Los Angeles fires expose inflated US home prices

https://www.reuters.com/breakingviews/los-angeles-fires-expose-inflated-us-home-prices-2025-01-09/

by petethomas • 2 years ago

36 94 2 years ago

jmugan2• 2 years ago

I don't see the link to why home prices would be inflated. Maybe they are or maybe they aren't, but it doesn't have anything to do with fires. People still have to live places, even if risk from climate change is increasing. Very strange editorializing from Reuters.

jmugan2• 2 years ago

I guess you could argue that climate risk isn't sufficiently priced in for some particular places, such as LA or Miami, but the article didn't seem to get that detailed.

slt2021• 2 years ago

Just ask yourself would you buy $4 mln house on a 30 year mortgage, that you cannot insure against fire hazard, and then have a risk of loaing it in a fire every year ????

MattGaiser• 2 years ago

I am not sure whether relatively rare events (your specific area burning is still a relatively rare event) get priced in by individuals.

Lots only discover insurance problems after they have signed on a home.

bb886• 2 years ago

There are two (I mean three) reasons that home prices are inflated.

1. There are a lot of people trying to buy homes vs the supply of available homes on the market.

2. Rich people are looking for investments in real estate and buying up property to lease or rent it back out at even a higher market rate.

Edited to add:

3. Zoning restricted to keep new construction of high density housing from being built.

davidw3• 2 years ago

Also the same rich people fight tooth and nail when someone wants to build housing near them - and especially if the homes being built are something besides a single detached unit.

chii3• 2 years ago

prices are inflated

the word 'inflated' presumes that the price is higher than _it should be_. The underlying assumption is that homes _should_ cost less, and the current price is artificially high.

It isn't.

The price if a house is not artificially high - it is high for market driven reasons. Therefore, it is a market price. Nobody is inflating the price via some nefarious scheme.

7e• 2 years ago

Home prices go up because humans breed like crazy and overrun their habitats.

Balgair2• 2 years ago

One major disturbance to 1) in CA is Prop 13

Property Taxes in CA are determined based on the time of purchase. They are only allowed to go up 2% per year, while the rise in market value increases much faster. Meaning that you are highly incentivized to hold on to property, thereby reducing supply more so than other property markets in the US.

This kinda distorts 3) as well, since you also want to protect that investment and then you get NIMBY stuff too. CA is trying to fix things by disallowing cities from blocking new construction, but it's slow going. on the legal side.

Over2Chars3• 2 years ago

Spot on @bb88.

What do you suppose are the fixes?

faramarz• 2 years ago

1. High risk regions will pay much higher premiums to live in those areas 2. They may continue to live in those areas because of the large demand and desirability 3. Higher insurance, higher risk, contentious demand for property in the area: inflationary housing market even if initially the impacted areas see a slow growth compared to neighbouring areas.

arcticbull9• 2 years ago

House prices aren't inflated.

House prices are high because there's not enough supply in and around the jobs. There's not enough supply because of zoning regulations. Zoning regulations were put in place to keep house prices as high as possible.

As long as there's not enough supply to meet demand house prices will trend up towards the maximum the market can afford. When the opposite happens house prices tend towards the cost of construction.

Until just a few months ago over 90% of all the residential land in California was zoned single-family exclusive.

gjsman-10005• 2 years ago

there's not enough supply in and around the jobs

Why the anger at immigrants lately? Hint: 11.2 million illegal immigrants need to live somewhere. (Personally, I think the smaller regional banks have more responsibility to answer for this.)

If Trump is successful in his deportation efforts, house prices will likely fall through the floor, and (huge surprise) the poorer and younger ends of society will be extremely grateful, possibly even electing his successor figure. This could have been easily avoided if adequate housing had been constructed.

arcticbull9• 2 years ago

Why the anger at immigrants lately? Hint: 11.2 million illegal immigrants need to live somewhere.

Are they really buying this extremely expensive real estate with their low wages? Seems impossible. More likely, they will lower the already very cheap housing in the middle of nowhere.

If Trump is successful in his deportation efforts, house prices will likely fall through the floor, and (huge surprise) the poorer end of society will be extremely grateful, possibly even electing his successor figure.

