A costly construction market is just one challenge ahead as LA rebuilds after wildfires

Listen to Marketplace each weekday at 3:00 p.m. and 6:30 p.m. on LAist 89.3 FM. This story originally aired on “Marketplace Morning Report” on Jan. 22, 2025.

In the immediate term, officials are focusing on cleanup efforts and housing the tens of thousands of people who’ve been displaced by the Eaton and Palisades fires that are now approaching full containment. But over the next few years, the focus will shift toward rebuilding the communities leveled by the fires.

The rebuilding effort will face many of the same challenges that the entire home construction market’s been facing for years now: shortages of skilled labor, building materials — including electrical transformers — and expensive construction loans.

“Even though Federal Reserve interest rates have come down, we still see lending rates for builders around 10% to 12% right now,” said Jim Tobin, CEO of the National Association of Home Builders.

He said home construction in California comes with its own set of challenges too.

“You’re talking about the most expensive market to build in the country anyway. Layers of regulation, delays, high prices of properties,” Tobin said.

One silver lining is that lumber prices have actually come down in recent years, said Greg Kuta, CEO of Westline Capital Strategies. But he said the possibility of new tariffs on Canadian lumber could push those prices back up, especially if demand for lumber surges at the same time.

“When you actually have the demand to rebuild, prices could be substantially higher a year from now,” Kuta said.

But some unique factors could help usher along the recovery process: Last week, California Gov. Gavin Newsom signed an executive order meant to speed up the rebuilding effort by suspending certain permitting requirements and environmental reviews.

“It will be easier to get projects approved; it’ll be easier to get the hookups necessary for utilities,” said Daryl Fairweather, chief economist at the real estate company Redfin.

She recently looked at how fast homes got rebuilt after previous fires in California.

"New construction bounces back fairly quickly,” Fairweather said.

That said, people who’ve lost their homes will still have to decide whether the costs of rebuilding are worth it.

Fairweather said many will likely say no, especially if they get an offer from a developer to buy up a damaged property.

“People are going to find that the offers that they get from developers are going to be quite large, and maybe bigger than what they are getting from their insurance company,” Fairweather said.

That’s because that land is valuable. And builders know that redeveloping it could be pretty profitable.

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