One year later, insurance hurdles and red tape slow Los Angeles wildfire recovery

Roughly a year after destructive wildfires tore through parts of Los Angeles, rebuilding in some of the hardest-hit neighborhoods remains slow, hampered by insurance delays, regulatory bottlenecks and rising construction costs. 

Most of the damage stemmed from the two largest blazes, the Eaton Fire in Altadena and the Palisades Fire in Pacific Palisades, both of which were fully contained Jan. 31, 2025. The fires were fueled by drought conditions, low humidity, heavy vegetation growth from the previous winter and hurricane-force Santa Ana winds.

About 59 square miles burned, an estimated 440 people died and more than 200,000 people were forced from their homes. According to research from the Department of Angels, an independent nonprofit founded immediately after the wildfires, more than 70% of residents in Altadena and Pacific Palisades still have not returned to their homes.

Allen Matkins, a real estate-focused law firm with deep ties to development and litigation in Southern California, has represented homeowners, developers, contractors and permit expediters involved in rebuilding efforts following the Palisades and Eaton fires. 

“Rebuilding has been slower than anyone had hoped,” said Alan Hearty, who leads the firm’s Century City litigation department. “It’s not because of any one failure. Insurance, regulation and construction simply were not aligned for a disaster of this magnitude.”

The fires, which broke out across multiple parts of Los Angeles, forced evacuations and destroyed thousands of homes. Hearty recalled watching the initial plume of smoke from the Palisades fire from his office window.

Nearly a year later, the pace of rebuilding has fallen far short of expectations. Hearty estimated that only about a dozen homes in the Palisades have been rebuilt so far. While hundreds of permits are in process, he said it could take years before communities are restored.

The status of rebuilding

Daryl Fairweather, chief economist at Redfin, says that investors are currently buying about 40% of damaged lots in the Los Angeles area. 

“I think these investors are probably intending to develop homes, but it may be a slow process,” she said. “There’s this coordination problem when building back where, if you wait longer to rebuild, then you may be able to sell again for a higher price, because once the amenities are rebuilt, the neighborhood is more revitalized and people will be more interested in moving back.”

“The first year is always the hardest,” said Selma Hepp, chief economist at Cotality. “And given what we’ve learned about urban conflagration and the intensity of this fire — and the desire to put the power lines, water systems and sewers underground — that’s taking a long time and that’s very costly.” 

Insurance remains one of the biggest obstacles, according to the Department of Angels, as 40% of policyholders experienced serious insurability issues, such as large premium increases and dropped coverage.

Some homeowners lacked coverage altogether, while others were underinsured relative to today’s rebuilding costs. Hepp said that during the remediation stage, some residents have faced claim delays, gotten vastly different quotes from their neighbors or even had disputes over coverage.

“In some cases, people whose homes are still standing are actually worse off,” Hearty said, pointing to disputes over smoke damage and contamination. “There’s disagreement over whether that damage is covered.”

As a result, several class-action lawsuits have been filed with the firm over contamination claims, Hearty said. On the flip side, many homeowners cannot begin rebuilding because insurance payouts have not yet arrived.

Contractors, meanwhile, face their own challenges. Even though demand to rebuild is high, many contractors are reluctant to begin projects without assurance that homeowners can pay. The result, Hearty said, is a widening gap between the wealthier borrowers who can rebuild and those who cannot compete. 

The slow recovery following the wildfires has reshaped communities and forced out many residents. The Palisades had been home to many young families before the fires, but Hearty said that many have relocated permanently rather than wait through years of uncertainty.

“They don’t want to put their families in limbo,” he said. “That community won’t be the same again. It will be an entirely new one.”

Sticking it out in California

Despite the insurance issues, trauma and heartbreak associated with the wildfires, many Californians are resistant to moving out of state and want to stick it out. This has led them to try to find suitable rentals in nearby communities while they wait for insurance quotes and for their homes to be rebuilt. 

Xander Snyder, First American’s senior commercial real estate economist, said the dilemma has had localized effects on the rental market.

“Rent growth accelerated immediately after the fires, but it didn’t persist countywide,” Snyder said. The sharpest rent increases, he said, occurred in areas closest to the fires, where displaced residents scrambled for limited housing. In the Palisades ZIP code, rents spiked by about 9% in the months following the fires before settling back closer to pre-fire levels.

Reports of price gouging early in the crisis were largely short-lived, Snyder said, after local authorities imposed caps that limited rent increases to 10% in fire-affected areas.

“That effectively put an end to the most extreme cases,” he said.

Many displaced residents have relocated to nearby communities rather than leaving Southern California altogether. Snyder pointed to rising rents in areas such as Burbank and the San Gabriel Valley, where rents are up roughly 10% from a year ago. Others moved to coastal or Westside neighborhoods, including Santa Monica, Brentwood, Manhattan Beach and Beverly Hills.

Since the Palisades and Altadena communities are vastly different in terms of wealth, Fairweather says this is impacting people’s ability to stay in their communities.

“People in the Palisades are probably a lot better able to wait it out, live in a short-term rental close by and just pay that extra expense … but people in Altadena, it’s a more of a working-class neighborhood,” she said. “They’re probably under a lot more financial pressure to just sell, as opposed to wait it out. … The less money you have, the more pressure you’re under to just take whatever you can get from an investor.”

Obstacles to progress

Despite state and local efforts to streamline rebuilding — including Gov. Gavin Newsom’s suspension of certain environmental and coastal permitting requirements — progress has been limited. Hearty and Snyder each cited overlapping jurisdictions and regulatory layers as continuing obstacles.

“There’s been very little redevelopment in the Palisades so far,” Snyder said. “Even with some rules waived, there’s still a lot of red tape.”

Sean Roberts is the CEO of Villa Homes, a construction company specializing in fast, factory-built homes — including accessory dwelling units, single-family residences and multifamily housing. He said that some residents don’t necessarily want to be the first home back on the block.

“Not a lot has been rebuilt. There’s been a very small handful of things actually completed,” Roberts said. “Now that we’re beyond the one-year anniversary, and for a lot of folks that were receiving insurance, cost of living, etc., those payments are starting to expire, and that’s likely going to drive a lot of folks to have to make a decision here over the coming months.”

Roberts says that Villa Homes is actively buying lots in order to put stock homes on them for resale and is working with residents in the Altadena area to rebuild their homes. 

“We’ve designed our products for Altadena to be very thoughtful about what the aesthetic of the community was before the fire. We want to rebuild the community to be kind of what it was, which is, at least in Altadena, a pretty normal subdivision.” 

Last year, the Altadena community embraced the slogan “Altadena is not for sale” to deter gentrification and development. That movement, Fairweather says, is still alive. 

“[Redfin] heard from an agent in Altadena that a lot of people are pushing against selling to investors, and they’re putting social pressure on one another not to sell because of how much it could change the communities. But social pressure can’t compete with the financial pressure residents are facing,” she said. 

Meanwhile, in the Palisades, Fairweather says affluent residents are rebuilding despite the ongoing fire risks and will likely enlist the services of private firefighters during the next disaster.

“The demand for housing doesn’t go away when disaster strikes; people still need a place to live,” she said.