation challenges.

Impact on county-level GDP

To investigate the impacts of L.A. fires on its GDP, we collected historical data on wildfire perimeters from the Fire and Resource Assessment Program (FRAP) and county and sectoral level GDP between 2001 and 2022 from the Bureau of Economic Analysis (BEA). We conducted a reduced-form regression analysis to quantify the impacts of wildfire exposure on county-level GDP in the same year. Using these estimates, we evaluated the dollar amount of GDP losses using data on the population in L.A. County affected by the Palisade and Eaton Fires.

We display wildfire burned areas from 2001 to 2022 in Figure 5. Notably, from 2011 to 2022, the burned areas in California from wildfires increased significantly compared to the period from 2001 to 2010. The later period experienced larger and more frequent megafires, driven by prolonged droughts, higher temperatures, and the increasing effects of climate change. Additionally, population growth and development during the 2011–2022 period increased the number of wildland-urban interface areas, amplifying both the scope and impact of fires. This change highlights a shift toward more extreme wildfire behavior in California over the past two decades.

           We calculated the annual percentage of the population in each county exposed to wildfire burned areas and then linked the county-level exposure measure to county-level GDP.

 

Figure 6 shows the results for the average impact of wildfire exposure on county-level GDP. The central value of each error bar shows the estimate, and the error bar suggests the 95% confidence interval of the estimate. If the error bar does not include zero, it suggests the estimate is significantly different from zero. We did not find a statistically significant impact of wildfire exposure on sectors such as finance, professional, retail, agriculture, service, information, mining, and management sectors. By contrast, we found that when an additional percentage of the population is exposed to wildfires in a county, annual county-level GDP of the following sectors is affected:

• Total: down 1.2%
• Administration: down 1.5%
• Utility: down 1.47%
• Education: down 1.4%
• Health: down 1.2%
• Transportation: down 1.1%
• Art and entertainment: down 1%
• Accommodation and food: down 0.9%
• Construction: down 0.9%[20]
• Wholesale: down 0.9%
• Manufacturing: down 0.75%
• Real estate: down 0.6%

 

We estimate the total GDP loss in L.A. County due to wildfires. (1) There are around 76,519 residents living in Malibu, Pacific Palisades, and Altadena.[21] Assuming half of them live in census tracts exposed to wildfires, we estimate about 0.4% (38,260 out of 9.6 million) of the population in L.A. County exposed to wildfires. (2) Our finding above shows an additional percentage of the population exposed to wildfires in a county will reduce county-level GDP in the same year by 1.2%. (3) Total GDP of L.A. County in 2023 is $962 billion. We estimate the L.A. fires will cause about a $4.6 billion loss in total GDP in L.A. County this year (0.4*1.2%*$962 billion).[22]

Impact on business and labor market

It is important to determine if L.A. wildfires will lead to out-of-county migration. We examined the effects of the four most destructive fires in 2017/18 on population and job growth: the Tubbs Fire in October 2017 and its impact on Napa and Sonoma Counties, the Thomas Fire in December 2017 in Ventura County, the Camp Fire in Butte County, and the Woolsey Fire’s effects on Los Angeles and Ventura Counties in November 2018. Figure 7 shows annual population growth in these fire-affected counties compared to the rest of California in 2019, indicating a relative decline in growth of 0.5% to 1%.

Butte County experienced a more significant decline of 5% in population growth due to the extensive damage caused by the wildfire. Figure 8 presents annual job growth for these counties alongside the state. In 2019, Napa and Sonoma Counties saw a modest decline in job growth, ranging from 0.5% to 1%, while Butte County’s job growth fell by 4%. The Woolsey Fire had no noticeable effect on job growth in L.A. County. Based on data from past wildfires in California, we predict that the 2025 L.A. wildfires will likely lead to a modest scale of out-migration from the affected neighborhoods and a decrease in job growth in the following years compared to projections without the wildfires.

