The United States has a new winner, and as a result, we all lose—especially builders. Estimates have the California fires surrounding the Los Angeles area in January 2025 causing $250 billion in damages, making them the most expensive natural disaster in U.S. history. That is quite a feat considering Hurricane Katrina’s $200 billion price tag held the title for 20 years.

With more than 14,000 structures destroyed or damaged, the devastation is widespread, particularly for single-family homes. The impact is especially severe in a region already grappling with a housing shortage. The fires, which burned through nearly 24,000 acres in the Pacific Palisades region alone, will have long-lasting effects—not just in California, but across the entire residential construction industry nationwide.

The Insurance Ripple Effect

The fallout from these fires is rattling an already struggling insurance market. Even before the disaster, California’s home insurance industry was shrinking, with seven of the top 12 carriers exiting or halting new policies because of the increased prevalence of wildfires. Now, with insured losses potentially hitting $50 billion, insurers will have no choice but to adjust coverage and premiums even more.

To prevent mass policy terminations, the state issued a one-year moratorium in January prohibiting non-renewals and cancellations for homeowners. However, this protection does not extend to builder’s risk insurance, which will make it more expensive and harder to secure in California.

Nationwide, builders can expect rising premiums as insurers adjust rates to offset the increasing cost of claims. Plus, expect the price of reinsurance to skyrocket, which will require additional premium adjustments. And as a third strike, the cost of building materials is rising, which will require higher coverage thresholds for replacement costs. So, that too will drive up premiums.

The industry’s broader challenges—catastrophic weather events, financial market volatility, and inflation—will ratchet up insurance prices for all policyholders in 2025 and beyond. Prepare for the impact to touch a variety of policies within a builder’s standard coverage portfolio. The effects of these trends were already apparent in 2024, which saw the third most expensive year for natural catastrophe losses at $140 billion. With 2025 on track to surpass that, builders should prepare for higher costs and stricter coverage terms.

Get ready for this already hard insurance market to get even tougher.

Material Shortages and Supply Chain Disruptions

The rebuilding effort in California will place strain on material supply chains. Sherwood Lumber estimates that reconstructing 10,000 homes in the affected area alone will require at least 5,000 additional truckloads of lumber. This is on top of rebuilding efforts already occurring in North Carolina and Florida following an active hurricane season. Industry experts predict that lumber prices could jump 25% to 40%—and that is before factoring in potential tariff hikes which could take additional costs above 50%.

In a normal year, the U.S. consumes roughly 50 billion board feet of wood, primarily for new residential construction. About 30% of that comes from Canada. Now consider the demand jump where tens of thousands of homes need rebuilt or repaired, in addition to the U.S.’s existing single-family home shortage—a problem that has been getting worse instead of better in recent years.

But lumber isn’t the only problem. The U.S. also sources a significant amount of concrete and the components for drywall from Canada and Mexico. A significant uptick in demand paired with tariff threats could create supply chain bottlenecks and make sourcing materials more difficult.

High home prices and interest rates already had many would-be homebuyers priced out of the market. With interest rates expected to remain elevated, increased building costs will only compound affordability challenges. Builders should be ready to continue incentives such as sales price reductions, mortgage rate buydowns, and added benefits like structural warranties to attract buyers. At the same time, builders need to carefully evaluate purchase agreements and timelines to ensure projects remain financially viable as supply and labor costs surge.

The Rise of Fire-Resistant Construction

The California fires do offer a bright spot for residential construction. One trend already gaining traction is about to take off like, well, wildfire: fire-resistant construction. The disaster demonstrated that homes built with resilient materials can withstand extreme conditions, while traditional homes were reduced to rubble.

Fire-resistant design includes features such as:

• Gabled roofs that protect wood frames from fire
• Fire-rated exterior walls that go beyond current building code requirements
• Tempered glass windows
• Internal fire suppression systems
• Walls connected to roofs without overhangs to better seal homes
• The absence of roof vents
• Steel framing instead of wood
• Metal and tile roofing materials which are less likely to ignite

These features can add at least 10% to construction costs. However, the long-term benefits offer far more value. The first is durability. The following fire-resistant home was completed six months prior to the January fires and sustained only minor smoke damage. The neighbors lost everything.

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These types of homes also are gaining favor with insurers who see them as less risky to cover. That means broader policy options at more favorable rates. As a result, it’s no surprise more homebuyers are asking about fire-resistant elements for added protection—both for their home and their budget.

[Interested in learning more about resilient design and how it will impact home builders? Download PWSC’s “Residential Construction in 2025: 10 Key Trends for Home Builders” and our Mid-Year Update for an in-depth look at what’s new, what’s notable, and what’s next for the industry.]

California, already known for its strict fire codes, will likely tighten regulations even further in the coming years. Other states often follow California’s lead in consumer protections, so builders nationwide should anticipate similar building code updates. Staying ahead of these regulations can benefit builders incorporating fire resistance by attracting more homebuyers and insurers.

The Years Ahead for Builders

The 2025 California fires serve as a stark reminder that the ripple effects of natural disasters extend far beyond the immediate damage zone. Builders across the country should brace for higher insurance costs, material shortages, and shifting consumer preferences.

Navigating these challenges requires proactive planning and strong risk management. PWSC is committed to supporting builders through uncertain times with comprehensive builder’s risk insurance and builder warranties. By partnering with PWSC, builders can protect their projects, mitigate financial risks, and continue delivering high-quality homes—even in the face of industry-wide disruptions.