A year and a half has now passed since deadly wildfires devastated several Los Angeles communities. The Palisades Fire swept through one of Southern California’s most scenic and affluent neighborhoods, the Pacific Palisades. Meanwhile, the Eaton Fire destroyed much of Altadena, a historic middle-class homeowning community. Together, the fires killed dozens of people and destroyed nearly 13,000 homes.
Soon afterward, one of us took an optimistic view of the future in these pages. Great cities have often recovered from catastrophe, we argued, because the advantages that made them desirable in the first place survive the destruction. This generally remains true of Los Angeles. Despite the fires, the city retains its good weather, natural beauty, and much of its human capital. If land, housing, and insurance markets were allowed to function, we reasoned, private investment could enable a safer and more dynamic city to rise from the ashes.
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Eighteen months later, it appears that this argument was too optimistic about how readily market forces would be permitted to operate in a city that has long made building difficult. Instead of letting private investment meet the demand for rebuilding, government regulations, permitting delays, insurance dysfunction, and other institutional barriers continue to stifle recovery. Los Angeles is now experiencing a second-order crisis—a disaster after the disaster—driven in large part by policies that have made it harder for residents to adapt, rebuild, and return.
In the months after the fires, many anticipated a construction boom. Mayor Karen Bass promised to streamline permit reviews, while Governor Gavin Newsom suspended some regulatory requirements and issued a series of executive orders intended to speed rebuilding.
But actual reconstruction has been slow. Only a fraction of the destroyed homes have been completed. Vast stretches of Pacific Palisades and Altadena remain vacant, and the initial optimism reflected in “Palisades Strong” signs has given way to a more fragmented recovery. Some determined homeowners have pushed ahead, while others are waiting, selling, or leaving.
A homeowner deciding whether to rebuild faces several kinds of uncertainty at once: Will the necessary permits get approved, and when? How much will the insurer pay? Will neighboring homes be rebuilt, or will the block remain half-empty? Will insurance remain available after the new house is completed? And what further risks will the area face in the years ahead?
Economic theory predicts that people will delay making large investments in rebuilding when uncertainty is high. Waiting may be prudent for any individual property owner, but the accumulation of those delays can slow the recovery on which each homeowner’s decision depends. A neighborhood becomes less attractive to rebuild in when few others are doing so. This coordination problem is likely to shape the recovery for years.
The burden is especially severe in Altadena. Affluent Palisades homeowners are more likely to have savings, legal assistance, and access to credit. But Altadena includes more middle-class and longtime homeowners whose wealth was concentrated in the properties they lost. These households have less capacity to absorb years of rent, insurance shortfalls, unexpected construction expenses, and prolonged disputes with insurers or public agencies.
Altadena was also a center of black homeownership in Southern California, built over generations when discriminatory practices restricted where black families could buy. If its homeowners cannot afford to return, the fire will have also destroyed an important source of intergenerational wealth and community stability.
Uncertainty over soil contamination has added another complication. The fires consumed older homes containing lead paint and asbestos, along with vehicles, appliances, batteries, and other materials capable of leaving hazardous residues behind. Tests by the Los Angeles Times and Los Angeles County found elevated levels of lead and other toxic metals on some properties, including parcels that had already been cleared.
The findings leave homeowners with another unresolved question about the safety and cost of rebuilding. Some health effects associated with toxic exposure may not become apparent for years, making it hard to determine how much risk remains or what level of cleanup is sufficient. Homeowners seeking greater certainty may have to pay for their own testing and, if contamination is found, more remediation.
Properties in Altadena and the Palisades therefore carry a new and hard-to-price risk. Property owners may discover environmental liabilities only after acquiring a lot or beginning construction. That uncertainty lowers what purchasers are willing to pay and functions as another hidden cost of rebuilding.
The permitting process is especially punitive for property owners seeking meaningful change. State and local policies have made it easier to reproduce what existed before the fires but made it harder to build something better. Homeowners who rebuild in a substantially equivalent “like-for-like” form can benefit from expedited permitting, while homeowners who significantly alter a house’s size, footprint, or use face extra reviews, fees, and uncertainty. Proposals that combine parcels or add more housing face even greater obstacles. This limits the natural, market-driven evolution that could make neighborhoods even more desirable and economically vibrant.
State laws reinforce this status-quo bias. Under Proposition 13, which caps property taxes in the state, homeowners who rebuild a damaged home in a substantially equivalent form can generally retain their original assessed value. Additions or improvements, however, may be assessed at current market rates on the incremental value—which can significantly raise a homeowner’s future tax bill. This structure gives owners a strong incentive to rebuild much as before.
This is especially the case in the Palisades, much of which lies within the state-regulated coastal zone where development is subject to additional oversight. Fire victims may reasonably want to enlarge a home, alter its layout, or make changes that improve fire resilience. But projects that depart significantly from the pre-fire structure can lose streamlined treatment and trigger expanded review and permit requirements under the California Coastal Act.
These strictures limit opportunities for adaptation. Many homes in the Palisades and Altadena were built decades ago, under different building standards and for households with different needs. With thousands of neighboring structures lost at once, property lines, housing types, street layouts, and infrastructure could, at least in principle, be reconsidered more easily than in an intact neighborhood. In some areas, larger parcels could be assembled for homes designed with modern fire-resistant materials and more defensible space. Other areas could support more residents while financing newer and better infrastructure.
Instead, the recovery process largely treats the pre-fire development pattern as the default to be preserved. In the Palisades, zoning restrictions and Coastal Commission oversight make significant departures especially tough. In Altadena, concerns about displacement and changes to the community’s character have produced similar pressure to limit redevelopment.
