Fire risk hurts California home values, San Francisco Fed study finds

Fires in California are affecting home prices more than in the past, and the availability of insurance isn’t helping much in areas considered to be at higher risk, according to a study by the Federal Reserve Bank of San Francisco.

“Our results suggest that property values ​​have been more adversely affected in recent years by being close to past fires than was previously the case,” economists Leila Bengali, Fernanda Nechio and Stephanie Stewart wrote in a paper published Monday on the the Fed bank.

While the effect of proximity may be relatively small now, the economists warned that “this pattern may become stronger in coming years if residential construction continues to expand in areas of higher fire risk and if trends in wildfire severity continue.” warns the study.

The total area affected by fires has increased over the years, in part due to increased residential use of areas considered high fire risk, the researchers found.

The authors focused on owner-occupied single-family homes, using real estate market data provided by real estate information firm CoreLogic Inc. and fire data from the Monitoring Trends in Burn Severity database of fires affecting more than 1,000 acres.

“Being further from past wildfires is associated with an increase in home values ​​of about 2 percent for median value homes,” the study found. In particular, the authors pointed out that home values ​​were affected “in the vegetated and mountainous areas around Los Angeles and in the Sierras” — areas that were closer to where the wildfires were burning.

The authors controlled for a variety of factors, such as lot size and building area, when determining the relationship between distance from past fires and property value.

Comparing the 2008-17 and 2018-21 samples shows that the impact of proximity to past wildfires on property values ​​has strengthened over time, the study says.

Using data from the California Department of Insurance, Bengali, Nechio, and Stewart also determined that the ability to obtain insurance—either from the private market or from the state—does not reduce the impact on home values ​​near wildfire areas. .

Copyright 2024 Bloomberg.

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California disaster Natural disasters Fire