California wildfires have killed nearly four dozen people, destroyed nearly 7,000 homes and other buildings, and caused at least $1 billion in damages, so far, said northern California officials late last week. State insurance commissioner Dave Jones reported that his office had arrived at the preliminary dollar amount of losses based on claims filed with the eight largest insurance companies in the affected areas. He added that he expected those claims to likely climb “dramatically” as homeowners returned to survey the damage and deal with the devastation.
Wildfires Destroyed Residential and Commercial Property
The scenes to which homeowners and business owners return will be one of the bleakest in history. In Santa Rosa, California, city officials estimate that about 10,000 city residents are now completely homeless thanks to the deadliest wildfire outbreak in the history of the state. Santa Rosa lost 3,000 homes, which means that one in 20 homes in the housing stock burned, and 400,000 square feet of commercial space. The mayor noted that the huge loss of housing stock and businesses together will dramatically reduce the funding available to the city budget, which may affect efforts to aid and expedite a recovery.
Housing Affordability Could Delay the Recovery
FEMA administrator Brock Long assured local officials last week that the agency would likely permit business owners and homeowners to file for uninsured losses as well as insured properties, but that is not likely to help resolve the area’s housing crisis in the short term. Rebuilding cannot even begin until the area is clear of debris, something that could take between six and eight months. In the interim, area professionals like doctors, nurses, and teachers must decide where they will live, if they will stay and rebuild, and, in the teachers’ cases, where they will teach since roughly 24 area schools are filled with ash and soot and must be remediated, and one burned entirely to the ground.
Dan Blake, director of the Sonoma County Office of Education, emphasized the need to bring in affordable, temporary housing quickly lest the area lose both teachers and students. Given that it could take more than two years to rebuild lost homes in a housing market so tight that vacancy rates were lower than one percent, Santa Rosa believes it is experiencing a housing emergency that might warrant freeing up hotel rooms and requesting assistance from Airbnb landlords to provide long-term housing to evacuees.
Wildfires Drive Real Estate Down, but Not for Too Long
According to Randall Bell, CEO of Laguna Beach-based Landmark Research Group, probably fewer than half of the residents in an area hit by wildfires will return to rebuild. “Emotionally, they’re overwhelmed. Financially, they’re overwhelmed,” he told Realtor.com. Real estate agents and other professionals are often the first to go because there simply is little to do when it comes to buying and selling, unless you are expert in dealing with real estate associated with this type of disaster. According to the same report, homeowners should expect their properties to sell at a 10- to 35-percent discount due to the local loss of infrastructure, high cost of rebuilding, and general reluctance on the part of owner-occupants to purchase in close proximity to recent disasters.
Of course, Bell’s parting thoughts on the subject certainly opened the topic back up for real estate investors interested in being involved in the area for the long haul: “People don’t buy a house. They buy a neighborhood,” he said. Bell predicted discounts in Santa Rosa and areas similarly affected to climb as high as 60 percent, but added that he believes those price breaks will dissipate in about five years. Investors interested in moving into this highly-desirable area will need to be prepared to contribute to the recovery if they want to see long-term payouts on these investments.