Why L.A. Contractors Warn ‘Equity Is Gone’ and New Construction Will Be Expensive

Los Angeles has been devastated by the recent wildfires, which have spanned about 63 square miles and destroyed more than 15,000 homes, businesses, and other structures so far. Thousands of people have been displaced and are scrambling to find temporary housing.

And now, even as new fires are breaking out across the area, thousands of Los Angeles residents are faced with a tough question: Should they rebuild their homes or find something new?

It will be a very personal and difficult choice, says Joe Liebowitz, owner of Liebo Builders, a construction company in Los Angeles. He explains that he’s getting calls every day from three or four homeowners, who are trying to decide what to do next.

“It really depends on their situation. There’s some people who have the flexibility to move elsewhere,” Liebowitz says. “Others are saying it’s important to them to rebuild. They’re prepared to get a long-term rental in L.A. and rebuild for a couple of years.”

Still, he says those who choose to stay and rebuild likely have a long, difficult, and expensive road ahead of them.

So, what should L.A. residents do if they sustained damage or lost a home in the fire? We spoke to contractors who shared insight on what rebuilding will look like.

Rebuilding your home after a natural disaster

Many are wondering what will happen to L.A. and the people who live there, after the flames are extinguished. Already, there’s been incredible property damage and, for some residents, rebuilding may seem too daunting.

Marisela Arechiga, co-founder of L.A.-based construction company New Generation Improvements, explains that, in any typical construction project, the two most common questions she gets from clients are “How much” and “How long?”

Generally, she’s good at answering these questions; but when it comes to rebuilding after the recent fires, she says there’s a lot of unknowns.

“Builders don’t know how much or how long because this isn’t an everyday event that this happened. This is an absolute phenomenon. This is Los Angeles’ Katrina,” she says. “Katrina has come through, but it came through by way of fire instead of water.”

Clean-up is one factor. Arechiga explains that rebuilding can’t start until debris is cleared and power and gas lines are repaired.

“I’ve been hearing all that’ll take about three months,” she says. “In the meantime, homeowners can’t even safely be on their lot because the debris is toxic.”

Plus, she says, the permitting process in L.A. is notoriously difficult; and while Gov. Gavin Newsom signed an executive order to streamline the rebuilding of process, with so much demand, Arechiga suspects it’ll still take longer than expected to get architectural plans approved.

“Unless our city leaders and our department heads at the Building and Safety Department for the county and the city really figure out how to streamline this broken system,” she says, “homeowners could be parked, waiting for approval of their architectural plans, for years.”

And even after debris is cleared and permits are approved, Liebowitz says homeowners will need to deal with a high demand for builders.

He notes that constructing a luxury home, like the ones in Pacific Palisades—which was particularly affected by the fires—can normally take 12 to 18 months with a good builder. Though, he notes that some teams may take 18 to 36 months—or even longer. And that’s under normal conditions.

“There’s not enough builders in L.A. to rebuild, so everyone’s demand is going to be more than the supply. And you’re gonna have builders who overcommit,” he predicts. “Maybe they do two days a week of work at one job, and two days a week of work at another job.”

He adds that everyone from contractors to plumbers to architects are going to be “overloaded.” Materials may be sparse. Because of all this, work may be significantly slower.

The cost to rebuild a home

The cost to rebuild a home can vary greatly depending on the size of house, materials, and location.

Properties in Pacific Palisades are typically luxury homes, while the ones in Altadena, another community hard hit by the fires, are more working-class family homes. (In December, homes in the Pacific Palisades were listed at a median price of $4.7 million, while Altadena was about $1.3 million.)

Accounting for these factors, an analysis from the Realtor.com® economic research team suggests that the typical cost to rebuild a home would be about $947,000 in Pacific Palisades and $262,000 in Altadena.

However, Arechiga says that one can’t forget the law of supply and demand. With so many residents hoping to rebuild at the same time, prices of materials and labor will naturally rise.