 

Next, we show study how wildfires will impact business and labor market in L.A. county. Table 2 provides data on the number of business establishments, employment, and total annual estimated wages in three zip codes impacted by the Palisades and Eaton Fires. Each zip code had approximately 1,000+ business establishments and between 5,000 to 8,500 employees.

The total estimated annual wages were around $642 million in Malibu (90265), $347 million in Pacific Palisades (90272), and $289 million in Altadena (91001), with the professional, scientific, and technical services sector being the largest. We use a highly simplified method to calculate the potential loss of wages and productive income over a year. We assume the impact of the wildfires in these zip codes to be 25% in 90265, 50% in 90272, and 72% in 91001.[23]

The professional, scientific, and technical services sector is considered unaffected[24] because it relies more on human capital than physical capital for production and can therefore resume operations in other areas more easily. Additionally, we assume that 30% of the rest of employees can readily find new jobs in nearby areas. Based on these assumptions, we estimate the annual wage loss due to unemployment to be $297 million.

However, it’s important to note that Deryugina et al. (2018) observed only minor and surprisingly temporary effects on employment and income for victims who lost their jobs and homes during Hurricane Katrina. This suggests that with adequate support from insurers, banks, and federal and state governments, individuals affected by wildfires could potentially get financial support and debt relief, find employment elsewhere, and return to their pre-wildfire levels of productivity. On January 18, Governor Newsom announced that five major financial institutions will offer a 90-day grace period on mortgage payments for property owners in fire-affected areas. This policy exemplifies how victims can be helped to return to normalcy.

 

Conclusions

In summary, the estimated economic impact of L.A. wildfires in January 2025 is as follows. It is important to note that these estimates are preliminary, based on various assumptions, and may be updated: (1) Total property and capital losses could range between $76 billion and $131 billion, with insured losses estimated up to $45 billion. (2) A reduction of GDP by $4.6 billion, a 0.48% decline in GDP, with a loss of wages of local business and employees totaling $297 million in 2025. (3) Without significant and effective wildfire mitigation actions and investments, all California residents will face continued increases in insurance premiums and growing health concerns. (4) L.A. housing markets, in particular for rental units, will become increasingly unaffordable. (5) Local governments are likely to increase spending post-wildfires.

In addition to significant economic losses, the toll of human life by wildfires has not been fully accounted for. To combat the escalating risks posed by climate change, California’s foremost priority should be to invest comprehensively in wildfire mitigation strategies. These include advancing firefighting techniques, adopting technology such as AI and drones for detecting and extinguishing wildfires, managing forests and brush, upgrading utilities infrastructure, controlling homeless encampment, rethinking water resource management, strengthening building codes, and subsidizing home hardening. We suggest that all adaptation and mitigation investments will be justified, considering the astronomical costs associated with wildfires.

For example, California’s 2008 regulations on building codes require buildings in fire-prone regions to be designed to reduce wildfire risks. Baylis & Boomhower (2022) indicates that homes built post-2008 are less likely to be destroyed during a wildfire.  However, much of L.A.’s housing stock predates these regulations, leaving many homes vulnerable to ignition. California has launched a grant program to support home hardening in several counties[25], but given the vast number of homes needing upgrades, it is imperative to expand strategic local and state grant programs targeted at homeowners below a certain income level to effectively meet this demand. In addition, insurers can play a crucial role in wildfire risk mitigation. By offering financial incentives, such as discounts to homeowners who install safety features like sprinklers, insurers can decrease the likelihood of homes being destroyed in wildfires and reduce the number of insurance claims following such incidents.

 

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[1] California Department of Forestry and Fire Protection,

[2] In addition, 1005 structures were damaged in Palisades Fire and 1,073 structures were damaged in Eaton Fire.

[3]Instead of using home prices, which include both land value structure values, the ideal approach would be to use only the structure value. However, we cannot find reliable and consistent structure data at the zip code level.

