The question is not whether Pacific Palisades or Altadena will be rebuilt. No, the question is how much will be allowed to be rebuilt. Will government use the fires as an excuse to create 15 minutes smart cities—where government not the people decide what can be rebuilt and how much.
Then the question is who will pay. Senator Weiner wants the oil companies to pay—though it appears powerlines, not the climate change scam, was the cause of the fires—along with some arsonists.
Will they mandate NO gas stoves? Will government demand slums (affordable housing) be built?
Can We Rebuild Los Angeles?
The future of the devastated city will depend crucially on political leadership and some fresh thinking.
Matthew E. Kahn, Joseph Tracy, City Journal, 1/31/25 https://www.city-journal.org/article/los-angeles-wildfires-destruction-rebuild
The Southern California wildfires, still burning, already rank among the most destructive in the state’s fire-laden history. They have destroyed entire neighborhoods in Los Angeles, including those in the beautiful and affluent Pacific Palisades community nestled along the Pacific Ocean between Malibu and Santa Monica. The scale of the destruction and the human suffering the fires have inflicted are massive. Firefighters are continuing to battle blazes across some 62 square miles, an area larger than all of San Francisco. The latest death toll has reached 29, which would put the fires third in the state’s history for fatalities, behind only the 1933 Griffith Park fire that killed 29 and the 2018 Camp fire, the deadliest of all, which killed 85. It is likely that the death toll will continue to rise and that a final tally will not be reached for some time. And many tens of thousands remain under evacuation orders or warnings, while countless others have seen their lives uprooted amid losses of their homes, belongings, and properties. Whole blocks have been burned out, with photos suggestive of cities bombed in World War II.
While the focus of attention rightly remains on protecting lives and putting the fires out, the consequences and implications for the future are hard to ignore. Rebuilding will be a herculean task, both in human and financial terms. Current estimates suggest that insurers could face $30 billion or more in fire losses. California has already seen an exodus of residents in recent years for various reasons. The trauma of the fires may drive others out for good, especially if they don’t think their prospects for starting over are promising.
Where does Los Angeles go from here?
We take the optimistic view that Los Angeles is down but not out. Though the political leadership has been wanting, to say the least, amid the crisis—with Governor Gavin Newsom and especially Mayor Karen Bass coming in for well-deserved denunciation—the heart of L.A. remains beating. Remarkably, amid the fires, the city is still functioning, carrying on most essential tasks and services. Flights to LAX continue even as the fires burn. Classes are ongoing at UCLA and USC. Economic activity continues across the city.
While the rising death count is grim news, we can be grateful that it is not even worse, in part thanks to the widespread use of cellphones and early-alert systems. Los Angeles County is home to more than 4 million commercial, public, and residential structures. Most of these structures have not been damaged.
Past disasters offer important lessons. One silver lining of the Great Boston Fire of 1872 that destroyed buildings across 65 acres was that the destruction created an opportunity to build anew and maximize the advantages that can be achieved from adjacent land parcels. Economic research studying the recovery of Japanese cities from U.S. bombing during the Second World War documents how even Hiroshima and Nagasaki saw population growth after the war and quickly recovered.
These cases highlight the inherent advantages of successful cities, which persist even after a disaster. In time, these cities have rebuilt themselves and flourished. Los Angeles can do the same—provided that its political leaders don’t hijack the process or stifle market-based ideas that will be vital to helping the city make a fresh start.
While the fire destroyed many homes in the Pacific Palisades, it did not wipe out the value of the land on which these homes were built. In an era of “superstar” earners, the very rich will seek to purchase adjacent lots and build new mansions. During normal times, such land assembly is much more costly to achieve. Political intervention could inhibit these gains. Governor Newsom is already opposing efforts by private equity investors to swoop in and buy up properties. If market forces are allowed to operate, then an even richer Pacific Palisades is likely to emerge. The city would collect greater property tax revenue as long-held older properties would no longer operate under the Proposition 13 rules that limit increases in property taxes.
