Wildfire and house prices: A synthetic control case study of Altadena (Jan 2025)

Abstract

This study uses the Synthetic Control Method (SCM) to estimate the causal impact of a January 2025 wildfire on housing prices in Altadena, California. We construct a 'synthetic' Altadena from a weighted average of peer cities to serve as a counterfactual; this approach assumes no spillover effects on the donor pool. The results reveal a substantial negative price effect that intensifies over time. Over the six months following the event, we estimate an average monthly loss of $32,125. The statistical evidence for this effect is nuanced. Based on the robust post-to-pre-treatment RMSPE ratio, the result is statistically significant at the 10% level (p = 0.0508). In contrast, the effect is not statistically significant when measured by the average post-treatment gap (p = 0.3220). This analysis highlights the significant financial risks faced by communities in fire-prone regions and demonstrates SCM's effectiveness in evaluating disaster-related economic damages.