We live in a time of extreme hyperbole, when the slightest twitch is mistaken for a trend. But the devastating fires seen in Southern California this month have likely redrawn the map of the entire LA Basin—and in saying so, there is little risk of exaggeration. Both the speed and the scope of the fires were unlike anything previously seen since Los Angeles, as an American city, began its ascent over a century ago. Santa Ana winds, whipped up to speeds near 100 mph, actually came up and over the San Gabriel range this time around, entirely liberated from historical routes through the mountain passes. This exponential force drove the fires down from the hills like a tsunami, unstoppable, racing across wide roads and ignoring all barriers. Film clips of the phenomenon showed the flying of embers, darts of fire, penetrating landscapes like a spray of bullets.
The mountain ranges of the LA Basin, and the hills which lead up to them, have been a selling point for this region since the earliest days of local settlement. Advertisements in European media, meant to entice immigrants during the early 1900’s, typically showed someone holding a rose in a Pasadena backyard, with a steep hill rising in the background and a snowcapped peak just beyond. You get the idea immediately: temperate year round down at sea level, with something vaguely Swiss or Italian looking down on you from above. Pretty nice, right?
The result of the fires is that all of the hillside real estate in Southern California is going to be repriced lower. Anyone who has lived there knows that wealth and incomes correlate quite well either to proximity to the ocean, or as one goes up in elevation. Beverly Hills is a template for this phenomenon, as it contains three topographies: the flats of the downtown commercial district between Pico and Wilshire boulevards; the gently rising neighborhoods on the north side of Santa Monica Boulevard, where the real estate values really begin to take-off; and finally the canyons above, like Coldwater and Benedict canyons. In the aftermath of the Palisades and Eaton fires, which put the entire region on notice that a phase transition was now in play, the high hillside real estate that runs along the entire transverse range from Hollywood to Malibu is going to come under unrelenting pressure. This will force the market to reprice higher all real estate that’s safe from the hills. What will be the lever for that pressure? Insurance, of course.
What does it mean, for example, when people say that the majority of homeowners in the Palisades were heavily underinsured? It means that if you live in a $5 million dollar home in the hills, and over time it becomes a repository for precious artwork and furniture, that securing a full coverage policy in the marketplace is not only difficult, but gets harder each year as home values rise. We now know that this was already the case before the fires. We also know that whether in the Palisades, or the Altadena region, many homeowners were sitting on enormous, long-term capital gains on their homes—and would not be able to pay the price of admission today were they new entrants to those housing markets.
The new regime is going to see wealthy homeowners from the hills, and new entrants to the Los Angeles real estate market, begin to preference Santa Monica, Mid Wilshire, Downtown, and all the beach communities down to Orange County. If you absolutely must live in Topanga (and who wouldn’t want to live in Topanga? Your editor once lived in those magical mountains and has at times regretted ever leaving) then go ahead, build in Topanga. But you will be on your own.
How this regime change is going to affect the economy of Los Angeles is harder to parse. Los Angeles County has a higher population than at least 40 other US States. Yes, you read that right. The county is also second to only New York in its annual GDP per capita. At roughly $1.6 trillion, Los Angeles Country’s GDP accounts for about 5% of the country’s GDP. A reminder: 5% of GDP is a big deal. Over past decades, film and television production has gone fully worldwide, with shoots occurring across the global and various US states. But the business of film and television is still very much centered in L.A. As we have seen in other parts of the world, a natural disaster of this scale can also produce a small diaspora: it’s likely independent workers, of which there are many, may fan out to Idaho, Arizona, Nevada, Oregon, and Washington. Of course, it goes without saying, that forested cities like Portland—homebase of Cold Eye Earth—are also at risk in the future. Portland, Oregon for example relies on the steady drip of the region’s drizzle, which unfolds from October to May, to cross the valley of the region’s very hot and dry summer. A little secret many may not know: Portland gets less total annual rainfall than most eastern US cities. So, when you look past the narrative of Portland’s dreary gray and wet skies, the city is highly vulnerable to any withdrawal of that precipitation. Without it, Portland too would burn.
This all leads to a conclusion that most are now figuring out: as climate events bust out of long-defined ranges, no place can be regarded as a secure refuge. Hurricanes greatly disturbed the New York insurance market starting two decades ago, and now a great deal of Florida is experiencing a severe insurance affordability problem. And it must be mentioned: hurricanes and tropical storms in the US, even after moving inland and losing their punch, have wrecked regions from Vermont to western North Carolina with devastating floods. More regions will join this list.
Further reading:
The L.A. Fires Are an Epochal Economic Disaster, by Matt Zeitlin
The Insurance Crisis That Will Follow the California Fires, by Elizabeth Kolbert
Emissions declines are hard to achieve but the Golden State—which happens to be the world’s 4th largest economy—has managed to produce them. So, despite the fact that climate change is a global, not a local, problem the state of California is doing more than its share to help out. According to the California Air Resources Board, total
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