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 suspected: building costs are up across the board.
California’s official Construction Cost Index, which tracks labor and materials in Los Angeles and San Francisco, illustrates the trend clearly. Between 2011 and 2015, annual increases averaged just 1.75%. From 2016 to 2020, the average climbed modestly to 3.12%. Then came 2021, when costs surged a staggering 13.4% in a single year. In 2022, they rose another 9.3%, compounding on top of the previous year’s spike.
Since 2020, cumulative increases have pushed California construction costs to nearly 9% above the national average, second only to Hawaii.
Lewis points to a perfect storm of inflationary pressures: COVID-19 supply chain disruptions that made materials like lumber and steel scarce and expensive, labor shortages as skilled tradespeople left the workforce, and surging demand for renovation and new construction as people invested more in their homes. What once cost $250 per square foot to build now commonly runs $500–$600 per square foot for a typical urban residence.
How Compounding Inflation Multiplies Rebuild Costs
Susman highlighted a crucial point often missed by homeowners: construction inflation compounds.
When prices rise 13% one year and 9% the next, the total increase is far more than a simple 22%. Each increase builds on the last. Lewis emphasized that even if prices stabilize in the future, that doesn’t mean they will return to pre-pandemic levels. Stabilization only means the rate of increase slows — not that costs decline.
Hard Costs vs. Soft Costs: The Full Price of Building
Most homeowners understand that labor and materials drive costs, but Lewis explained that they are only part of the picture. Rebuilding involves two major cost categories.
Hard costs include tangible construction expenses such as materials, labor, and contractor fees. Soft costs are the professional and administrative expenses many homeowners overlook: architectural and engineering fees, permit and municipal review costs, design consulting and project management, expediters to navigate red tape, and temporary housing while waiting for approvals or construction.
In Santa Barbara, for example, Lewis noted that a 2,000-square-foot home can incur approximately $30,000 in permit fees alone before construction begins. Those fees cover plan review, code compliance, drainage review, setbacks, and fire-safety verification.
Permitting Delays and the Hidden Cost of Time
Even after fees are paid, approval can take months. Lewis reports that six to eight months is common just to obtain permits — before construction even starts. During this waiting period, homeowners may need to pay rent or temporary housing, which adds significant expense if not properly insured.
COVID-era restrictions worsened these delays, with physical plan drop-offs and mandatory quarantine periods between departments. While many cities have now modernized with digital submissions, permitting bottlenecks remain a major driver of both cost and time.
Why Building in Fire Zones Costs More
Location plays a major role in rebuilding costs. Homes in wildfire-prone areas face stricter regulations and more expensive material requirements.
Many fire zones prohibit exposed wooden eaves, require Class A fire-rated roofing materials, mandate specialized glass, and require boxed-in vents to prevent ember intrusion. Even decks and overhangs must often meet stringent fire-resistance standards.
While a home in the city may cost $500–$600 per square foot to rebuild, the same home in a wildfire zone can easily exceed $700 per square foot once these requirements are factored in.
The Myth of the “Partial Loss”
One of the biggest homeowner misconceptions is the idea that some losses remain “partial.”
Lewis explained that once a wall is opened, additional upgrades and replacements often become mandatory. Wiring, plumbing, and insulation may require updating to modern code. Design changes become tempting, and repairs frequently expand far beyond the original damage.
As Lewis described it, once “you crack the egg open,” the scope almost always grows. Even a kitchen fire or roof loss can quickly escalate into a major reconstruction project requiring far more coverage than expected.
What Rising Costs Mean for Your Insurance Coverage
These realities have direct implications for insurance policies. Dwelling Coverage (Coverage A) must reflect current replacement costs — not purchase price or market value.
A home insured for $250 per square foot in 2018 may now require $500–$600 per square foot to rebuild. Soft costs such as permits, architectural fees, and housing during construction are frequently underinsured. Extended rebuild timelines also demand adequate Loss of Use coverage (Coverage D) to pay for months of temporary housing.
As Susman emphasized, rebuilding coverage alone isn’t enough if you don’t also have coverage for where you’ll live during the process.
Why Reality TV Distorts Homeowners’ Expectations
Susman asked Lewis why so many homeowners underestimate rebuilding costs. Lewis pointed directly to home-renovation television.
Shows frequently portray complete rebuilds happening quickly and cheaply, creating unrealistic expectations about timelines, costs, and complexity.
In reality, projects can take months or years, budgets fluctuate, and navigating permits can be as challenging as the construction itself.
These misconceptions often cause homeowners to resist necessary insurance updates — until a loss exposes a costly coverage gap.
The New Normal for California Homeowners
Construction costs are not returning to 2019 levels. Labor shortages, regulatory complexity, and material inflation are now structural realities in California.
Homeowners should work closely with their insurance agents to reassess dwelling limits annually, account for soft costs, include debris removal and design expenses, and ensure Loss of Use limits match realistic rebuild timelines.
As Susman summed it up, insurance isn’t about politics or emotion — it’s about math. And right now, the math clearly shows that rebuilding a home in California costs more than ever.