She says that there aren’t enough builders to cover this scope of work and warns that desperate homeowners may get tied up with contractors who are underqualified. Some may not have experience building luxury homes, or experience with California building codes. They may take more time and money to complete the project.

Arechiga also warns there will be builders who might not have honest intentions or fair prices.

“You’ve heard of storm chasers. I’ve heard of businesses that go into areas where there’s a disaster and take advantage of the situation,” Arechiga says.

Plus, there’s the fear that new deportation regulations will negatively affect the construction business. According to the National Association of Home Builders, an estimated 41% of California construction workers are immigrants. Experts claim that percentage is even higher in residential construction, which the LA Times reports is “nonunionized and not as heavily regulated as large capital projects.” Some fear that, if President Trump follows through with proposed deportations, the cost of labor and supplies for builders will increase.

Devin Lucas, a real estate attorney, broker, and real estate agent in Orange County, CA, says that immigration reform could indeed impact construction efforts but says it would be “just one of many factors driving costs, timelines, and our increasingly tight housing supply” in the state.

Still, even under the cheapest conditions, with the best team, repairing or rebuilding any home could cost much more than a resident is able to pay, Arechiga points out. She explains that, especially in Altadena, there are many homes that had been passed down from generation to generation.

“If it was purchased for $40,000 in the ’40s or ’50s, that home now would be worth a million dollars, easily,” she says. “But the homeowner won’t get nearly what they would have gotten for their home in Altadena that they would have gotten on January 1, because now it’s just land. All their equity is gone.”

If insurance won’t cover the full rebuild, or if the owner didn’t have insurance, they have limited options—especially now, as so many people are displaced and the surrounding areas have seen stiff competition for rental properties and illegal price gouging.

How your insurance can help or hinder the rebuild process

Typically, a fire-damaged home will be covered up to the insured amount, while personal belongings would be covered under personal property coverage.

However, many of the affected residents had no, or modest, insurance plans that won’t cover the full amount needed to rebuild. And even if a homeowner does have the appropriate insurance, getting a payout could take years.

“The insurance company is definitely not the homeowner’s friend,” Liebowitz says. “Their interest is to pay out as least as possible, and the homeowners interest is to be paid as much as possible, so they have opposite interests.”

Luckily, California’s FAIR plan, which provides fire coverage for high-risk properties, covers up to $3 million in damages and reimburses the cost of renting another property.

Rebuilding in L.A. will take years

So, will people rebuild and how long will it take?

Liebowitz says that the affected Los Angeles areas, especially the coastal Pacific Palisades, are unique and beautiful. And while some people have the ability to rebuild their homes, many simply don’t have the option.

Arechiga notes that there’s a large retirement community in both Pacific Palisades and Altadena and says these retirees might not have the energy or time to rebuild.

“This is going to be a very hard process, and you have to have a certain ability and energy to go through the rebuild process,” she explains. “And so I would predict that, unfortunately, there’s going to be a slice of those impacted that won’t have a choice but to sell the lot and walk away. Their entire life work, they’re going to have to walk away from.”

As for how many people will rebuild, and what Los Angeles will look like years down the road, no one can tell the future. However, we can look at past disasters. Another devastating California fire, the Camp Fire, destroyed more than 13,500 homes in Paradise, CA, in November 2018. Now, six years later, only about 2,500 homes had been rebuilt.

In 2019, 14 years after Hurricane Katrina, Environmental and Energy Study Institute said rebuilding New Orleans was “still a work in progress.”

Liebowitz says that many of the people he’s talked to, who lost their homes, are already planning to move out of L.A. or even out of the state. But others are determined to rebuild—and they don’t care how long it’ll take.

He says: “Some people have told me, ‘You know, look, my kids are in school, and I want them to continue here, whatever happens. Some of their schools are even burnt down. But wherever their group of friends is going to be, I want them to be in the same place.’”

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