Wildfire risk and home prices: The case of California building codes

The severity and intensity of wildfires have increased in the western U.S. in recent decades. At the same time there has been an expansion of people and housing into wildland areas increasing vulnerability and risk. Since the early 1990s California has mandated the usage of strict building codes for homes built in high-hazard areas of the state. This paper exploits the timing and location of these policies and their interaction with home vintages to estimate how increased wildfire defenses impacts home prices. Using sales data from 2013–2020 in an event study difference-in-difference model of home vintages, we estimate that treated homes – those built after the codes went into effect – sell for 1.4%–2.5% more than homes built before the policies were enacted. Combining our estimates with home prices and estimates of costs to retrofit homes in a benefit–cost analysis reveals that premiums are roughly equal to the cost of meeting a basic set of wildfire fortifications. These results have policy relevance as they support efforts by policymakers considering the enactment of similar policies in other states.