The Impact of Wildfires on Rent & Home Prices

Wildfire season is unfortunately upon us, and its intensity appears to be escalating year after year. The Dixie Fire started on July 13 and so far, it is only 52% contained. With over 840,000 acres of land burned, it has become the largest fire in California’s recorded history.[1]

The Dixie Fire is burning in Butte and Plumas counties, both of which experienced one of the most destructive California wildfires only last year, the North Complex wildfire.[2] Additionally, the Camp Fire, which still ranks as the most destructive wildfire in California occurred in November 2018 in Butte County. With 18,800 structures damaged or destroyed, the Camp Fire incinerated about 20% of the County’s single-family housing stock.

The second most destructive California fire to date was the Tubbs Fire in October 2017 which destroyed about 6% of single-family homes in the city of Santa Rosa in Sonoma county. CoreLogic analysis showed the value of property loss at $11 billion to $13 billion from the Camp Fire and $5 billion to $7 billion from the Tubbs Fire. Following the disasters, rent and home price growth accelerated in the affected areas as the significant loss of housing units drove families who lost their homes to rush for new shelter.

Since the Camp and Tubbs Fires, the intensity and frequency of fires has accelerated, and six of the top 20 most destructive California wildfires happened in 2020, burning a total of 4,257,863 acres — about the size of Connecticut and Rhode Island combined — and destroying or damaging almost 10,500 structures.

The following analysis uses CoreLogic data to understand the impact of the two most destructive fires in 2020 — the North Complex Fire and the Glass Fire — on their affected housing markets.

The impact of wildfires varies and depends on local area conditions as well as the duration and frequency of fires. In many cases, displaced homeowners seek rental properties, causing rapid increases in rents. Home prices are also affected, though the impact tends to take longer to play out as households find a long-term solution. Nevertheless, unanticipated boosts to demand, such as those that happened during the pandemic, may confuse some previously observed trends.

North Complex Fire, August 2020

The North Complex Fire in August was the most destructive of 2020 and the fifth most destructive California wildfire of all time, and once again Butte, Plumas and Yuba counties were affected. Unlike the Camp Fire in Butte County, the North Complex fire burned twice as many acres but only one-eighth as many structures. As such, the impact on the cost of housing was relatively muted as compared to the Camp Fire.

Figure 1 illustrates annual rent growth trends in three counties impacted by the North Complex Fire and the Camp Fire. Prior to the Camp Fire in 2018, rent growth in these areas was running close to statewide trends, but afterwards, rental growth rate accelerated above the state trend and continued to increase for another year, peaking at an annual growth rate of 25% as compared to 2% growth statewide.

In contrast, as rent growth started to slow down in Butte and Yuba counties and the North Complex Fire burned in August 2020, there was not a similar jump in rent growth. Again, with only one-eighth as many structures being destroyed or damaged, the impact on the housing stock was much smaller.

Yuba County did see some acceleration in rent growth, which is consistent with the statewide trend, and could be a combination of both fire-displaced families looking for shelter and COVID-19-induced demand for communities with outdoor amenities; this was a trend observed all across the country during 2020.[3]

Figure 1 Annual Rent Growth by County

Figure 2 illustrates the impact of the fires on home price growth of homes sold as compared to statewide growth. Following the Camp Fire, home price growth in Butte County jumped 6 percentage points above the statewide trend. In Yuba County, where home price growth trended above the statewide rate, it remained elevated and jumped further at the onset of the pandemic as families searched for more outdoor space. In Plumas County, which is more mountainous and less populated, home prices fell following the Camp Fire and remained below the statewide trend since.

The North Complex fire had a similar effect on prices with home price growth accelerating in the months following the fire. Nevertheless, all three areas have seen slowing of home price acceleration, especially compared to the statewide trend.  

Figure 2 Annual Home Price Growth County Growth Rate Less California Growth Rate

Glass Fire, September 2020

The Glass Fire in September 2020 was the second most destructive fire in 2020 and the tenth most destructive fire in California history. The Glass Fire struck Sonoma and Napa counties, the areas where the Tubbs Fire burned in October 2017. Fortunately, the structural damage was only one-fourth that of the Tubbs Fire.

Figure 3 illustrates rental growth trends in the two counties and statewide. As noted, following the Tubbs fire, rent accelerated well beyond the statewide trend for about a year and then slowed significantly, particularly in Napa.

However, after the onset of the pandemic, and as many Bay Area residents sought refuge outside of the city center, the rent growth in Napa surged again, up 15% year-over-year in May compared to a 5% increase statewide. However, the surge in rent quickly slowed prior to the Glass Fire taking hold of the region in September 2020. Still, while rent growth did slow considerably prior to the Glass Fire in Napa and Sonoma counties, it quickly rebounded after the fire and caught up with the statewide rate of rent growth by the beginning of 2021. 

The impact of the two wildfires on home prices in Napa and Sonoma differed slightly. Home price growth in Sonoma jumped more than prices in Napa following the Tubbs Fire in 2017; this reflected the supply shock as 6% of single-family homes in the city of Santa Rosa in Sonoma county were destroyed. Since then, home price growth in Sonoma slowed and remained subdued compared to the statewide growth.

The Glass Fire, while twice as large in acreage burned, destroyed only one-quarter as many structures compared to the Tubbs Fire and mostly stayed away from populated Sonoma communities. The Glass Fire had a bigger impact on Napa county price growth where home prices accelerated in the months following the fire above rates recorded statewide. Again, in addition to destructive 2020 fires, the housing market was impacted by the pandemic causing many urban residents to seek more indoor and outdoor space.

Disasters Have Long Term Effects

As firefighters and local operations fight the Dixie Fire, which has thus far destroyed over 1,000 structures, we’ll begin to see the impact on rent and home prices in the coming months.

The impact of wildfires on local housing markets is driven by longevity and intensity of fires. In cases when wildfires cause a supply shock by destroying a weighty share of local housing units and households are pressed to find immediate shelter, the impact on rent is more immediate and larger.

As households find permanent solutions, the effect on home prices tends to take longer to manifest. In less populated areas, the impact tends to be smaller. But in areas with repeat persistent wildfires, such as in Butte, Plumas and Yuba counties, the damage may reduce buyer demand and increase hazard insurance premiums over time, thereby dampening price growth, particularly if the areas are not otherwise in proximity to jobs and other urban amenities.  

[1] Largest fires are ranked by acres burned.

[2] Most destructive wildfires are ranked by the number of structures burned or destroyed.

[3] Note that Yuba County is south of the Butte County and likely has more housing opportunities than mountainous Plumas County to the northeast.

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