Wildfire Risk Harms California Home Values, San Francisco Fed Study Finds

California’s wildfires are weighing on home prices more than in the past, and insurance availability does little to help in areas considered to be at higher risk, according to a Federal Reserve Bank of San Francisco study.

“Our results suggest that property values have been more adversely impacted in recent years by being close to past wildfires than was the case previously,” economists Leila Bengali, Fernanda Nechio and Stephanie Stewart wrote in a paper published Monday on the Fed bank’s website.

While the effect of the proximity may be relatively small now, the economists warned “this pattern may become stronger in years to come if residential construction continues to expand into areas with higher fire risk and if trends in wildfire severity continue,” the study cautioned.

The total area affected by fires has climbed over the years, in part thanks to an increase in residential use of zones deemed at high risk of fire, the researchers found.

The authors focused on owner-occupied, single-family homes using housing market data provided by property information firm CoreLogic Inc., and wildfire data from the Monitoring Trends in Burn Severity database of fires affecting more than 1,000 acres.

“Being farther from past fires is associated with a boost in home value of about 2% for homes of average value,” the study found. In particular, the authors highlighted that home values were affected “in vegetated and mountainous areas around Los Angeles and in the Sierras” — areas that were closer to where wildfires burned.

The authors controlled for a variety of factors, such as the size of the lot and the building’s square footage, when determining the relationship between distance from past wildfires and property values.

Comparing samples from 2008-17 and 2018-21 shows that the impact of proximity to past fires on property values has strengthened over time, the study showed.

Using data from the California Department of Insurance, Bengali, Nechio and Stewart also determined that the ability to obtain insurance — either from the private market or the state — does little to mitigate the impact on home values of proximity to fire zones.