- The LA fires could cost between $250 and $275 billion in damages, displacing thousands.
- High property values in areas like Pacific Palisade are contributing to the massive cost.
- Governments, insurers and residents face long-term financial burdens from the disaster.
Damage and economic cost estimates for the Los Angeles fires are in the hundreds of billions, a bill that will be split between local and federal governments, insurers and residents.
As of January 14, LA authorities reported that 24 people have died and over 12,300 structures have been destroyed. Meanwhile, more than 40,000 hectares have burned, displacing residents and leveling entire neighborhoods. Strong winds expected this week have firefighters scrambling to contain the blaze.
And, as the damage increases, so does the price.
A new estimate from weather data platform AccuWeather puts the total cost at between $250 billion and $275 billion and calls the damage “catastrophic.” The full cost of the fires won’t be clear until the smoke clears, and expensive reconstruction efforts could take years.
The cost of the fire is likely to be calculated through direct and indirect damages
Since 1980, more than 400 weather and climate events in the US have exceeded $1 billion in damages when adjusted for inflation, according to the National Centers for Environmental Information.
The Los Angeles fires may be among the costliest on record. The total cost of a disaster is calculated from both direct and indirect losses, he said Jeff Schlegelmilch, director of the National Center for Disaster Preparedness at Columbia University.
AccuWeather’s estimate accounts for direct costs such as reconstruction, relocation, cleanup costs and emergency shelter costs. It also affects indirect costs: health care bills for people who were injured or exposed to fire smoke, lost wages and displacement for employees, along with hits to the local labor market, business scene and industry. tourism.
Part of the reason LA’s wildfires are so costly is because of the area’s high property values, Schlegelmilch said. The hard-hit Pacific Palisades neighborhood, for example, is home to several celebrities and has a median home value of $3.5 million.
Beyond direct damage and lost economic opportunities, there are costs that are difficult to quantify. Many LA residents are dealing with short-term or long-term relocation costs, along with emotional or physical trauma.
A combination of governments, insurance companies and LA residents may foot the bill
In the immediate aftermath of a natural disaster, local and federal governments pick up some of the tab.
The Federal Emergency Response Agency (FEMA) provides a variety of assistance such as providing hazard mitigation, debris cleanup and emergency shelter funding, along with providing monetary support to some displaced residents. The federal government often signs block grants — money directed from national to local governments for a specific purpose, such as disaster relief — but it can take months or years for that money to become accessible to local communities.
State and LA County leaders, the Small Business Administration and philanthropic groups are also likely to shoulder some of the rebuilding costs for homes and businesses.
President Joe Biden said the federal government will cover 100% of fire response costs and provide a $770 stimulus check to those affected: “I told the governor and local officials, spare no expense,” he said on January 9. Congress has yet to reach an agreement on an aid package, and it’s unclear what President-elect Donald Trump’s plan for disaster relief in California will be.
However, most government response programs are not built to provide long-term assistance.
“FEMA is not designed to make you whole again,” Schlegelmilch said. “It’s not designed to fully pay for the cost of rebuilding a new home.”
Private and public insurers will be responsible for covering many – but not all – e property damage to their clients, he added.
However, not all homeowners are insured. Companies like State Farm and Farmers have recently cut or limited coverage in areas they deem “uninsurable” due to high and growing disaster risks, leaving thousands of LA-area families uninsured or forced to enroll in FAIR, the ultimate state insurer. This means some residents can expect significant out-of-pocket costs to repair their homes.
Schlegelmilch added that LA residents will feel the effects of the fires in other parts of the economy.
The cost of construction is likely to increase as local residents and businesses look to rebuild, he said. Schlegelmilch expects the price of hiring contractors, plumbers, electricians and other specialists to increase with the high demand.
LA area consumer prices for things like rent, lumber and building materials could also increase due to rising prices, increased demand or damaged supply, Schlegelmilch said. He said taxes likely won’t change in the short term, but the overall cost of living in the area could become more expensive over time.
Past response to natural disasters shows what LA can expect
Previous devastating natural disasters give an indication of what the costs of fire can be be treated in LA.
After the 2012 Hurricane Sandy in New York, Congress provided nearly $20 billion adjusted for inflation in $2024 to affected areas through a Community Development Block Grant. That represents a fraction of the storm’s inflation-adjusted $88.5 billion cost, according to the National Centers for Environmental Information. Hurricane Katrina in 2005 caused $201.3 billion in inflation-adjusted damages, which was covered in part by federal emergency response and recovery grants.
Schlegelmilch said a major challenge with disaster relief in cases like Sandy and Katrina is that aid can be unevenly distributed between high- and lower-income areas because wealthier areas often have stronger insurance and access to resources. He warns that the same thing could happen in California.
“Those who are most vulnerable before often see that vulnerability increase,” Schlegelmilch said, adding “many times we see this along racial lines, along socioeconomic lines, and we see communities decades later that are still struggling to to recover when the downtown areas are nice and new and everyone says it’s back to normal.”
Looking ahead, Schlegelmilch said disaster preparedness policies can help mitigate losses and keep residents safe. He said this could look like building with fire-resistant materials, widening roads that allow emergency vehicles to pass easily when needed, and planting less flammable plants in dry areas.
“There’s actually a lot that can be done in the rebuilding process that can help reduce risk in the future,” he said. “There are costs associated with it, and in the short term, it might be more expensive. But, in the long run, it’s a lot less expensive.”
Have you experienced high out-of-pocket or insurance costs due to a natural disaster? Are you open to sharing your experience with a journalist? If so, get in touch allisonkelly@businessinsider.com.
