Will Wildfires Deter New Housing Construction?

Wildfire activity is increasing throughout California. In recent years, the state has been plagued by devastating wildfires that have destroyed communities throughout the state. According to the California Department of Forestry and Fire Protection, California has already experienced 1,349 wildfires that have burned 12,247 acres of land. The department along with other weather experts believes that the frequency of wildfires is going to increase, and the pattern is a question mark for developers, who will have to navigate this environmental challenge. However, Martha Bane of insurance brokerage and risk management services firm Gallagher doesn’t believe rise of wildfires will impact new construction.

“As long as developers are not restricted by prohibitive costs due to ordinances, laws or codes changes they will continue to develop and rebuild in fire prone areas,” Bane, managing director at Gallagher’s property practice, tells GlobeSt.com. “The housing crisis in places like San Francisco continues to push people out of unaffordable suburban areas to life in more wildfire prone areas and developers will continue to fill that need.  It is unlikely that developers will incur the additional cost to build above current code requirements because it will materially impact their ROI.”

In addition, insurance will also protect developers as wildfire risk increases, according to Bane. However, her presumption is that insurance companies won’t alter premiums and coverage plans in response to the increased frequency of fires. “As long as insurance is available and affordable to backstop the risk, I don’t see a hesitation to fund such projects,” she says.

Just as Bane doesn’t expect local ordinances or insurance policies to change, she also doesn’t predict that developers will increase the use of fire resistant materials, especially considering the rising cost of construction. “An increase in code-mandated use of fire-resistant construction materials would have a significant impact on constructions costs,” she says. “In states like California this would put further pressure on the availability of affordable housing and the overall cost of living in a wildfire prone areas.”

However, that doesn’t mean developers aren’t making moves to prevent fire damage. “Obviously, life safety is always the number one priority.  Brush clearance and availability of outdoor water sources are critical,” she explains. “Access to nearby fire department services and an emergency evacuation plan of people and valuable personal property would help reduce the financial impact. Review your insurance contract to make sure that you have adequate limits.”