Many in Pacific Palisades were not wealthy. After the fire, can they rebuild?

Many Pacific Palisades locals, current and former, have been following the Facebook feed of 56-year-old Kent Steffes. He lives in nearby Brentwood now and hasn’t lost his home, but perhaps that’s given him the emotional bandwidth to share more effectively with others what’s happened to their old neighborhood.

Overlooking the Pacific Ocean like its neighbors Malibu and Santa Monica, Pacific Palisades is an affluent neighborhood by any measure. It’s home to celebrities like Arnold Schwarzenegger, Reese Witherspoon and Tom Hanks. Median home values often exceed $3 million. Luxury homes sell for tens of millions. But many of the families who’ve lost their homes are not fabulously wealthy.

“What most people don’t know is that a lot of the homes are owned by people who can’t afford to live here anymore. They won’t be able to rebuild,” Steffes said. That’s because many family members can’t afford to buy the homes they own at the current market rate. “They couldn’t afford to get a mortgage on it.”

Along with his 20-year-old daughter, Katharine Steffes, who also attended Palisades High (partially burned), we toured the neighborhood as it lay smoking. “All my friends live here,” the sophomore at the University of Notre Dame said. “I don’t know if this place will ever be the same.”

Kent Steffes’ family moved to the Pacific Palisades highlands in 1973 when he was 5. His dad, an engineer at Hughes Aircraft Co., bought a home for $75,000, which would be around $533,000 in today’s dollars. The house had five bedrooms, although many homes built in “Pali” in the 1960s and ’70s featured two or three bedrooms.

“What most people don’t know is that a lot of the homes are owned by people who can’t afford to live here anymore. They won’t be able to rebuild,” said Kent Steffes, 56, who grew up in Pacific Palisades.

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Rachael Myrow

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KQED

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“You were always outside biking or riding skateboards around town,” said Steffes, who grew up to win the inaugural beach volleyball gold medal at the 1996 Summer Olympics in Atlanta. He works in finance now. “There was always someplace to explore and have fun and plenty of friends to do it with. We ran out of the house in the morning and didn’t come home until the street lights came on.”

But as the decades passed, the neighborhood grew wealthier. By the time Steffes was in his 30s, many modest three- to four-bedroom homes were giving way to “McMansions,” double the size, on the same small lots. Big or small, the original owners aged and died and passed on their homes to their children, as Kent Steffes’ parents did. “We just sold that home last year for $2.5 million.”

Because of Proposition 13, passed in 1978, family members who inherited properties were essentially given the original property tax rate. Steffes’ parents paid about $4,000 in property taxes. Steffes said the people who bought the house last year pay about $37,500.

In addition to the much higher tax rate, a lot of insurance plans cover only the value of the house as it is, not the cost to rebuild according to modern building codes.

“So they’ll say, ‘Hey, your house is worth $300,000,’” Steffes said hypothetically. “But it’ll cost you $1 million to rebuild that same thing.”

Nancy Wallace, a real estate professor at UC Berkeley’s Haas School of Business, lost her own home to the Oakland Hills fire of 1991. She’s now considered an expert in price modeling and wildfire “mispricing,” as she puts it, in the insurance market.

Marquez Charter Elementary School was destroyed in the Palisades fire, erasing cherished childhood memories for countless individuals.

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Courtesy Kent Steffes

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“Insurance adjusters are not your friends,” she said. “They’re not there to sympathize. They’re there to minimize the payout of their company. It might be dressed up with nice words, but that is the challenge that you’re facing.”

Due in large part to climate-change-driven wildfires, hundreds of thousands of Californians have lost their insurance policies altogether in 2024. This has forced many homeowners to turn to the California FAIR Plan, a state-mandated insurance market of last resort, which often provides more expensive and limited coverage.

State Farm, the largest insurer group in California, announced a halt to new homeowner insurance policies in the state in 2023 and began canceling or non-renewing policies for tens of thousands of properties in 2024.

However, a spokesman told KQED State Farm still insures 250,000 homes and “as of Tuesday, Jan. 14, we’ve begun to process over 6,700 home and auto claims, already putting tens of millions of dollars back into customers’ hands. We are prepared to address the growing number of claims expected as residents return and assess damage.”

Allstate paused the sale of homeowners insurance policies for new customers in 2022. “We continue to offer coverage to most existing homeowners insurance customers,” an Allstate spokesperson wrote KQED.

Based on Wallace’s analysis, about 1 million California homes are in high- or very high-risk areas, with 2 million to 4.5 million more in vulnerable wildland-urban interface zones. The time it takes to rebuild a home after a wildfire varies significantly depending on the severity of the damage, availability of contractors, and compliance with updated building codes, but Wallace estimates it could take up to four years to rebuild a home destroyed by a wildfire.

“Four years is a lifetime for many people,” she said but noted the incentives in the current system are to rebuild, and for those with the money to rebuild, build back bigger and more expensively. That’s if they have insurance policies that will meet the demand now.

Given how expensive the Palisades Fire is expected to be, Wallace warned the California insurance market could fail because many insurance policies are too generous given the actual risks, and the state insurance commissioner’s office has only recently begun to allow the industry to adjust for the changing reality.

All these factors exacerbate the trend toward gentrification in Pacific Palisades and neighborhoods like it, meaning home ownership in those places is becoming infeasible for any but the most wealthy Californians.

Ultimately, Wallace said, many homeowners in Pacific Palisades will choose to do what she did after the Oakland Hills fire took her home: move out of the neighborhood.