An Evaluation of the Varied Economic Impacts of the January 2025 California Wildfires

Introduction

After nearly three weeks of devastation and uncertainty, the January 2025 Palisades and Eaton fires have finally stopped. In their wake lie incredible economic and human damages not yet completely totaled. The extent of the cost caused by the fires is estimated to be somewhere between 95 and 164 billion USD (Li, Yu 2025), with other estimates ranging up to 250 billion USD (Chang, Vincent, Gerber 2025). If these numbers are true, the fires become one of–if not the most–costly natural disasters in United States history (Muhlbaum 2025). However, the cost of such a catastrophic disaster goes far beyond monetary damages, impacting the families and communities of the area. As of now, 29 people are confirmed dead, with many more unable to return to their homes (Burke, Kreutz 2025). Local communities have been entirely wiped out and small businesses especially are starting to grapple with major consequences. What were the costs of the Palisades and Eaton fires? What industries are hurt the most, and which the least? What can we do differently, and how can we move forward?

The Damages

Human Impact (life and health)

The most important loss of the fires is the 29 victims who are confirmed deceased. The stories of failed evacuations are harrowing and depict a community completely blindsided by disaster. For instance, one man, Anthony Mitchell, stayed behind with his son, Justin, who had cerebral palsy and was unable to evacuate (Burke, Kreutz 2025). The fires spread so rapidly that retreating for some was impossible. Even those who did make it out may face future health consequences, which we will not be able to fully grasp until chronic or long-lasting symptoms develop. Such impacts, like cancer, heart problems, lung problems, and mental disorders have incalculable economic damages. The main cause, smoke exposure, has been previously proven to cost “in the millions or billions of US dollars,” due to healthcare related expenses, reduced ability to work, and increased mortality (Dittrich, McCallum 2020). 

It is difficult to calculate how many people were impacted by particulate matter, smoke, gasses, or other toxic residuals of the wildfires because they spread in many ways, not just through the air. After the Marshall fire in Boulder, Colorado, “Hazardous gases associated with the wildfire smoke, such as benzene and naphthalene, could be detected in homes downwind… [and] could have been absorbed by textiles, mattresses, and maybe even the wood framing and drywall in homes” (Borunda 2025). Additionally, there is significant evidence that the fires caused a spike in airborne lead levels 110 times more than the normal amount due to the burning of lead paint (Bassler 2025). We may not yet know the full extent of the impact on human health and its related economic losses. 

Housing and Insurance

In comparison to human health, the structural damages and their related insurance costs are slightly easier to predict. As of now, roughly 16,000 structures have been destroyed, although that number could change after we get a better understanding of the breadth of the destruction (Chang, Vincent, Gerber 2025). On the lower estimate of total property damages, only 75 of 95 billion USD worth of damages was insured. This means there could be around 20 billion dollars of uninsured damages, which could prove catastrophic for former residents of the Palisades. If the upper estimates of damages are more accurate, then the amount of uninsured damages could be much higher, even around 90 billion USD (Li, Yu 2025). The scale of such damage is nearly incomprehensible, and is certainly going to increase insurance rates moving forward. Under the FAIR plan, “a pool of insurers required by law to provide fire insurance to property owners who can’t find insurance elsewhere,” areas with high fire risk are covered- that will not change, potentially requiring insurance firms to increase premiums in anticipation of increased fire risk (Sumagaysay 2025). 

However, FAIR’s client base has already increased dramatically, and will most likely see a significant increase after the LA county fires, because other insurance companies simply do not find it profitable to insure increasingly risky areas. Unfortunately, the FAIR Plan said that it would run out of funds by the beginning of March, requesting a special 1 billion dollar charge to other insurance companies like State Farm General. Already, in early February of 2025, State Farm General requested to raise premiums by 22%, passing some of this charge to the homeowners of California (Sumagaysay 2025). What this means is that homeowners may even have to pay (through their insurance providers, who then will pay the FAIR Plan) for some of the insured damages. At the very least, “Goldman Sachs forecasters do not expect the fires to push up immediate claims for unemployment insurance” (Derby 2025). 

On top of damages, the evacuees of the fires have struggled to find new places to live, often resorting to living in hotels or through online rental services like Airbnb. For instance, “in the area that includes Pasadena, Glendale and Burbank, demand for hotel rooms rose 33.6% in the 12 days after the wildfires started. Rates were 9.6% higher than the year before, averaging $179.77, according to a new report by industry analyst CoStar” (Chang, Vincent, Gerber 2025). The struggle to find temporary housing will continue to put a strain on the communities closest to the fires, unlikely to stop anytime soon. 