Far more Americans live in owned-homes than not. That's exactly why this problem has been so intractable in the first place. Those folks will not be happy.

pizza2• 2 years ago

You think illegal immigrants are the bottleneck driving housing prices?

hahahacorn• 2 years ago

Immigrants are such a relatively small portion of housing supply pressure, compared to the overwhelming positive affect they have in driving other CPI basket items supply up (and therefore, keeping prices low).

Getting rid of immigrants will make houses a bit cheaper, and everything else more expensive.

Increasing property taxes so it isn't so cheap to carry underutilized housing, and getting rid of zoning regulations written with the intention of artificially limiting housing supply, will actually cause housing prices to fall through the floor, without ruining the rest of our economic output and supply of CPI basket goods.

philip1209• 2 years ago

I think the argument is that house prices are high because the government backs housing loans, so they don't represent a free market. Easy access to government creates more demand than supply.

arcticbull9• 2 years ago

The reality is that the government backs house prices by preventing construction via zoning rules. Japan shows us that 0% central bank interest rates do not affect pricing so long as supply meets or exceeds demand. [1]

[1] https://fred.stlouisfed.org/series/JPNCPIHOUAINMEI

ty685310• 2 years ago

Interest rates were pinned near zero, then locked in by mortgage holders for decades, the fed bought up some mortgage products, then rates were jacked. Supply is part the problem but essentially what happened was a magic trick where mortgagable real estate holders transferred wealth to themselves from non owners via inflation through the force of the state.

To buy them out of their negative real rate mortgage you must compensate them handsomely for losing such a loan that essentially lets them take from everyone else via fed induced inflation. This is why prices have been so sticky despite the now higher rates.

arcticbull9• 2 years ago

Interest rates were near zero for decades in Japan and house prices didn't budge since 1995. When rates go down prices jump, they don't keep moving as a result. It's an impulse response.

[edit] Look at the chart of housing CPI and the chart of interest rates. They're basically uncorrelated.

[1] https://fred.stlouisfed.org/series/CPIHOSNS

[2] https://fred.stlouisfed.org/series/MORTGAGE30US

sandbx• 2 years ago

there are 20,000 permitted multifamily units around Boston that have gotten through zoning but aren't being built because they don't pencil out. [1] I used to think zoning was the only thing in the way, but I think there are other problems, too.

[1] https://www.bostonglobe.com/2024/07/05/business/housing-cons...

jayd16• 2 years ago

I think it's a blessing that these fires have mostly hit lower density homes. I'm not saying we can't think about more density but I'm not sure we should pack the Palisades and and Hollywood hills to to the gills.

charlie902• 2 years ago

House prices are high because there's not enough supply in and around the jobs.

The median home price in Los Angeles tripled from 2010. The population in Los Angeles has declined since 2010.

smaili• 2 years ago

Nine of the Golden State’s 10 largest infernos since 1932 have occurred during the past decade, according to the local forestry and fire protection department.

With how far technology has come since 1932, I personally believe incompetence is being exposed not inflated home prices

zzzbra• 2 years ago

what incompetence is that? Having a hard time seeing the link between technological progress and thebsize of wild fires.

tatersolid• 2 years ago

There have been plenty of wild fires in California for millennia. The incompetence is draining the LA river wetlands to build houses, building millions of houses where fires occur, building where water is in short supply, and not building fire breaks and fire suppression systems because they’re “ugly”.

csomar• 2 years ago

You mean building a house with wood inside a forest area and have it surrounded by big and large trees. I get the aesthetics of it but don't complain about your house burning in a large fire. I've seen some footage and the trees have fared better than the houses. Tells you something about not preparing for any of this.

tptacek3• 2 years ago

The question has come up several times on the thread so far, and just to add my read to it: the claim that Los Angeles housing prices are inflated seems to rest in part on the fact that they're about to get a lot more expensive to insure. The annual costs of ownership of a house --- taxes, insurance, and upkeep, probably in that order --- work against the market value of a house. I live in an extremely high-tax inner-ring suburb of Chicago, and the conventional wisdom is that our taxes knock double-digit percentages off our home market value.

Maybe the article is saying the same effect could hit markets around the country more broadly as insurers everywhere jack rates up in response to climate change?

