Wildfires scorch the landscape and reduce houses to rubble. They destroy community infrastructure and recreational resources. The result is a decline in real estate prices.
How much will real estate prices decrease after a wildfire? Read on.
Reasons Why Real Estate Prices Drop After a Wildfire
The most obvious reason that real estate prices go down is that where there was once house+land, there is now only land. Vacant land with no house usually sells for less than land with a house.
Further, even if you own vacant land that never had a structure on it, the trees and vegetation may be charred. Land with unattractive or no vegetation will sell for less than land with attractive vegetation.
Even if your land was not affected, your neighbor’s land was. All the houses around you are gone; the local market is boarded up; the medical clinic severely damaged; the forest where you used to take your dog for hikes is now a bunch of eerie charred twigs. The state of community infrastructure affects the attractiveness, and therefore the value, of your land.
Lastly, wildfires increase the perception of risk in the minds of buyers. All things being equal, buyers may be reluctant to purchase real estate in areas prone to wildfire.
These factors, and others, combine to cause a reduction in real estate prices.
What Does the Research Say about the Effect of Past Wildfires on Land Values?
Several scientists have examined the effect of historical wildfires on real estate prices. Here is what they found:
Huggett, Murphy and Holmes (2008) examined the 1994 Chelan County wildfires in Washington state and found that real estate prices dropped 13-14% over a one year period afterward.
Mueller, Loomis and Gonzalez-Caban (2007) studied fires in Southern California. They found that repeated forest fires cause houses near fires decreased in value. The first fire reduced house prices by 9.7%, while the second fire reduced house prices by 22.7%.
PricewaterhouseCoopers (2001) performed an analysis of how the Los Alamos, New Mexico real estate market responded to the 2000 Cerro Grande fire. The report showed that after the fire, the average sale price of single-family homes in Los Alamos County declined 3-11%.
Loomis (2004) estimated that house prices in Pine, Colorado decreased by approximately 15% following the Buffalo Creek fire.
Kiel and Matheson (2015) studied the Fourmile-Lefthand Canyon forest fire in Colorado and found a 21.9% decline in sale prices.
The Good News
If I put on my rose-colored glasses and squint real hard, I can come up with some examples of good news regarding the value of real estate after a wildfire.
First, the house that burned to the ground probably had underground utilities. The water pipes are still there buried in the ground; the septic system or sewer pipes are also there; and if you have a well, the vertical casing is still in the dirt even if the above-ground equipment might be damaged. Most vacant land on the market does not have utilities stubbed into the building area because there was never a house. But yours does. Builders love it when utilities are not just “in the street” they are stubbed all the way into where a new structure might be built. The presence of utilities adds considerable value to vacant land.
Second, any structures that are rebuilt in the affected neighborhood will be new, and possibly more valuable, than what was there before. For example, your plot of vacant land may end up next to a brand new 4-bedroom, 3-bath house instead of next to the tired 2-bedroom, 1-bath bungalow built in 1958 that was there before. This may positively affect the value of your lot.
Third, if you own a nearby rental property that was not affected by the fire, you may find that demand for your units will increase. This is due to the many displaced homeowners who now want to rent near the same area where they once owned home. Supply is down and demand is up, so you may be able to increase your rental rates accordingly. (Don’t price-gouge though, it’s not nice).
Fourth, recently I was listing some acreage located 2 miles from the edge of a wildfire. After the fire, I noticed an uptick in interest in this parcel, i.e., more calls and e-mails. This may have been related to displaced families needing to move animals or themselves. Or perhaps buyers were previously looking for land in the wildfire-torn area and now they have shifted their focus to the area just outside of that area. Supply and demand can cause an increase in value just outside the wildfire perimeter.
Fifth, sometimes homeowners who receive a handsome insurance settlement want to rebuild a larger home and need more land to do that. The adjacent owner might be able to sell their land to that person at an inflated price. One example of this occurring is with the Felton Estate. This 14,000-square-foot property was built five years after fire destroyed all the homes on top of Schooner Hill in Oakland California. One owner bought up neighboring land, built a large house in 1996, and recently sold that house for $20.5 million.
Lastly, real estate prices will not be low forever. As time goes on, vegetation will come back, infrastructure will be rebuilt, and buyer’s memories of the fire will fade.
So, to Summarize
After a major wildfire, land prices in the affected area are likely to decrease. Prices decrease for a host of reasons including reduced infrastructure and increased perception of risk. According to the research, land prices after fires have historically decreased between 3 and 23%. However, there are scattered cases where the value of land can remain steady or even increase.