- The Los Angeles wildfires could cost $250 billion to $275 billion in damage while displacing thousands of people.
- High property values in areas like Pacific Palisades contribute to this enormous cost.
- Governments, insurers and residents face a long-term financial burden from the disaster.
The damage and economic cost of the Los Angeles wildfires is in the hundreds of billions, a bill that will be split between local and federal governments, insurers and residents.
As of January 14, Los Angeles authorities reported that 24 people had died and more than 12,300 structures had been destroyed. In the meantime, more than 40,000 acres burned, displacing residents and leveling entire neighborhoods. High winds expected this week are forcing firefighters to rush to contain the fires.
And as the damage increases, the price increases.
A new estimate from weather data platform AccuWeather puts the total cost at between $250 billion and $275 billion and calls the damage “catastrophic.” The full cost of the wildfires won’t be known until long after the smoke clears, and costly rebuilding efforts could take years.
The cost of wildfires will likely be calculated in terms of direct and indirect damages
Since 1980, more than 400 weather and climate events in the United States have caused damages exceeding $1 billion when adjusted for inflation, according to the National Centers for Environmental Information.
The Los Angeles wildfires could be among the costliest on record. The total cost of a disaster is calculated from direct and indirect losses, said Jeff Schlegelmilch, director of the National Center for Disaster Preparedness at Columbia University.
AccuWeather’s estimate takes into account direct costs such as reconstruction, relocation, cleanup costs and emergency shelter expenses. It also takes into account indirect costs: health care bills for those injured or exposed to wildfire smoke, lost wages and displacement of employees, and impacts on the local labor market. the business world and the tourism industry.
Part of the reason Los Angeles fires are so costly is due to the area’s high property values, Schlegelmilch said. The heavily affected Pacific Palisades neighborhood, for example, is home to several celebrities. and has an average home value of $3.5 million.
Beyond direct damage and lost economic opportunities, there are costs that are difficult to quantify. Many Los Angeles residents face the costs of short- or long-term displacement, as well as emotional or physical trauma.
A combination of governments, insurance companies and Los Angeles residents could foot the bill.
Immediately after a natural disaster, local and federal governments foot part of the bill.
The Federal Emergency Response Agency (FEMA) provides a variety of assistance such as hazard mitigation, debris cleanup, and emergency shelter funding, as well as monetary support to some residents displaced. The federal government often provides block grants – money earmarked for national governments to local governments for a specific purpose, such as disaster relief – but it can take months or even years for that money to become accessible to local communities.
State and Los Angeles County leaders, the Small Business Administration and philanthropic groups will also likely shoulder some costs of rebuilding homes and businesses.
President Joe Biden said the federal government would cover 100% of fire response costs and provide a one-time $770 stimulus check to those affected: “I told the governor and local officials to n ‘spare no expense,’ he said on January 9. He has yet to reach an agreement on an aid package, and it’s unclear what President-elect Donald Trump’s plan will be for disaster relief in California.
Yet most government intervention programs are not designed to provide long-term help.
“FEMA is not designed to make you whole,” Schlegelmilch said. “It is not designed to fully cover the cost of rebuilding a new home.”
Private and public insurers will be responsible for covering a large part of: but not all – of material damage for their customers, he added.
However, not all homeowners are insured. Companies like State Farm and Farmers have recently reduced or restricted their coverage in areas they deem “uninsurable” due to high and growing disaster risks, leaving thousands of Los Angeles-area households uninsured or forced to enroll in FAIR, the state’s insurer of last resort. This means some residents can expect significant expenses to repair their homes.
Schlegelmilch added that Los Angeles residents will also feel the impacts of wildfires in other sectors of the economy.
The cost of construction will likely increase as local residents and businesses look to rebuild, he said. Schlegelmilch expects the price of hiring contractors, plumbers, electricians and other specialists to rise with the high demand.
Consumer prices in the Los Angeles area for things like rents, lumber and building materials, can also rise due to price gouging, increased demand or damaged supply, Schlegelmilch said. He said taxes were unlikely to change in the short term, but the overall cost of living in the area could become higher over time.
Response to Past Natural Disasters Shows What Los Angeles Can Expect
Previous devastating natural disasters give an idea of the costs that wildfires could have. be treated in Los Angeles.
Following Hurricane Sandy in New York in 2012, Congress provided approximately $20 billion inflation-adjusted to $2,024 to affected areas through a Community Development Block Grant. That’s part of the $88.5 billion inflation-adjusted cost of the storm, according to the National Centers for Environmental Information. Hurricane Katrina in 2005 caused $201.3 billion in damages adjusted for inflation, which was partially covered by federal emergency response and recovery grants.
Schlegelmilch said one of the main challenges of disaster relief in cases like Sandy and Katrina is that aid can be distributed inequitably between high-income and low-income areas because Wealthier areas often have better insurance and better access to resources. He warns the same thing could happen in California.
“Those who were previously most vulnerable often see that vulnerability increase,” Schlegelmilch said, adding “often we see this along racial, socioeconomic lines, and we see decades later communities that are still struggling to “recover when the city centers are nice and new and everyone says it’s back to normal.”
Looking ahead, Schlegelmilch said disaster preparedness policies could help mitigate losses and keep residents safe. He said this could look like building with fire-resistant materials, widening roads to allow emergency vehicles to pass easily when necessary and planting less flammable vegetation in dry areas.
“There are actually a lot of things that need to be redone in the rebuilding process, which could help reduce risks in the future,” he said. “There are costs associated with it, and in the short term it may be more expensive. But in the long term it’s much cheaper.”
Have you faced significant expenses or insurance costs due to a natural disaster? Are you willing to share your experience with a journalist? If so, contact allisonkelly@businessinsider.com.