When residents are ready to return to their old homes, they may find housing even more unaffordable, especially for rental units. Because of the limited supply and the increased demand in new housing, renters and contractors can leverage their advantageous position into immediate profit (UCLA Anderson 2025). These effects are well-documented in other instances of wildfire but have yet to be seen as a result of the 2025 wildfires.

Labor and Small Businesses

Contrary to health and housing, the effects of the wildfires on labor and small businesses are both positive and negative. There are certainly winning and losing industries as a result of the fires as well as immediate beneficiaries who face long-term challenges and vice versa. As previously mentioned, hotels in Pasadena, Glendale, and Burbank saw increased rates and assumed profits. However, these benefits may not last, especially because of the decrease of tourists in the area. This decrease can be felt by many tourist organizations like how “at Visit California, the state’s leading tourism organization, Chief Executive Caroline Beteta said she’s hearing from restaurants and hotels that they’re feeling the effects of the historic disaster” (Chang, Vincent, Gerber 2025). Another keystone of LA County’s economy, the Entertainment Industry, has also seen a slow in their productivity, with some sets coming to a complete pause in production. Workers at all levels of Hollywood lost houses in the fires. 

The direct impact on labor seems entirely negative. According to an estimate from the L.A. County Economic Development Corp, “nearly 1,900 small businesses were within the fire burn zones and were probably affected. Those businesses supported roughly 11,400 jobs, the group said” (Chang, Vincent, Gerber 2025). However some industries, especially construction, may benefit from the fires. Workers who specialize in certain areas of the LA County hillside are expecting to see incredible demand in the near future The demand for construction will in turn boost demand “for materials such as steel, wood, concrete, glass and paint, even as the Trump administration’s immigration crackdown and policies on tariffs could complicate those efforts” (Chang, Vincent, Gerber 2025).

Despite what may appear as a win for the construction industry, the benefits may not be entirely equal to all. In their 2023 study, Margaret Walls and Matthew Wibbenmeyer found that counties closer to wildfires often feel more negative impacts on employment than counties directly adjacent to the wildfires (Walls, Wibbenmeyer 2023). The counties surrounding, but not within, the affected area may actually experience some positive effects, although it is incredibly circumstantial. Walls and Wibbenmeyer found, “the most damaging fires can negatively impact local job markets. By the following year, we find that the effect is gone and employment growth rates return to baseline levels” (Walls, Wibbenmeyer 2023). It is important to note that the 2025 LA county wildfires had a much greater economic impact on the affected areas than the wildfires studied by Walls and Wibbenmeyer. Additionally, Walls and Wibbenmeyer identified contradictory findings to theirs in other studies. Certainly, it can be said that small businesses in Palisades and Eaton are going to have a much harder time recovering than those directly around the areas affected. 

Overall, it appears that the impacts of the wildfires were remarkably localized. Economists at Goldman Sachs “foresee a 0.2 percentage point drag on first-quarter growth assuming that is not offset by rebuilding-related activity. Job growth in January is likely to be reduced by between 15,000 and 25,000 positions as a result of the fires, a relatively modest amount of drag in an economy that added 256,000 jobs in December” (Derby 2025). The fall in job growth, although minimal, is due to the numerous evacuation orders in Eaton and Palisades. This means that even this fall in job growth can be attributed locally, furthering the already regionalized impacts of the wildfires. 

National Effects, State GDP, and Government Spending

So if the impacts are generally local, will California and the United States see any sort of negative impacts? Fortunately, it appears that there will be little to no national effects of the wildfires, because ultimately, they were incredibly local. However, it would be remiss not to mention the amount of individual donations from sites like GoFundMe, that received around 100 million USD from individuals across and outside of the United States (Grumman Bender 2025). 

Aside from the generous donations, the costs of the wildfires are unlikely to reach anyone outside of California. Goldman Sachs economists found, “devastating fires in the Los Angeles area are likely to put modest pressure on the U.S. national economy in the near term but are unlikely to derail strong forward momentum” (Derby 2025).

The broadest impact that the wildfires may have are on the state of California, which could see a 0.48% decline in total GDP. Although such a decline may seem minimal, the wildfires are unprecedented in comparison to 2018, where wildfire damages totalled $148.5 (126.1–192.9) billion (roughly 1.5% [at the time] of California’s annual gross domestic product)” (Wang, et. al. 2021). This includes healthcare costs and indirect losses. In capital losses alone, the January 2025 LA county wildfires have already surpassed the entire year of 2018 (Wang, et. al. 2021). If the rest of 2025 is similar to 2018, the other wildfires across California may take a significant chunk of the state’s GDP. 