[4] We assume that the proportional impacts of disasters on total capital loss, total property damage, and insured losses are similar. And we are currently concentrating on a ratio assessment due to the preliminary nature of this investigation, which precludes a more detailed analysis. As more data becomes available, we anticipate being able to provide more precise estimates over time.

[5] “Real Estate Losses from Fires Top $30 Billion, from Old Mobile Homes to $23-Million Mansions,” by Doug Smith and Sandhya Kambhampati, February 21, 2025. According to the Times, 4,300 buildings in 16,251 structure loss were characterized as utility structures.  

[6] The FAIR Plan is a private association that provides insurance to California residents and businesses who can’t get insurance from a regular company. More discussions in the following section.

[7] Note that an insurer’s losses will be significantly reduced due to risk-sharing through reinsurance.

[8] State Farm General, California’s largest home insurer, estimated on February 25, 2025 that it will cost $7.6 billion to settle its Los Angeles-area fire claims, but reinsurance will lower its losses to about $612 million.

[9]

[10] For instance, the Rent Brigade reports that from January 7 to January 18, there were already 1,343 listing in L.A. of rent gouging—legally defined as raising rents above 10% after a declared emergency. New rental listings are priced at 315% of the Fair Market Rent (FMR) on average, nearly double the legal limit.

[11]

[12]

[13]

[14] Extreme events such as wildfires and hurricanes often have a low probability of occurrence but significant consequences.

[15]

[16] Under Prop 13, property taxes are based on the purchase price and can only increase by a maximum of 2% per year unless the property changes ownership or undergoes significant new construction. However, if a home is destroyed and rebuilt beyond a certain grace period, the new construction may be reassessed at a higher value, especially if there are improvements beyond the original structure. In addition, many homeowners sell damaged properties after a wildfire. When a new buyer purchases the property, it is reassessed at the new market value, often much higher than the old assessed value under Prop 13. This results in a significant jump in property tax revenue.

[17]

[18]

[19]

[20] While wildfires destroy structures and drive increased demand for reconstruction, our results show they have negative impacts on the construction sector’s GDP in the same year. (down 0.9%). There could be multiple reasons for this. For example, in the short run, wildfires may cause labor shortages as construction workers are displaced or need to attend to personal emergencies. In addition, wildfires can damage transportation infrastructure, making it harder to deliver materials and equipment to job sites. Insurance premium for construction projects in fire-prone areas can increase sharply after wildfires, leading to increased construction costs.

[21] Source:

[22] One caveat of our estimate is that we look at the same year impacts of wildfires. This might lead to an underestimation of wildfire impacts if fires that happened late in the year had a persistent impact on the following year’s GDP due to displacement and destruction of productive commercial capital. Since the LA fires occurred at the start of the year, their impacts on annual GDP will likely be higher than that estimated based on other county fire events.

[23] Prior to the wildfires, there were 8,950 housing units in 90265, 9,106 units in 90272, and 13,272 units in 91001.

[24] As suggested in the finding of Figure 6.

[25]

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References

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Connolly, R., Marlier, M. E., Garcia-Gonzales, D. A., Wilkins, J., Su, J., Bekker, C., … & Jerrett, M. (2024). Mortality attributable to PM2. 5 from wildland fires in California from 2008 to 2018. Science Advances, 10(23), eadl1252.

Deryugina, T., Kawano, L., & Levitt, S. (2018). The economic impact of hurricane Katrina on its victims: evidence from individual tax returns. American Economic Journal: Applied Economics 10(2), 202-233.

Gould, C. F., Heft-Neal, S., Johnson, M., Aguilera, J., Burke, M., & Nadeau, K. (2024). Health effects of wildfire smoke exposure. Annual Review of Medicine, 75(1), 277-292.

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Liao, Y., & Kousky, C. (2022). The fiscal impacts of wildfires on California municipalities. Journal of the Association of Environmental and Resource Economists, 9(3), 455-493.

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