Wildfires have destroyed around 90 square miles of area around Pacific Palisades, Pasadena and other communities in the Los Angeles and San Diego areas. Over 16,000 buildings have been destroyed, with hundreds of thousands of people forced to evacuate or placed under evacuation orders.
The monetary value of all such damage and carnage will be in the hundreds of billions of dollars. Yet this may only represent material losses. What cannot be recouped are the many intangibles, such as family heirlooms and historically significant structures that can never be restored.
And there are many losses flying under the radar that deserve attention.
When every building on a street has been burned down, restoring a community involves more than just rebuilding the homes and structures. It also means bringing people together to rebuild the community that they shared with their neighbors. The cost of such efforts far exceeds the cost of the buildings alone. Given that some of these people may not have had fire insurance. Many lots will be sold to developers, who will rebuild their neighborhoods in perhaps unimaginable ways.
What makes this disaster so daunting is that there are homes standing mostly intact or with no damage situated immediately adjacent to homes that have been destroyed and are uninhabitable. Such a mosaic of damage could never have been anticipated, making the rebuilding process more difficult.
Of course, there is a point at which a neighborhood ceases to function, when a certain percent of homes and businesses in a neighborhood are destroyed. Once these areas are opened, the risk of looting remains, as bad actors seize the opportunity to exploit inhabitable houses for personal gain. Such a “wild west” environment will demand security and watchful attention, adding to the otherwise already daunting costs.
With so many homes and buildings destroyed, collecting real estate tax revenue on such properties will be impossible. The amount owed may be reduced if a building is destroyed, but its land value remains high and will be taxed. Los Angeles’s Misfortune And Calamity Program will provide some relief, but it will not fully eliminate taxes that may be due eventually. In addition, sales taxes on goods and services will not be collected by businesses in the areas affected, both because many such businesses no longer exist and because there are no customers. The pending tax shortfall for Los Angeles will not go unnoticed.
Then there is the issue of mortgages outstanding on homes that have been destroyed by the fires. Homeowners are still liable for the amount owed. For some, disaster relief may be available. Lenders will be highly motivated to work with homeowners to redefine the terms of their mortgage to avoid foreclosure, particularly if the loan is underwater after the value of the building is deducted.
The recovery time for people who have been displaced by the fires is unfathomable. Hundreds of thousands of people were subject to evacuation orders, forcing them out of the safety of their homes and neighborhoods. Their lives did not simply stop. Many have still showed up for work outside the areas affected, with a cloud of uncertainty around whether their home was destroyed and whether what remains is salvageable. Even if their house remains intact and untouched by the fires, many of their friends and neighbors were likely not so fortunate.
What has been lost, more than their homes and property, is a sense of security. Yet the magnitude of the fires and the effect of the winds created an ideal environment for an unprecedented natural disaster. What this demonstrated is that Black Swan natural disasters remain a persistent risk not only in the Los Angeles area, but all across the nation. Whether it is earthquakes in the Bay area, tornados in the Midwest or hurricanes in the Southeast and Atlantic regions, the forces of nature remain relentlessly strong, frequently unpredictable and defiantly unforgiving.
A mostly ignored clue that the Los Angeles area wildfire risk had grown too high was when private insurers like State Farm and Allstate stopped providing coverage for homes and businesses. If their analysis determined that the risk had grown sufficiently high that they could not exploit the benefits of pooled risk to offer policies and remain profitable, it should send a powerful message that the time had come for residents to reevaluate the risks that they had to absorb, and whether they could afford to assume such risks.
Leveling and rebuilding buildings will take several years. But restoring communities will take much longer. Politicians who blame city leaders and the governor of California are missing a critical point: What happened in Los Angeles could happen anywhere. Perhaps not with fire, but with some natural elements like water or wind, destroying lives, property and livelihoods.
Sheldon H. Jacobson, Ph.D., is a professor in computer science in the Grainger College of Engineering at the University of Illinois Urbana-Champaign. He uses his expertise in risk-based analytics to address problems in public policy.