The Response

Failures and Successes of Mitigation Attempts

It is impossible to understand how these wildfires became so devastating. Already, fingers have been pointed, scapegoats ousted, and recipients of blame designated. Until we have the entire picture, it is impossible to verify the actual cause of this disaster. 

However, it is evident that the response to the wildfires was insufficient. An investigation by the LA Times showed that fire officials reduced the number of available firefighters in the Palisades and Eaton regions, who could have responded while the fire was still small: “Fire officials chose not to order the firefighters to remain on duty for a second shift l as the winds were building—which would have doubled the personnel on hand” (LA Times 2025). Internal records showed that the failure to pre-deploy was possibly a result of misjudged fire risk, despite the fact that conditions were being monitored as they became dangerous. In response to similar conditions in 2011, the LAFD positioned 40 extra fire engines in stations near high risk sites, like the Palisades. 

In addition, it also appears that the chaotic evacuation process caused unnecessary harm and risk to residents. Some motorists were ordered to leave their cars to get out and run, blocking the streets for others trying to get through. Some residents who couldn’t get out because of the clogged streets sheltered in place (LA Times 2025). 

Despite possible complications in the response process, Palisades and Eaton fires indicate a lower mortality to structures burned rate when compared to the 2018 Camp Fire in Butte County. Although the overall number of structures burned in each of these fires is roughly equal, compared to this year’s 29, the death toll of the 2018 Camp Fire was 85, demonstrating a more successful evacuation process. 

Going Forward

We must avoid pinning the entire blame of the disaster on one factor or group. The fires were not caused by a singular person’s decision. They required the perfect mixture of multiple conditions to come together at the exact same time. However, these circumstances could occur again, and we have the opportunity to prevent such a wildfire from reaching such disastrous levels again. Let us not ignore the lesson of the 2025 LA County fires. We monitor constantly for fire risks and respond with a near-paranoia, as if every situation could become the next January 7th, 2025, because we have observed how fast they can fall out of control. 

We also have a lot of opportunities to mitigate future fire damages. First, local governments can increase regulations on construction sites in high risk areas, such as requirements for fire-resistant materials like inserting “mesh screens over vents to prevent embers from getting into homes,” or enclosing “eaves to stop them from trapping sparks” (LA Times 2025). We could also continue or increase the use of controlled burns, which are proven to prevent catastrophic wildfires. Controlled burns can reduce the amount of built up brush and grasses that allow for a rapidly spreading wildfire. Controlled burns can also work with local ecosystems, because burns are part of the natural cycle of the California ecosystem (Mello-Klein 2025). Zhiyun Li and William Yu of Anderson Forecast propose financial incentives for people who incorporate such measures into their households. Unfortunately, most mitigation strategies also involve some sort of increase in local government spending (Li, Yu 2025).

In the past 20 years, wildfires in California have increased dramatically, both in frequency and severity due to climate change. This coincides with an increase in global temperatures and the emission of greenhouse gasses, as well drought, heatwaves, and sporadic weather patterns (State of California 2025). All of these conditions increase the risk of wildfires and their intensity. Any way individuals fight climate change by reducing greenhouse gas emissions is another way to decrease the risk of wildfires in California. Ultimately, one popular way to stop wildfires could be to use green energy to reduce carbon emissions and in turn, climate changes that create wildfire-prone conditions .

Conclusion

The 2025 LA County wildfires are one of the worst disasters in United States history. The consequences of the event are still not entirely known: the metaphorical smoke has yet to completely clear. What is evident is that the devastation facing local communities is entirely unprecedented and cannot be entirely summarized by the following statistics: 

• 29 deaths (Burke, Kreutz 2025)

• Roughly 18,000 structures damaged  (Chang, Vincent, Gerber 2025)

• 40,500 acres (Pequeño IV 2025)

• 95 to 164 billion dollars of damage (Li, Yu 2025) or possibly 250 billion of damages  (Chang, Vincent, Gerber 2025)

• Only 75 billion dollars of insured damages

• A reduction of 15,000 to 25,000 jobs in California (Derby 2025)

• 100 million dollars raised on GoFundMe (Grumman Bender 2025)

• A possible minimum of a 0.48% decrease in California’s GDP (Derby 2025)

• 1,900 small businesses in burned zones (Chang, Vincent, Gerber 2025)

Despite a resilient national economy, a ready to rebuild attitude, and a promising recovery effort, the fires present California with an uncertain future. Now, California is presented with two options: continue to wait until the next impending disaster blows these statistics out of the water, or commit to a holistic approach of mitigating climate change and adapting many new policies and practices. 

References

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