The Inside Look with Xander Snyder - Episode 16

2 months ago 7

In this episode of ‘The Inside Look,’ Senior Commercial Real Estate Economist Xander Snyder analyzes the resulting shock to the housing supply from the devastating wildfires in Southern California.

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Transcript:

Wildfires Shock an Already Tight Market

It’s been a challenging start to 2025 for Los Angeles, which has suffered from what may turn out to be the most destructive wildfires in California’s history.

As of January 17^th, the day this was recorded, neither the Palisades nor Eaton fires are fully contained, which means the toll on lives and property may increase.

As a lifelong Angeleno, I know several directly affected by these fires, and we were uncomfortably close to the Eaton fire ourselves.

It’s hard to fathom waking up one morning expecting a normal workday and losing all of your earthly possessions in a matter of hours.

After the crisis phase of these wildfires is over, Los Angeles will have to contend with an even more severe shortage of housing, which existed before these fires but has been exacerbated by them.

The Size of the Problem

To understand how much more severe our housing shortage will now become, we need to try to measure it. It’s important to remember that in these numbers are tens of thousands of lived experiences and individual tragedies. However, having good estimates of the shortage will be critical in recovery for Los Angeles, given we already had a housing crisis here.

The challenge with measuring the reduction in housing supply is that it’s usually measured in terms of “housing units” – that is, rented and owned units – whereas fire damage assessment reports refer to “structures” destroyed.
“Structures” can include all sorts of things – single family homes, multifamily buildings, other commercial buildings, but also things like detached sheds and storage spaces, chicken coups, or even vehicles. This is due to how the fire damage data is collected – aerial infrared photographs, in which it is hard to automatically distinguish what the destroyed structure is.

In the analysis that follows, I’ve made several assumptions, all of which are laid out in greater detail in the latest X-Factor blog post on the First American Economics center. They rely on preliminary estimates of between 12 and 17 thousand destroyed structures.

Our estimates suggest that after the first week of the fires, between 17,000 and 24,000 housing units have been destroyed. This is equivalent to approximately 1.1-1.6 percent of total housing stock in Los Angeles, which is about 1.5 million units.

It can be challenging to think about such extreme events in terms of percentages, so another more tangible way to grasp the scale of the destruction is to compare it to housing units that have been added over the last several years.

From 2021 to 2023, between 10,000 to 15,000 new housing units were added each year for a total of roughly 32,000 units. That would suggest that the number of housing units destroyed in the wildfires exceeds the new supply delivered in any one of the post-pandemic years.
Furthermore, the estimated number of housing units destroyed by the Los Angeles wildfires is approximately the same as the new supply delivered in 2022 and 2023 combined. Based on this analysis, Los Angeles has lost approximately two years’ worth of new housing supply.

Conclusion

There will be more accurate estimates of the housing supply shock in LA as geospatial data is analyzed in greater. This is meant as a first attempt.

To my fellow Angelenos – stay safe out there.

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