
As the rebuilding effort begins, builders will be up against a costly construction market
As the rebuilding effort begins, builders will be up against a costly construction market

We’re continuing to follow the situation in California after fires destroyed more than 12,000 structures.
In the immediate term, officials are focusing on cleanup efforts and housing the tens of thousands of people who’ve been displaced. But over the next few years, the focus will shift towards rebuilding the communities that have been leveled by the fires.
The rebuilding effort is going to face many of the same challenges that the entire home construction market’s been facing for years now: shortages of skilled labor, building materials — including electrical transformers — and expensive construction loans.
“Even though Federal Reserve interest rates have come down, we still see lending rates for builders around 10% to 12% right now,” said Jim Tobin, CEO of the National Association of Home Builders.
He said home construction in California comes with its own set of challenges, too.
“You’re talking about the most expensive market to build in the country anyway. Layers of regulation, delays, high prices of properties,” said Tobin.
One silver lining is that lumber prices have actually come down in recent years, said Greg Kuta, CEO of Westline Capital Strategies. But he said the possibility of new tariffs on Canadian lumber could push those prices back up, especially if demand for lumber surges at the same time.
“When you actually have the demand to rebuild, prices could be substantially higher a year from now,” said Kuta.
But there are some unique factors that could help usher along the recovery process: Last week, California governor Gavin Newsom signed an executive order meant to speed up the rebuilding effort by suspending certain permitting requirements and environmental reviews.
“It will be easier to get projects approved, it’ll be easier to get the hookups necessary for utilities,” said Daryl Fairweather, chief economist at the real estate company Redfin.
She recently looked at how fast homes got rebuilt after previous fires in California.
“Looking at wildfires in California that happened in the 2010s, we found that new construction bounces back fairly quickly,” said Fairweather.
That said, people who’ve lost their homes will still have to decide whether the costs of rebuilding are worth it.
Fairweather said many will likely say no, especially if they get an offer from a developer to buy up a damaged property.
“Like, people are going to find that the offers that they get from developers are going to be quite large, and maybe bigger than what they are getting from their insurance company,” said Fairweather.
That’s because that land is valuable. And builders know that redeveloping it could be pretty profitable.
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