The epic Southern California wildfires have led to 25 deaths. While more than 12,000 structures across Los Angeles are destroyed or badly damaged. And the catastrophic financial costs are becoming clear, with the first estimates higher than $2.25 billion, per AccuWeather.
That cumulative figure is likely to rise considerably once the flames finally are quelled. In the short run, Goldman Sachs estimates, Labor Department payrolls will be depressed by 15,000 to 25,000 jobs come the January jobs report. Thousands of Los Angeles-area residents are being forced to hunt for new child care, schools, and homes as their employers set up new shops away from the ruins.
In the long run, the greatest cost to rebuilding from the wreckage won’t just be the physical homes themselves, but rather what the $40 billion in losses to insurers means for investors’ appetite for economic risk in the region. And whether the state will continue to promulgate antigrowth policies that incentivize the middle- and working-classes to live in fire-prone regions.
California policies before the fires are a major factor in the economic damage.
There’s the state’s disastrous inability to construct a new major reservoir since 1979, along with its refusal to conduct the 4 million acres of annual controlled burns that indigenous Californians used to keep the land habitable. As a result, California’s fire prevention has been largely and correctly blamed for the dozens of wildfires constituting what is likely the most expensive natural disaster in the country’s history.
But California’s oligopolistic housing policy is equally to blame. Now both the state and local governments appear doomed to repeat the perilous mistakes of the past.
Those claiming climate change is the primary cause of the blazes’ sheer devastation are off-base. California’s climate has always been warm and arid. Char Miller, a Pomona professor of environmental history, has noted that the Santa Ana winds, far from being a novel product of anthropogenic climate change, have been around for millennia. The safer solution for everyone would indeed be, as Miller suggests, to build more densely away from fire zones, not sprawling into them.
Still, California policy expressly incentivizes the opposite. In Los Angeles, a sprawling municipality of about 4 million people that makes up 40% of Los Angeles County’s population, developing new apartments is illegal on 75% of its land. Throughout the state, but particularly in its wealthiest waterfronts, height restrictions, historical bans on accessory dwelling units, parking space requirements, and environmental reviews all encourage Californians to expand developments horizontally, not vertically. This projects them into progressively less safe areas.
As the Federal Reserve and zoning restriction artificially inflated the cost of homes along the comfort and safety of California’s coast, less privileged people moved into the “wildland-urban interface.” Now more than a quarter of the state’s nearly 40 million-person population is in a danger zone, as defined by the Agriculture Department.
California’s price ceilings on home insurance and its commitment to sending firefighters into these risky WUI neighborhoods both effectively subsidize this risky housing scheme. A working paper by the Stanford Institute for Economic Policy Research found that the cost of fire protection for an average California home in these high-risk environments approaches 2% of the home’s value. For the top percentile of homes, fire protection costs amount to one-fifth of the home’s total value.
Neither the state nor local government seems to have learned much from the perils of pricing the less privileged out of LA’s safe zone and into the wildlands. While Gov. Gavin Newsom (D-CA) will enact some emergency permitting reform, Los Angeles Mayor Karen Bass is restricting emergency rebuilding to homes within 110% of the same floor area and height as the preexisting property, with zero allowance for changes in use or increased density. These moves by California’s most prominent elected Democrats will add to rebuilding costs.
Consider a 2021 survey of members of the California Building Industry Association, in which half of all developers said they had to make “substantial cuts to project density.” At the same time, 75% reported having “difficulty scheduling timely council and planning commission hearings to allow them to move their projects forward.” The total average approval time for a new housing project ranged from 18 to 45 months, with a median of 24 months.
For the fire survivors who lacked housing insurance due to the state’s interest rate caps, which, again, are price controls by another name, and now need cash fast, Newsom has banned “unsolicited undervalued offers” by executive fiat. That is depriving the newly homeless of an immediate cash infusion in exchange for a plot of ruins that only a developer could afford to build back up from scratch.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
Undergirding all of this is the question of whether insurers stay in the state at all. California’s commitment to pricing the least privileged out of the Los Angeles metro area’s safest parts seems unfettered. The state’s demand that insurers not exit the market is a loud bark likely followed by a little real bite.
Over time, that quarter-trillion-dollar price tag could sadly prove a wild underestimate as rebuilding is made more expensive and time-consuming — all thanks to overregulation and California’s encouragement of middle-class earners to lean into another disaster in the foothills.
This article was originally published at www.washingtonexaminer.com
