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.
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%.
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.
To put that in perspective, the cumulative increase since 2020 has pushed California construction costs to nearly 9% above the national average, second only to Hawaii.
What caused this jump? Lewis points to a perfect storm of inflationary pressures:
COVID-19 supply chain disruptions, which made basic materials like lumber and steel scarce and expensive.
Labor shortages, as many skilled tradespeople left the workforce or shifted industries during the pandemic.
Surging demand for home renovation and new construction as Californians spent more time at home and sought upgrades.
The result: what once cost $250 per square foot to build now runs $500–$600 per square foot, even for a relatively standard residence in an urban area.
Susman noted a crucial point that often gets lost in homeowner conversations — construction inflation compounds.
When prices rise 13% one year and 9% the next, they don't reset back to zero. Instead, each increase builds upon the last. The cost to rebuild your home today isn't 22% higher — it's significantly more once you factor in compounding.
Lewis agreed, adding that while prices may "stabilize" in the future, that doesn't mean they'll return to pre-pandemic levels. Stabilization simply means the rate of increase slows down, not that costs will drop.
Most homeowners understand that labor and materials drive costs, but Lewis explained that they're only part of the picture. Building or rebuilding a home involves two distinct categories of expenses:
Hard Costs:
These include tangible construction expenses — materials, labor, and contractor fees.
Soft Costs:
These are the professional and administrative costs that most homeowners overlook:
Architectural and engineering fees
Permits and municipal review costs
Design consultations and project management
Expediters, hired to navigate bureaucratic red tape
Temporary housing while waiting for permits or construction
In California, these soft costs can add up quickly. Lewis shared that in Santa Barbara, a 2,000-square-foot home can incur around $30,000 in permit fees alone — before a single brick is laid.
"Most people have no idea," Susman remarked. "You're telling me it costs $30,000 just for the city to stamp a set of plans?"
Lewis confirmed, explaining that those fees go toward reviewing plans, verifying code compliance, and ensuring proper drainage, setbacks, and fire safety standards.
Even with fees paid, getting a project approved can be painfully slow.
According to Lewis, it often takes six to eight months just to obtain permits — and that's before construction begins. During that time, homeowners may need to pay rent or maintain temporary housing, a cost that adds up quickly if not properly insured.
COVID-era restrictions made the process even worse. Many jurisdictions required plans to be physically dropped off and quarantined for three days before anyone could touch them. "It was lunacy," Lewis recalled. "They'd sit in boxes for days between departments."
The good news? The pandemic forced many municipalities to modernize. Today, more cities are accepting digital submissions and streamlining approval timelines — though delays are still common.
The costs don't stop at the city line. Location plays a huge role in how much a home costs to rebuild.
Building in wildfire-prone areas adds layers of regulation and material requirements designed to improve fire resistance. For example:
No exposed wooden eaves, a hallmark of mid-century design, are permitted in many zones.
Class A roofing materials — the most fire-resistant — are required almost everywhere.
Specialized glass and boxed-in vents must be used to prevent embers from entering structures.
Even seemingly aesthetic details, like decks or overhangs, can significantly increase cost if they must meet stringent fire codes.
While a home in the city may cost $500–$600 per square foot to build, that same structure in a wildfire zone could easily exceed $700 or more per square foot once these requirements are factored in.
From an insurance standpoint, one of the biggest misconceptions homeowners have is the idea of a "partial loss."
Lewis explained that even when only part of a house is damaged — say, a kitchen fire or a wind-damaged roof — the repair process often expands beyond the immediate area.
Once walls are opened, wiring and plumbing often need to be replaced. Design upgrades become tempting ("as long as we're fixing this, why not remodel that?"), and building codes may require modernization of adjacent systems.
As Lewis put it, "Once you crack the egg open, you're going to end up doing more than you expected."
That means that even a so-called "partial loss" can escalate into a major reconstruction project, requiring far more insurance coverage than most homeowners anticipate.
For homeowners, these realities have direct implications for insurance.
Your Dwelling Coverage (Coverage A) — the amount your insurer will pay to rebuild your home — should reflect current replacement costs, not what you originally paid or what your home is worth on the market.
If you haven't reviewed or updated your policy in several years, chances are your coverage is too low.
Here's why:
A home insured for $250 per square foot in 2018 may now cost $500–$600 per square foot to rebuild.
Soft costs like permits, design, and temporary housing are often underestimated or excluded.
Extended rebuild times mean you need adequate Loss of Use coverage (Coverage D) to pay for temporary housing during lengthy repair and permitting delays.
Susman emphasized this point:
"People think only about the cost to rebuild. But you also need coverage to live somewhere else while that happens — and that can be months or even a year."
In the closing minutes of the show, Susman asked Lewis why so many people underestimate rebuilding costs. Her answer was as sharp as it was amusing:
"It's HGTV. Those shows make people think you can 'design on a dime' or rebuild in a single episode. It's entertaining — but it's not reality."
In the real world, projects take months or years, costs fluctuate, and navigating city approvals can be more complex than the construction itself.
Homeowners who base their expectations on television or hearsay often resist necessary increases in their insurance coverage — until a loss occurs and the financial shortfall becomes painfully clear.
Construction costs aren't going back to 2019 levels. Labor shortages, regulatory complexity, and material inflation are now structural realities.
For homeowners, that means the key to financial protection lies in accurate replacement cost valuation.
Work with your insurance agent to:
Reassess your dwelling limits annually.
Include soft costs like permits, architectural fees, and debris removal.
Ensure your Loss of Use coverage matches realistic rebuild timelines.
Understand that "stabilization" of costs doesn't mean "reduction."
As Susman summarized:
"Insurance isn't about politics or emotions — it's just math. And right now, the math says rebuilding costs are higher than ever."
