Beyond Carbon: Measuring Water & Wildfire Risk in Southern California and Los Angeles Area Investments

Figures reflect rules in effect as of October 2026.

To gauge water and wildfire risk in what you own here, check each property on the state’s fire hazard map and on a private address-level score, price insurance before you buy and at every renewal, learn where your water comes from and how a shortage is handled, and read the disclosures behind any local bonds you hold.

You may own a home, a rental, California municipal bonds or a business that depends on water. Climate investing tends to focus on carbon, but for a Los Angeles household, water and fire are the risks that reach value, insurance and income directly. I treat them as ordinary investment risk, not a values question, the distinction I draw in my guide to ESG investing for California investors.

What did the January 2025 fires cost?

The Palisades Fire burned 23,448 acres, destroyed 6,837 structures and killed 12 people. The Eaton Fire burned 14,021 acres, destroyed 9,414 structures and killed 19.¹

Estimates of the cost depend on what they count. The Los Angeles County Economic Development Corporation (LAEDC) put property damage at $28.0 billion to $53.8 billion, plus $4.6 billion to $8.9 billion of lost output in the county over five years.² The UCLA Anderson Forecast estimated total property and capital losses of $76 billion to $131 billion, with insured losses of up to $45 billion.³ By February 2026, insurers, including the FAIR Plan, had paid $22.4 billion, according to the California Department of Insurance.⁴ Much of the cost of a large fire is never insured.

How do I check a property’s wildfire risk?

Start with the state’s Fire Hazard Severity Zone maps, which rate land as moderate, high or very high hazard. CAL FIRE’s maps for State Responsibility Areas, mostly unincorporated wildland, took effect April 1, 2024.⁵ For cities, the State Fire Marshal issued new recommended maps for Los Angeles County on March 24, 2025. Each city must adopt them by ordinance and may raise a zone but not lower it.⁶

The zone can change the building and vegetation rules for a property.⁶ It also matters when you sell. A seller must disclose that a property is in a very high zone.⁷ In high and very high zones, a seller of a home built before 2010 must give the buyer a home-hardening notice, and a seller must provide documentation of defensible-space compliance or agree in writing that the buyer will obtain it.⁸˒⁹

Then look at an address-level score. First Street’s Fire Factor rates a property from 1 to 10 on its modeled chance of burning or ember exposure over 30 years; a 10 means more than a 60% chance.¹⁰ In its own review after the fires, First Street said it had rated 94% of the structures destroyed in the Eaton Fire and 92% in the Palisades Fire as severe or extreme risk, while a Los Angeles Times analysis it cites found only 21% of Altadena properties inside the Eaton perimeter in a state very high zone.¹¹ That is a company grading its own model, but it shows why one source is not enough.

Insurers use their own scores. Cotality, formerly CoreLogic, sells property-level wildfire scores that weigh terrain, vegetation and the structure itself.¹²˒¹³ These maps and scores are a starting point, not sufficient on their own. When they disagree, I would look at what drives each one: slope, nearby brush, the roof, the vents and the first five feet around the house.

What is happening to insurance?

The California FAIR Plan, the insurer of last resort that every property insurer in the state must fund, had 696,562 policies in force in June 2026, up 157% since September 2022, with $768 billion of exposure.¹⁴ A FAIR Plan residential policy leaves out water damage and liability, so owners buy a second policy for those.⁴ Three changes bear on what you pay:

• Assessments. In February 2025 the Insurance Commissioner approved a $1 billion FAIR Plan assessment on member insurers, who may pass up to half to their policyholders through a temporary fee, with approval.¹⁵
• New pricing rules. Under the Sustainable Insurance Strategy, insurers may price with forward-looking catastrophe models and include reinsurance costs if they commit to write at least 85% of their statewide market share in wildfire-distressed areas. The first model cleared review in July 2025.¹⁶
• Higher rates. In July 2026 the Insurance Commissioner gave final approval to a settlement that keeps State Farm General’s 17% homeowners increase and sets 32.8% for rental dwellings.¹⁷˒¹⁸

Mitigation can count. A March 2026 study by the Department and the National Association of Insurance Commissioners found that rebuilding the burned areas to the Wildfire Prepared Home standard would cut modeled average annual losses by 31% to 35%. It cites UC Berkeley research that clearing vegetation within five feet of a home could reduce structure losses by 17%.¹⁹ For matching coverage to what you own, see what a full risk review covers.

