Will California homeowners relocate or rebuild? Both are costly

Homeowners Sohrab Nafici, left, and Christine Meinders return to their fire-ravaged neighborhood in the aftermath of the Eaton Fire Friday, Jan. 10, 2025 in Altadena, Calif. (AP Photo/Jae C. Hong)

Tens of thousands of California residents will decide whether to permanently relocate or rebuild their homes after the most destructive fires in Los Angeles’ history.

Insurance companies may cover thousands of dollars in temporary housing and living expenses — unless homeowners are underinsured or not covered.

“The policy is generally going to cover the cost of additional living expenses while you are out of your home, to maintain what is kind of your usual standard of living,” said Karen Collins, the vice president of American Property Casualty Insurance Association’s property and environmental division.

For example, if someone’s insurance covers US$100,000 for a property, the insurance company might cover another $20,000 — or 20 per cent — in additional living expenses, Collins said.

Peter Vanek, president of PVRK, a Southern California-based real estate consulting company, said his home was destroyed by a battery fire in 2023. His insurance initially estimated $350,000 for the house. After Vanek provided evidence of what was lost, his insurance paid twice as much, including living expenses while he relocated, and the house was rebuilt.

To relocate or rebuild?

Insurance coverage plays an outsized role in the decision to move or invest resources into reconstruction. For some with insurance, it could boil down to having pictures of the property before the damages and updating insurers with home estimates.

“(Homeowners) might not have disposable income to cover the difference between whatever their insurance is going to cover and what their cost is to rebuild their home, replace all of their items,” Vanek said.

The current wildfires in Los Angeles County are the costliest and most destructive in its history. The insured losses could exceed $20 billion, according to a report by JPMorgan Chase.

Between 2020 and 2022, insurance companies declined to renew 2.8 million homeowner policies in California, including 531,000 in Los Angeles County, according to data from the California Department of Insurance. Most of those policies were canceled by insurers.

California Department of Insurance Commissioner Ricardo Lara said Thursday that insurance companies must stop any pending non-renewals or cancellations for properties near the fires.

“I am working on all fronts to make sure wildfire victims get the benefits they are entitled to, and they get it as soon as possible,” Lara said Friday in a statement.

Moving isn’t necessarily easier than rebuilding. Moving locally typically costs between $884 and $2,569, according to digital marketplace HomeAdvisor.

Mike Madowitz, principal economist at Roosevelt Institute, said many of those impacted by Hurricane Katrina chose to stay put after being displaced due to the cost and hassle of moving again.

Most residents impacted by natural disasters don’t move, said Aaron Terrazas, a former chief economist for Glassdoor and senior economist at Zillow. He added that local economies receive a boost after natural disasters because residents purchase cars, washing machines and other goods when rebuilding.

“But we shouldn’t be under any illusion that that’s a meaningful kind of growth for the economy,” Terrazas said.

The future of construction costs

About 18 per cent of the US labor force in 2023 were foreign-born, according to the Bureau of Labor Statistics. And about a quarter of the construction industry are immigrant workers, especially in regions like Los Angeles, Terrazas estimated.

Immigrant workers have flocked to places that were hit by natural disasters, such as New Orleans after Hurricane Katrina and parts of Florida more recently, Terrazas noted. During the recovery period, these workers may work in construction or open small businesses.

President-elect Donald Trump has proposed mass deportations, which could cause construction work to stall, Terrazas said.

“Some of these kind of policies are a one-two punch for a sector like the construction industry,” he explained. And “it’s not just labor. It’s materials.”

Imported materials, such as appliances, would cost more if Trump imposes more tariffs. Lumber, which had high prices due to previous Trump administration tariffs, could become even more expensive and businesses could mark up their costs as a result, said Madowitz of the Roosevelt Institute.

Vanek of PVRK said independent contractors and home builders, not major companies, will primarily lead the construction efforts in California.

“There’s no efficiency in rebuilding a fire-ravaged community,” he said.

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