California homeowners have always faced challenges when it comes to protecting their properties, but over the past few years, something dramatic has changed: the cost to rebuild or replace a home has skyrocketed.
In a recent episode of Insurance Hour, host Karl Susman sat down with architect Tony Lewis, principal of Lewis Shepplein Architects, to explore what’s really driving these cost increases — and why many homeowners are underestimating how much it would take to rebuild after a loss.
What followed was an eye-opening conversation that revealed just how complicated and expensive home reconstruction has become, and why it’s critical that insurance coverage keeps pace with these realities.
Construction Costs Have Exploded
Lewis began with data that confirmed what many in the construction and insurance industries already suspect: building costs are up across the board.
California’s official Construction Cost Index, which tracks labor and materials in Los Angeles and San Francisco, tells the story in numbers:
Between 2011 and 2015, annual increases averaged just 1.75%.
From 2016 to 2020, the average climbed modestly to 3.12%.
In 2021, costs surged a staggering 13.4% in a single year.
In 2022, they rose another 9.3%.
The cumulative increase since 2020 has pushed California construction costs to nearly 9% above the national average, second only to Hawaii.
Lewis attributes the surge to a perfect storm of inflationary pressures: COVID-19 supply chain disruptions, widespread labor shortages, and a spike in demand for home renovations and new construction.
What once cost $250 per square foot to build now runs $500–$600 per square foot for a relatively standard urban home.
Compounding Inflation and the True Cost of Rebuilding
Susman emphasized a crucial point often overlooked by homeowners: construction inflation compounds.
When prices rise 13% one year and 9% the next, each increase builds on the last. Costs don’t simply reset. Lewis added that while prices may stabilize, stabilization does not mean a return to pre-pandemic levels — only that the rate of increase slows.
For homeowners, that means today’s rebuild costs are permanently higher than they were just a few years ago.
Hard Costs vs. Soft Costs Most Homeowners Miss
Lewis explained that rebuilding costs fall into two major categories:
Hard costs include materials, labor, and contractor fees.
Soft costs include expenses many homeowners fail to account for, such as architectural and engineering fees, permits, city reviews, design consultations, project management, and temporary housing.
In Santa Barbara, for example, Lewis noted that permit fees alone for a 2,000-square-foot home can reach $30,000 before construction begins.
These overlooked costs can dramatically affect total replacement expenses and often leave homeowners underinsured.
Permit Delays and Extended Rebuild Timelines
Even after fees are paid, the approval process can take six to eight months before construction begins. During that delay, homeowners may need extended temporary housing, an expense that can become financially overwhelming without sufficient insurance coverage.
Pandemic-era restrictions worsened delays, though many cities have since modernized with digital submissions. Even so, lengthy approval timelines remain common across California.
Rebuilding in Fire Zones and High-Risk Areas
Location plays a major role in rebuild costs. Homes in wildfire-prone or hillside areas face additional code requirements, including:
Class A fire-resistant roofing
Enclosed eaves
Ember-resistant vents
Specialized fire-resistant glazing
These requirements dramatically raise per-square-foot costs. While urban builds may range from $500–$600 per square foot, comparable homes in wildfire zones often exceed $700 per square foot.
The Myth of the “Partial Loss”
One of the biggest misconceptions homeowners have is the idea of a simple “partial loss.”
Lewis explained that once repairs begin, adjacent systems often require upgrades to meet current codes. Plumbing, wiring, and structural elements frequently need replacement, and remodel expansion becomes tempting during the process.
Even small losses can escalate into full-scale reconstruction projects, requiring far more insurance coverage than expected.
What Rising Rebuild Costs Mean for Your Insurance Policy
Your dwelling coverage must reflect current replacement costs — not what you paid for the home or its market value.
A home insured for $250 per square foot in 2018 may now require $500–$600 per square foot in coverage. Soft costs are often underestimated, and extended rebuild timelines mean Loss of Use coverage must also increase.
As Susman cautioned, homeowners need coverage not only to rebuild but also to live elsewhere during long construction delays.
How Media Distorts Rebuilding Expectations
Lewis pointed to home improvement television as a major contributor to unrealistic expectations.
HGTV-style renovations create the illusion that rebuilding is fast and inexpensive. In reality, projects take months or years, face regulatory hurdles, and cost far more than most people anticipate.
This misconception leads many homeowners to resist necessary coverage increases until a loss exposes dangerous insurance gaps.
Final Thoughts on California’s New Rebuild Cost Reality
Construction costs are not returning to pre-2020 levels. Labor shortages, complex regulations, and persistent inflation are now structural realities.
Homeowners should reassess their insurance annually, include soft costs, verify adequate Loss of Use limits, and understand that cost stabilization does not equal cost reduction.
As Susman concluded, insurance is not driven by emotion or politics — it’s driven by math. And right now, the math shows that rebuilding in California has never been more expensive.
