Rents rise more quickly after disasters, but a federal program may help curb excesses

The wildfires raging in Los Angeles are setting the stage for an actual estate nightmare.

Thousands of homes and other structures are destroyed and Hundreds of hundreds of residents were evacuated at various times. Many won’t return for months, if in any respect. In an fast they’re homeless, now they’re Flooding the housing marketdesperately on the lookout for protection.

The real estate market in Los Angeles is ill-equipped to handle this crisis. It is already certainly one of the national ones The most costly markets to purchase from or rent a spot to live, especially as a result of a big and growing Lack of inexpensive housing. This shortage shall be made worse with the destruction of so many buildings destroyed by fire.

For two years, I actually have been studying the impact of natural disasters like this on rental housing markets. As Professor of Real EstateI analyzed the query remotely and reviewed the information.

This time, nevertheless, as a resident of Pasadena, I saw the carnage up close. I checked out this The Eaton Fire spread across the mountains from my back porch. I helped friends evacuate before their neighborhood went up in flames. Now they sit at my dining room table as they process what they lost and search for a brand new place to live.

Unfortunately, based on my research, I actually have no doubts about what comes next.

Why disasters drive up rents

Scarcity is the enemy of affordability. This is certainly one of the central tenets of economics. When too many individuals chase too few goods, prices rise.

So one might expect that a natural disaster that destroys housing and floods the remaining units with latest tenants would drive up rents, a minimum of within the short term.

That's exactly what my research found – however it's not only a short-term issue.

Two years ago I worked with a team of researchers on preparation a report for the Brookings InstitutionHere now we have compiled a database of natural disasters in various major markets across the country from 2000 to 2020. We measured the change in rents in places like Atlanta, Detroit, Miami and San Francisco where landlords asked for apartments in disaster areas. affected districts. We then compared the cities with similar neighborhoods that weren’t affected by the disasters.

We found that natural disasters increased rents by 4% to six% over these 20 years. That means rents were a minimum of 4% higher than they might have been without the disaster.

These rent increases were particularly significant and devastating after the wildfires in California.

These were not only short-term effects. It took 18 months for the total impact to be felt available in the market and it never completely went away. Even 4 years after the disaster, renters were still paying 2 to three% greater than they might have paid without the disaster.

In short, now we have found that disasters permanently change rental housing markets. They eliminate older, inexpensive housing and enable developers Build newer, higher quality and much more luxurious housing as a replacement. These changes drive up insurance costs, and the disasters cause cities to adopt stricter constructing codes, which in turn results in this increase construction costs so as to find a way to higher survive future disasters.

However, how much rents rise is dependent upon how communities and authorities reply to the disaster.

Federal aid can slow rent growth

We found that rents didn't rise as quickly when the federal government intervened.

Specifically, we checked out markets where Congress had used it Community Development Block Grant Disaster Recovery – CDBG-DR – Program that gives grants through the Department of Housing and Urban Development. This federal funding is often subject to conditions and “Rental requirementsIt is usually stipulated that a significant slice of the cash should be used to construct inexpensive housing.

From 2003 to 2020, a minimum of certainly one of these grants was awarded annually for disaster relief. In some years, Congress awarded as many as 27 different grants across the country to varied disaster-affected areas.

We found that rents in these markets still rose after disasters, but at a much slower rate than in markets where Congress didn’t provide these disaster relief funds.

We delved deeper into several case studies in 2024 to grasp why the CDBG-DR program is related to lower rent increases over the long run. Included latest studyWe found that housing markets that benefited from these disaster relief grants were capable of construct more rental units, alleviating housing shortages. They improved affordability by directly addressing the issue of scarcity.

Rental units were key to solving the rental crisis. In these cities, where affordability was higher after the disaster, no more single-family homes were built than in the opposite cities. They built more housing units.

In these markets, these disaster relief grants saved the typical renter between $780 and $1,080 in annual housing costs in 2023.

We imagine this finding shows why it is crucial to not only rebuild homes destroyed in disasters just like the Los Angeles fires, but in addition create latest rental opportunities for all kinds of housing.

Hope in hindsight

The clock is already ticking here in Los Angeles.

News reports climb from landlords who increase their rents to breathtaking levels.

Fortunately, there are government policies and programs that may help Angelenos find shelter today and help prevent Los Angeles' housing market from becoming even less inexpensive tomorrow.