Will our wildfire-based housing markets bounce back?

California is a state most familiar with wildfires. To keep us aware, wildfires have fast become a costly norm. Eight of the state’s 20 most destructive wildfires in history occurred since the start of 2020 – two in the first days of 2025, according to Cal Fire.

With the wildfires, destruction comes for what intrudes into their terrain. Wildfires in recent years are growing more intense, driven primarily by climate change – no matter its cause. The combination of multiple risks is steadily forcing a retreat from the risks of lost lives and property brought on by invasive housing.

Our hotter, drier environmental conditions maximize wildfire risks, rising beyond previously acceptable levels. These increasing risks of fire destroy homes located within these zones. The 2025 Palisades and Eaton Fires destroyed well over 12,000 structures, which piles on recent wildfire losses such as the:

• North Complex Fire in 2020 – destroyed over 2,300 structures
• LNU Lightning Complex Fire in 2020 – destroyed nearly 1,500 structures
• CZU Lightning Complex Fire in 2020 – destroyed nearly 1,500 structures
• Glass Fire in 2020 – destroyed over 1,500 structures
• Caldor Fire in 2021 — destroyed over 1,000 structures

Unsurprisingly, the sale of homes in areas of California with high levels of destruction from wildfires experience an immediate decline in buyer demand. As information of risks of loss, costs of insurance, maintenance of utilities in wildfire zones is disseminated throughout the population, the retreat to the flat lands becomes the trend. Diehards rebuilding without concessions allowing nature to exist have a fate to themselves.

Prior to 2020, five recent destructive fires were:

• Camp Fire in 2018 – destroyed over 18,800 structures
• Tubbs Fire in 2017 – destroyed over 5,600 structures
• Valley Fire in 2015 – destroyed over 1,900 structures
• Woolsey Fire in 2018 – destroyed over 1,600 structures
• Thomas Fire in 2019 – destroyed over 1,000 structures

In the affected areas surrounding these five major fires, home sales volume dropped 38% averaged over the following three years. For comparison, adjacent communities outside the wildfire habitat saw sales volume decline by only 3%. To impede adventurous buyers, the wildfire areas saw home prices rise 21% in the three years. In surrounding areas untouched by the wildfires, prices grew 33%, according to Redfin.

In the immediate aftermath of a wildfire, homebuyers and investors lose interest in locations within the line of fire. But memories dwindle quickly with time. Thus, rebuilding returns without a forced retreat placed on burned-out owners by rezoning to protect and restore natural conditions for wildfire areas.

Without corrective habitat rezoning, homes are rebuilt, sales rebound and wildfire communities retain the footprint that was reduced to ashes, and likely will again. While home prices over time continue to grow in wildfire areas, the increase is at a much slower pace than neighboring housing within the center of the communities.

Not only home sales are affected. Displaced members of the community seeking replacement homes may face untoward price elevations — licensees are best aware price gouging is not only a criminal offense in a county during a state of emergency, but the DRE will investigate complaints related to real estate transactions and rental housing.

On average for housing in the aftermath of a wildfire, the first year sees:

• home sales drop 43%;
• home prices rise 10%;
• all-cash home purchases increase 15%; and
• new home construction increase 141%.

The second year sees:

• home sales drop 41%;
• home prices rise 16%;
• all-cash home purchases rise 20%; and
• new home construction jump 578%.

The third year sees:

• home sales drop 29%;
• home prices rise 29%;
• all-cash home purchases increase 17%; and
• new home construction increase a whopping 1,066%.

Shift of focus on rebuilding efforts

Cyclical weather conditions are likely to increase the risk of loss in wildfire areas. To curb the risks of natural disasters, a prudent society downgrades the zoning to reduce the risks from what only the wealthiest can afford, and to cut the costs to the taxpayer population to defend lives and property when disaster does take place.

For example, legislators need to limit construction in high-risk areas to, say, one dwelling per 10 to 20 acres or none at all. But they must concurrently enhance density through zoning and incentives to build and live in city center areas. City centers with high density are naturally way less vulnerable to disasters.

Leaders must figure out incentives for builders to, well, build housing in areas resistant to wildfires and other natural disasters, not drive profits for construction in wildfire areas.

Although effective zoning reduces human endangerment due to wildfire, some hurdles exist, many to do with the cost of change and the task of redirecting human behavior.

Displaced homeowners and tenants are forced to seek rental housing until they can return after evacuation, rehab of their fire-damaged residence or loss of their home. In meeting this housing demand, price gouging by rental property owners and their agents tends to surface.

The DRE advised licensees that rental price gouging activities generate the filing of complaints against licensees with the DRE, which they review for any licensee violations. Also, price gouging in rental property marketing is a criminal offense during a state of emergency declared in a county.

This post was originally published in October 2021 and has been updated.