In the short run, of course, displaced people will need to find housing. They will need daycare and schools for their kids amid significant disruption to their lives. Those who worked for these families have also experienced lost earnings opportunities. The costs of these dislocations are hard to quantify. Some households will move within L.A. during the rebuilding; others will choose to leave entirely. The city has been building more Accessory Dwelling Units in recent years that will help manage some of these internal housing shifts. Urban housing experts argue that Los Angeles has been violating state ADU law by slow-walking production. Such government rules worsen the short-run rent increases by limiting the supply response. Rents will rise in the short run, reflecting a loss of housing supply that outstrips the loss of housing demand. Attempts to limit these short-run increases in rents would only deepen the challenge faced by displaced households to find temporary housing. Many homeowners in Los Angeles might consider renting out space in their homes if they could receive a high rent payment, but Mayor Bass has already expressed her opposition to such “price gouging.” If market price signals can freely operate, then the adjustment costs will be lower. Apps such as AirBnb, Redfin, and Zillow will help those searching for housing.
During the rebuilding, those in displaced households may have to move farther from their jobs, which will raise commuting costs. But work-from-home and hybrid job arrangements will mitigate these costs for some. The resilience cultivated during the Covid pandemic and its lockdowns will benefit families in the aftermath of this new disaster.
After the fires are finally quenched, L.A. will see a construction boom. This will require an immense amount of planning, materials, and labor. The pace of the rebuilding will depend on numerous factors. Will the city process building permits and inspections expeditiously? Will supply chains for necessary materials operate smoothly? As federal immigration policy shifts, will enough construction workers be available, and at what wage? Will construction crews from around the nation descend on L.A.—and if so, at what cost?
Must replacement homes be built on site? This traditional approach will slow down the rebuilding process. For some neighborhoods, allowing manufactured (pre-built) housing could speed up building time. Los Angeles construction has been costly in terms of acquiring permits, complying with union rules, and safety and environmental regulations.
Another question concerns how much disaster aid will flow from the federal government to the progressive state of California. Will President Donald Trump be magnanimous, or will he demand that Governor Newsom redirect expenditure from, say, California high-speed rail projects to the afflicted areas? If the State of California and the Los Angeles region are responsible for raising revenue to pay for the recovery, then a more contentious policy debate will emerge, as taxpayers located in areas outside of the fire zone are subsidizing the recovery.
The widespread destruction of adjacent properties means that rebuilding them could present a chance to start over, opening up new opportunities. Normally, it’s expensive to bury power lines in existing neighborhoods while also trying to minimize disruption. In a neighborhood undergoing a complete rebuild, however, the costs could be much less. And buried power lines will boost resilience.
Given that wildfires jump from one site to another, each property owner’s mitigation efforts are important going forward. If my neighbor replaces his roof with fire-resistant tiles, for example, my fire risk also goes down. But many owners don’t take into account the benefits their own actions can have for others, and consequently they may under-invest in fire-risk mitigation.
Some will advocate for tighter building codes to reduce future risk exposure, but this approach has drawbacks. City building codes tend to be uniform, even over areas that face different risk levels; they typically aim for a baseline level of mitigation. As such, they are not necessarily well-tailored and targeted for high-risk neighborhoods. As our understanding of various weather-related risks evolves, building codes should be revised in a timelier manner. Also, while homes must be built to code, they do not have to be updated over time as building codes change. This means that older homes that are more affordable will also be at greater fire risk.
In recent years, for-profit insurers have retreated from writing residential property policies for those who live in California fire zones. These insurers face regulatory required price ceilings on what they can charge. As property owners in the Palisades lost access to private insurance, they opted to participate in California’s Fair Plan. This subsidized plan implicitly imposes costs on the rest of the taxpayers in California. Going forward, a potential market-based approach would permit risk-based insurance premiums. Such premiums would allow insurance companies to offer policies to a broad market and remain profitable. Importantly, letting premiums vary with risk assessments also encourages mitigation efforts, where businesses and households update their properties to reduce their insurance costs. Insurers can also revise their premium pricing to keep pace with the evolving measurement and understanding of the spatial distribution of risks.