As mismanagement and environmental issues unfold, in the narrative I play in my head to keep myself sane, insurers are kind of heroic. I know they aren't really, but: one thing you can say for them, they're some of the only players in our economy that are required to price externalities. Political bodies and residents can delude themselves about risks indefinitely, but an insurer that ignores them will be insolvent. You could write a state statute capping insurance rates, but, as you've seen, that just forces insurers to leave the market. They don't have a choice. It's kind of wonderful.

chii3• 2 years ago

are required to price externalities

wait until the property owners there start demanding socialized property insurance!

tptacek3• 2 years ago

They already are, but that's kind of besides my point. I don't doubt that California can throw billions of dollars at subsidizing housing built on parcels so dangerous no insurer can underwrite there. I don't live or die based on whether people can afford to live in Pacific Palisades. But it's somehow sanity-preserving for me to watch insurers exit markets (or drastically increase rates). At least one party to this system has to acknowledge reality, and no organizing or speechifying gets you around it.

bwhiting23562• 2 years ago

Can we fight fires with a fleet of AI powered drones? I've watched water bombers [like this](https://www.youtube.com/watch?v=JrOESRoD1Jk) near my hometown. It seems like a lot of the water could be better targeted, and round trips to a body of water and back are long.

evo• 2 years ago

I feel like the thrust-to-weight dynamics on multicopter drones don’t really lend themselves to heavy payloads like water bombing in the quantities needed. An additional issue is that, due to wanting to maximize power density for the high amperage motors, you often end up using lithium-polymer battery formulations that are less than adequately shielded for the possible impacts the drone might incur. I would be concerned that the risk of a drone failure itself igniting a new fire in a remote area would outweigh the potential.

klodolph2• 2 years ago

I tried doing some back of the envelope math but it doesn’t come out in favor of drones.

The CL-415 that you shared in the link has a reported capacity around 6100 kg of water. When I searched for “heavy lift drones” I got the Draganfly Heavy Lift, which can reportedly carry 30 kg but only for 18 minutes of flight time (according to the company’s web site). I think the plane’s flight time is around 3 hours but obviously the math is a little more complicated than that.

bwhiting23562• 2 years ago

My thinking is that maybe

* there aren't enough pilots

* pilots understandably don't want to fly too close to the fire

But a drone might be able to get away with carrying less water and do more of a targeted squirt.

waldrews• 2 years ago

They don't even need the AI navigation problems of delivery or military drones to be solved, just to be remote piloted along a given route. But all that solves is removing the risk to the human pilot and their weight - possibly being able to get closer to the fire. We still need to move volume of water to the target, and that means getting a lot of flying vehicles to the right location and time. There's been plenty of big area fires, but this is as bad as it gets in terms of population and assets exposed, so we need a lot of vehicles delivering water to a lot of locations simultaneously.

Being prepared for this scale of operation means either having specialty firefighting planes and drones in reserve, or having other vehicles - general purpose drones or cropdusters or, heck, a Globemaster with a big ballon full of water in its belly - that can be repurposed and sent to this emergency from all over. Airships would be nice for the volume, but they aren't exactly friendly to the turbulent conditions near a fire.

m463• 2 years ago

I wonder if the drones are flying with propellers pointing down, can water be released as mist and blown downwards into the fire exactly where needed?

aaroninsf• 2 years ago

The word required was "high," not "inflated."

Markets gonna market amiright

redeux• 2 years ago

The article is talking about the relationship between insurance and housing prices. When insurance premiums go up, housing prices fall. When insurance is more difficult to get or not available at all, housing prices fall a lot.

Assume a typical California home is worth $1 million and insuring it costs $5,000 annually. If the equivalent rent is $70,000, doubling the premium would reduce the house’s value by 7%
State Farm cancelled most of its policies in Pacific Palisades last year; the median sale price there fell 16%

So, it follows that since the risk of natural disasters is increasing across the US, that insurance premiums will rise and thus home prices are inflated because they don’t account for that yet.

k310• 2 years ago

I see not one mention of home flipping, unless somewhere in this thread is mention of big investors flipping homes by another name. Radio is inundated by ads offering to buy homes in a 10 minute process,(or some other short interval) sight unseen.

And as an average Joe, how else am I able to make $250,000 tax-free?

The "desirable" places to live are near the ocean, where there are mountain ranges, probably due to earthquake faults (how soon we forget) and dangerous winds, plus the dry summers.

Most of the Central Valley is cheap, for a reason/reasons.

The other side of the valley is both mountainous and wooded. But low density, because most of the jobs and culture are by the coast.

robofanatic• 2 years ago

Why do they build wooden houses in LA? Use concrete!

Los Angeles fires expose inflated US home prices

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