Many emails regarding homeowner insurance problems from the California wildfires of 2007 have flooded my mailbox. Homeless victims are trying to rebuild with insufficient insurance money. The cost to rebuild homes in California is currently more than the value of the finished home. People seeking to build homes without paying exorbitant contractor expenses are flocking to my website looking for answers. One particular email message is from a single mother who had lost everything she owned. The fires swept through many neighborhoods fueled by high winds and dry conditions. California was in a state of emergency and there was very little that could be done to stop it. Many homes were completely burned or devastated beyond repair. This woman was given an insurance claim reimbursement for $80,000, yet the cost to rebuild her home is $130,000. The liabilities took a heavy toll on insurance companies. Very few homeowners are receiving what they adequately need to rebuild their homes, so they are now weighing their options of rebuilding. There are many of our beloved California people who are desperate to get on with their lives, but are unable to do so. learn more about California wild fire causes
Many insurance claims are not calculated on replacement value, but the value of similar homes in the neighborhood. The comparative approach is used to determine a home’s value in the real estate market. Overall, this is a fairly reliable means of home valuation, but in the case of home replacement in a weak housing market, it can spell disaster for homeowners. As an example, suppose a person wants to build a 2,000 square foot home in California where he or she already owns the land. The materials and labor costs for a modest home of this size is around $210,000. After the home is finished, the appraised value could be as low as 80% of the value of the cost of materials and labor because of a weak housing market. So the comparative approach could value the new home as low as $168,000. Many homeowners aren’t willing to take such a huge loss of equity to live in a home so they are waiting for the housing market to recover. Undoubtedly, the housing market will recover as it always has, but this still leaves the California wildfire victims in an awkward place. Do they rebuild a home that will cost more to build than it’s worth, or do they wait for the market to recover? Such is the dilemma of many homeowner wannabes right now. This problem isn’t everywhere, yet it is alive and well in many parts of the United States, more particularly, in California. There are questions that should be asked as collective members of this great nation about the problems in California. It’s one of the strongest states leading the way for other states to follow. The question about the volatility of housing markets is really insignificant because markets will rise and fall. That’s just the nature of the beast called the housing market.
The true question should be directed toward building and labor costs. Why does it cost so much to build a home in California?
One may be tempted to think that the price of building materials could be a reason, but the fact is that building materials are probably cheaper in California than almost anywhere else in the United States. The real answer is that California has regulated itself into a corner by allowing bureaucrats to impose stringent codes and standards. Many newly created jobs in California are those of inspectors and building officials that aren’t needed. The need for building inspectors and other types of home systems inspectors is understandable. They are necessary for our physical and financial safety. When inspectors are inspecting and overseeing other inspectors however, one starts to feel that there should be some cutbacks on bureaucrats. In many parts of California, homeowners are not allowed to do work on their own homes. It doesn’t matter if the work done is approved by a licensed inspector; the homeowner has to hire someone else to do the work. Bureaucrats have created too many plush jobs for themselves and the housing industry is feeling the crunch. Here in Idaho the standards aren’t as drastic, but still more regulated than they should be. Ten years ago, there was a mass exodus of Californians into Idaho. Land, housing, and the way of life was affordable without over-regulation in the planning and zoning departments, but that soon changed.
Many of the people that moved from California were older in age and they had money from their home sales to build homes in Idaho and to invest in land. They immediately started to do the same things that they did in California. The same things that made them want to move away. They started imposing regulations and codes. They made it so homeowners with farms couldn’t divide up their land to sell or even give to other family members. They made it so that homeowners had to become licensed contractors to work on their own homes or else they had to hire it out. Planning and zoning offices are full of retired California people that move to Idaho looking to get away from it all, yet bringing it all with them. The cost of building homes went up sharply after that, but the actual value of homes in the neighborhood rose very little. Now, it’s difficult to build a home on a budget here and people are wondering why.