The combination of state-level regulations that limit risk-based pricing and the existence of the California Fair Plan has created an incentive for the insurance industry to retreat. As private insurers pull back, adaptation efforts suffer. The for-profit insurance industry is uniquely positioned to use its risk pricing strategies both to nudge economic activity to safer locations within jurisdictions and create incentives for those who own properties in objectively risky places to invest more in risk-reduction efforts. In this sense, risk-based insurance dominates building codes at promoting risk mitigation and reducing the expected future loss of lives and property due to fires.
Some commentators blame L.A.’s latest tragedy on climate change. This argument avoids political accountability for making paltry investment in clearing brush through proactive burns and clearing of material around properties, in equipment and emergency fire protection, and in testing of critical infrastructure such as water supply adequacy. These misjudgments magnified the risk from underinvestment in installation and maintenance of fire-resistant roofs at the property and community level. Fundamental reforms will be necessary in all these areas.
By destroying supply, the fires will, as noted, raise Los Angeles rents over the short term. It’s possible that, over the medium term, local home prices could decline if incumbent residents flee L.A. and interest in moving to L.A. from elsewhere declines. We do not believe that this scenario will play out, however.
Housing is expensive in Los Angeles because the land is highly desirable and much of it is zoned for single-family housing. Rezoning for higher-density housing, such as duplexes and fourplexes, would allow more intensive use of scarce land, reducing the cost-per-square foot of housing. Housing affordability would improve with more upzoning and construction of more condominiums. Such upzoning could be concentrated in areas that face relatively lower wildfire risk.
Post-disaster, Los Angeles will have a unique opportunity to make such zoning changes. In normal times, upzoning of single-family neighborhoods results in higher new-density construction only when existing homes depreciate sufficiently that it makes economic sense to tear them down and rebuild. That can be a slow process. But if entire neighborhoods need to be rebuilt, then it’s a reasonable time to upzone. Each parcel of land could then be built to its most economic use, improving affordability at a faster pace.
Housing partnerships could provide a new market mechanism to overcome the challenges of mitigation. In a housing partnership, the homeowner brings in an equity partner. This lowers the size of the downpayment and mortgage, making ownership more affordable. In addition, the equity partner is likely to be an expert in the local real estate market, with incentives that align with those of the homeowner. When the property is sold, the homeowner and the equity partner share any gains or losses.
Following a disaster, private equity could engage in equity sharing for whole neighborhoods that face rebuilding. This motivates the equity partners to internalize the positive effects of mitigation, helping to ensure that the optimal neighborhood level of mitigation occurs. In addition, the equity partners could coordinate rebuilding designs to incorporate current best standards in mitigation. They could also negotiate with builders to get better pricing and provide oversight of the reconstruction.
For all this to take place, a secondary market in these equity shares is needed, so that the private equity firms could then sell off these equity shares into the broader market to diversify risks. Investors would be buying access to future house-price appreciation in these markets. Investors could diversify their real-estate portfolio by buying shares for properties across many local markets.
Building a more resilient Los Angeles will require a government refocused on efficiently providing critical infrastructure and services at a lower tax burden to residents. Continuing restrictive zoning, high taxes and low-quality services will limit the potential rise in property values from rebuilding.
The Los Angeles region’s unique quality of life guarantees that billions of private-sector dollars will flow into rebuilding damaged communities. What is not guaranteed is how well this money will be spent.
On a day-to-day basis, Los Angeles is famous for its quality of life. The January 2025 disaster highlights how living in L.A. poses risk. The opportunity to rebuild the devastated areas offers an opportunity for a more resilient Los Angeles to emerge. This would mean that in the future, the same weather conditions would pose less risk to life and property. This hopeful scenario is predicated, crucially, on the assumption that the progressive Los Angeles and California governments will start allowing insurance markets, water markets, and land markets to operate without such burdensome government regulations. Freeing market signals to help direct resources will protect us better than any government officials or policies.
For Los Angeles, the future will depend on how well the state and city learn from their past mistakes and other devastated cities’ successes.
