The Effects of Wildfire Destruction on Housing Supply and Property Values in California

• In Event: After the Fire: Economic and Institutional Responses to Wildfires

Abstract

Wildfires pose catastrophic threats to human society due to their increasing extent and severity. As a response, land management agencies routinely assess values at risk such as homes, infrastructure, and natural resources to prioritize wildfire treatments in vulnerable areas. However, these assessments are inherently static and can be misleading if decision makers fail to account for changes in housing supply and property values due to wildfires. This paper estimates how wildfire-induced destruction contracts local housing supply in California. We combine census tract-level median home value estimates from the American Community Survey (ACS) with structure-level damage records from the California Department of Forestry and Fire Protection Damage Inspection (DINS) database to create a novel dataset. The DINS dataset defines a home as "destroyed" - indicating over 50% of the property has been lost in wildfire - and we spatially aggregated this data to the census tract level, alongside a set of tract-year demographic and housing market controls. There are possible biased results due to uneven allocation of resources for the protection of higher-value homes. We account for this potential endogeneity with a two-stage least squares regression approach that exploits exogenous variation in extreme fire weather conditions uncorrelated with home value, with data from the Canadian Fire Weather Index (FWI). This allows us to estimate causal effects on residential property values and housing supply elasticities. In addition, we also use two-way fixed effects with tract and year fixed effects to control for tract-level time-invariant unobservables, as well as time-varying spatially invariant unobservables. Results show that a one-unit increase in destruction intensity is associated with approximately a 0.32% increase in median home values. We interpret this price response as evidence of local housing supply inelasticity in markets where supply cannot readily expand. Wildfire-induced destruction of existing stock tightens local supply and drives up prices for surviving units. Our findings contribute to a growing literature on disaster-driven housing market disruption that carries implications for housing, land-use policy, and wildfire mitigation management plans in fire-prone regions of California. Our results can support cost-benefit analyses and helps land management agencies prioritize fuel treatments in high risk areas .

Author

• Haleema Misal
  Presenting Author