Economic Impact of the Los Angeles Wildfires
In January 2025, Los Angeles experienced its most catastrophic wildfires in history, with the Palisades and Eaton Fires being the most destructive. The wildfires burned 55,082 acres, claimed at least 29 lives, and destroyed over 16,251 structures.
Direct Property Loss
The wildfires directly destroyed 16,251 homes, commercial properties, and other structures. Preliminary estimates suggest total property and capital losses could range between $76 billion and $131 billion, with insured losses estimated up to $45 billion.
To estimate the total insured capital loss, the report uses data from past California wildfires. By analyzing the ratio of insured losses to total median home price loss from previous wildfires, the report estimates the total insured loss from the LA fires to be around $59.55 billion.
Impacts on Home Value and Housing Affordability
Properties exposed to natural disasters like wildfires are likely to decrease in value due to reduced demand and increased insurance premiums. Historical data shows that in most areas affected by wildfires, home prices either declined or remained subdued for two to three years following a wildfire.
The loss of properties reduces the housing supply, potentially boosting demand, particularly for rental units, in nearby regions. This has led to increased rents in affected areas.
Home Insurance Markets in California
The new regulation permits insurers to use forward-looking probabilistic models for setting premiums and include reinsurance costs in their rates. Insurers are required to expand coverage in high-risk wildfire areas.
Fiscal Impacts on Governments
The L.A. wildfires will impact municipal budgets, with estimates suggesting a negative overall impact, increased total expenditures, and higher revenues from property taxes due to Proposition 13.
Pollution and Health Impact
Wildfires produce significant air pollutants, posing health risks to those breathing the smoke. Data from the Copernicus Atmospheric Monitoring Service indicates a sharp increase in fire radiative power and carbon emissions from the L.A. fires.
Impacts on GDP, Business, and Labor Markets
The wildfires are estimated to cause a $4.6 billion loss in total GDP in L.A. County in 2025. Certain sectors such as administration, utility, education, health, transportation, art and entertainment, accommodation and food, construction, wholesale, manufacturing, and real estate are expected to be negatively impacted.
The total estimated annual wage loss due to unemployment is $297 million.
Conclusion
The estimated economic impact of the L.A. wildfires in January 2025 is significant, with total property and capital losses ranging between $76 billion and $131 billion. Without substantial wildfire mitigation efforts, Californians will face increasing insurance premiums and health risks. Investments in wildfire mitigation strategies, such as advancing firefighting techniques and managing forests, are crucial to reducing these risks.