Where does Los Angeles get its water?

The Los Angeles Department of Water and Power (LADWP) reported its 2025 supply as 52% purchased from the Metropolitan Water District of Southern California, 44% from the Los Angeles Aqueduct, 3% recycled water and 1% local groundwater.²⁰ Metropolitan’s water comes from the Colorado River and the State Water Project.²¹ Both are under strain:

• State Water Project. In May 2026 the Department of Water Resources raised its 2026 allocation to 45% of requested supplies.²²
• Colorado River, 2026. The Lower Basin is in a Level 1 shortage, which cut Arizona’s deliveries by 512,000 acre-feet and Nevada’s by 21,000, with no stated cut for California.²³
• Colorado River, 2027 and 2028. On August 21, 2026 the Interior Department adopted guidelines that cut Lower Basin deliveries by 1.25 million acre-feet a year. California’s share would be 440,000 acre-feet a year if the three Lower Basin states carry out their proposed sharing agreement.²⁴

The longer view is tighter. A May 2025 report for the California Municipal Utilities Association by Jay Lund and Alvar Escriva-Bou of UC Davis and Josué Medellín-Azuara of UC Merced starts from an estimate that the state will lose 4 to 9 million acre-feet a year of existing supply in coming decades, 12% to 25% of today’s use. Without better management or infrastructure, it puts total economic losses at $3.4 billion to $14.5 billion a year.²⁵

The city is building local supply. Pure Water Los Angeles could deliver a first phase of 50 million gallons a day of purified recycled water by 2040, toward a goal of 70% local water. The city uses about 450 million gallons a day,²⁶ so that first phase would be roughly a ninth of current use.

What does a shortage mean for a household or landlord?

Los Angeles is in Phase 2 of its Emergency Water Conservation Plan: sprinklers three days a week by address, up to eight minutes per station for standard sprinklers, with fines of $100 to $600 for repeat violations after a warning.²⁷ The city moved to two days a week from June 2022 to July 2023.²⁸ A state regulation in effect since January 1, 2025 sets water use objectives for each urban supplier, not for households.²⁹

For most owners, water risk shows up as cost and restriction. A landlord should know who pays the water bill and how much of the property’s appeal depends on irrigated planting. A business that uses a lot of water should know whether it could absorb higher rates.

How do water and fire risk reach a municipal bond?

A water or power revenue bond is repaid from customer charges, so lower sales or large capital costs can squeeze the money available for debt service. A general obligation bond relies on property taxes, so a large fire can shrink its base. The official statement and continuing disclosures are on EMMA, the site the SEC designates as the official source for municipal disclosures.³⁰ In them, look for:

• How much of the service area or tax base sits in high or very high fire hazard zones.
• Where the water comes from, and how much is imported.
• Reserves, and whether the issuer can raise rates without a vote.
• Any wildfire mitigation plan, insurance and litigation disclosed.

This list is a starting point, not sufficient on its own. A bond’s structure and price matter as much as the region it serves.

What does a stress test look like?

Take a hypothetical $2,000,000 rental with $120,000 of annual rent, a 5% normal vacancy allowance, $30,000 of other operating costs and a $6,000 insurance premium. Suppose the premium doubles at renewal, the unit sits empty two extra months after a nearby fire, or both.

In this hypothetical, net income falls by a third when both happen. Run your own numbers with a current insurance quote before you buy, and again at each renewal.

How do I put this together?

These steps are a starting point, not a complete plan on their own.

1. Map every property you own, including a second home or rental, on the state map and at least one private score.
2. Get an insurance quote before you buy, and check at each renewal that your limits cover today’s cost to rebuild.
3. Stress-test rental income for a higher premium and a stretch of vacancy.
4. Look at concentration. One house in one hazard area that is most of your net worth is the same problem as a concentrated stock position. I wrote about home equity in a long-term portfolio separately.
5. Read the disclosures behind any local municipal bonds you hold.
6. Harden what you keep: the roof, vents and the first five feet around the house.

My services and fees page describes the planning I offer.

The Bottom Line

Water and wildfire are the climate risks most likely to reach what a Los Angeles household owns. Check each property against more than one hazard source, price insurance before you commit, and know where your water comes from. Read bond disclosures for the same exposures. Then decide how much of your net worth should sit in one hazard area.

If you would like to talk through how water and wildfire risk fits into your plan, book a complimentary 15-minute call.