A year and a half on, the policy failures are compounding the disaster’s effects.

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.

Click here to read the full article in the City Journal