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Wildfire Risk Could Negatively Impact California’s Housing Market 

Wildfire Risk Could Negatively Impact California’s Housing Market 

A home is engulfed in flames as the Dixie fire rages in Greenville, Calif., on Aug. 5, 2021. (Josh Edelson/AFP via Getty Images)

Travis Gillmore
Travis Gillmore

8/27/2024

Updated: 8/28/2024

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Housing values in California are negatively affected by wildfire danger, according to an Aug. 26 letter by the San Francisco Federal Reserve. 

Published online Monday, reserve officials said that many seek wildfire prone areas for their openness and green space. But, they said, the risk of wildfire in such areas outweigh such benefits, even when homeowners have insurance.

“This pattern may become stronger in years to come if residential construction continues to expand into areas with higher fire risk and if trends in wildfire severity continue,” they wrote.

Wildfires have impacted the Golden State for decades—between 1987 and 2022, more than 300,000 blazes were recorded—and in recent years, the danger has increased, the letter said.

Of note, more than 51,000 structures were destroyed by fire, and approximately 12.2 million acres have burned in California since 2017, according to Cal Fire. 

Additionally, structures lost to fire has spike from about 355 per year in the 1990s to more than 4,000 annually in the 2010s, state data shows. 

California labels regions as moderate, high, and very high risk depending on the number of fires and the intensity of damage—with some homes in and near high and very high risk zones experiencing value declines and slower appreciation, the authors wrote in the letter. 

Given the number of homes located in high risk areas—40 percent more in 2020 than in 1990—and the increase in severity of fire damage, the authors said wildfire risk is negatively affect the housing market. 

They found that property values have been more affected in recent years and zip codes near or where fires have damaged homes are not gaining in value compared to other areas. 

“The increasing intensity of wildfires and the growing exposure to high-risk areas have implications for real estate markets in California,” the authors wrote. “The recent large fires may have changed homeowners’ perceptions of fire risk, which could alter how they view the tradeoff between amenities associated with living in risky areas and potential damages from wildfires.” 

Across the state, homes in coastal areas in Central and Northern California and desert regions are gaining value at faster rates than those in heavily vegetated areas in the Sierra Mountains and near Los Angeles where, the letter said, wildfires are more prevalent. 

A 2023 study by property analytics firm CoreLogic also found that housing in very high risk zones are being negatively impacted—with fewer houses built in those areas and with costs significantly higher for insurance. 

Housing prices within fire perimeters dropped by about 0.64 percent between June 2021 and May 2023, according to the study, while properties within one mile of burn zones increased by about 5 percent, and those five miles away appreciated by 7.2 percent. All three zones were significantly below the state average for the same period of 12.3 percent. 

“These findings clearly indicate that buyers took past wildfires into careful consideration,” the CoreLogic study said. 

The study additionally found that building wildfire-resistant homes—meaning those with metal roofs and special awnings, eaves, and decks to limit fire damage—can increase the cost of construction by more than $27,000.

The reserve’s observations are similar to those published in a 2009 report from the U.S. Forest Service, which found that the first fire in an area can lower housing prices in a region by about 10 percent and a subsequent blaze by as much as 23 percent.

Another study also found similar impacts on the housing market. 

Looking at home sale prices from 2015 to 2022, the Resources for the Future—an independent, nonprofit think tank based in Washington, D.C.—found that houses in California’s high risk zones that had to disclose fire dangers to prospective buyers sold for approximately 4.3 percent below other nearby homes. Homes in moderate fire zones sold for 2.6 percent less than similar homes without disclosure requirements. 

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Travis Gillmore is an avid reader and journalism connoisseur based in California covering finance, politics, the State Capitol, and breaking news for The Epoch Times.

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