Freezing neighborhoods in their previous form also has costs. It makes it harder to attract the investment needed to rebuild, limits what owners can do with their properties, and misses an opportunity to add housing in a region that badly needs it. The result is a recovery policy oriented toward restoring the physical form of the old neighborhoods rather than enabling them to evolve.
Even homeowners who get permission to rebuild face another question: Who will insure the new house once it’s finished? Here again, state policy has made recovery more difficult. Another state law, Proposition 103, limits insurers’ ability to raise rates to reflect wildfire risk. As a result, several major insurers have sharply limited their exposure in high-risk California markets like the Palisades. This creates what economists call adverse selection: high-end insurers—known for fast, fair claims handling—pull out of the market. What remains is a thinner market dominated by the FAIR Plan, California’s insurer of last resort, or lower-tier carriers, where claims are more likely to be contested, delayed, or litigated.
For homeowners considering whether to rebuild, the calculation is daunting. Rebuilding may require years of negotiation with insurers and substantial out-of-pocket spending. Once the house is completed, insurance coverage may cost far more than it did before the fire, be dependent on the FAIR Plan, or prove difficult to insure at all. A home that cannot be adequately insured is harder to finance, harder to sell, and worth less. Until California lets insurance prices reflect wildfire risk more fully, uncertainty over future coverage will continue to discourage reconstruction.
A functioning insurance market could also help make rebuilt neighborhoods safer. Insurers have strong incentives to identify which homes and communities are most exposed and to reward measures that reduce those risks. They could use property inspections, aerial imagery, and other tools to offer lower premiums for fire-resistant construction, defensible space, and better vegetation management nearby. California’s regulatory system has made that kind of risk-based pricing and experimentation more difficult. As insurers retreat and more homeowners depend on the FAIR Plan, the market loses one of the institutions best positioned to encourage safer rebuilding.
The post-fire struggles are compounded by government failure. The disaster itself reflected a series of policy choices and failures in basic preparedness that quite literally fueled the flames. The Santa Ynez Reservoir sat empty for nearly a year, contributing to water-pressure problems during the Palisades Fire. Fire officials failed to pre-position sufficient resources in the Palisades despite forecasts of extreme winds, and the department’s response once the fire broke out was scattered and poorly coordinated. Rebuilding will accomplish little if the institutional failures that made the disaster so destructive remain in place.
A primary concern is the failure of state and local agencies to control vegetation across the large areas they manage, including land directly adjacent to dense urban neighborhoods. In Topanga State Park above the Palisades, much of the vegetation had not burned in nearly half a century. The small Lachman Fire that ignited there on New Year’s Day was declared contained but continued to smolder in the roots of dense vegetation before reigniting six days later as the Palisades Fire.
Documents and communications disclosed after the disaster also revealed that California State Parks had created “avoidance areas” where normal firefighting tactics could be restricted to protect endangered plants and archaeological sites. The agency’s wildfire plan limited the use of heavy equipment, vehicles, and retardant in those areas without consultation with resource specialists. It also restricted some “mop-up” work—the digging out and extinguishing of roots, stumps, and other material that can continue smoldering after a fire. Residents living beside the park knew nothing about these plans or restrictions until they came to light after the Lachman Fire reignited and destroyed their neighborhood.
Going forward, residents will reasonably ask whether their safety will receive sufficient priority. Those deciding whether to return will want evidence that government agencies are prepared to clear hazardous fuels, maintain firefighting infrastructure, and respond more effectively the next time dangerous conditions arise. Many no longer trust them to do so.
The measures needed to reduce wildfire risk are generally well understood, but bad policy continues to frustrate their use. In addition to physically clearing brush, prescribed burns can remove dead wood and other fuels under favorable conditions before they burn during extreme winds. Yet air-quality regulations can restrict such burns because of concerns about smoke in a heavily populated region. These restrictions intended to limit smoke from planned burns, in other words, can allow fuels to build up until they burn in a more dangerous fire. But a limited amount of smoke produced under controlled conditions can reduce the risk of a much larger smoke event—and another fire capable of destroying an entire community.
The effects of the fires also extend well beyond the neighborhoods that burned. Thousands of displaced families entered an already-constrained housing market at the same time, increasing demand for rentals across Los Angeles County. In a more flexible market, that sudden demand would induce a larger supply response. Property owners might rent spare rooms, convert garages, build accessory dwelling units, or bring vacant units back onto the market. State laws have made some of these options easier in recent years, but local rent-control rules and other restrictions continue to weaken the incentive to create rental housing. Owners who expect limits on future rent increases or difficulty renovating a unit may decide that renting it is not worth the risk.
The “disaster after the disaster” was not inevitable. It reflects policy choices, institutional inertia, and unresolved trade-offs that Los Angeles and California have repeatedly failed to confront. A year and a half after the fires, many residents do not feel safer, and trust in government has declined. Los Angeles retains the advantages that made the Palisades and Altadena desirable places to live, and over time investment will return. But state and local policies constrain the speed and quality of recovery.
At the same time, state and local governments have failed to address the conditions that could produce the next disaster. Governor Gavin Newsom and Mayor Bass continue to attribute last year’s disaster primarily to climate change rather than confronting these clear management shortcomings. Without serious reform, the conditions that produced the 2025 fires remain largely in place. Whether these communities fully recover will depend on whether officials learn from the failures that made the fires so destructive in the first place.