According to Trulia[1] the median sale price for two-bedroom homes increased from $1.010M five years ago to $1.407M today, which corresponds to an annual return of about 6.8%. Assuming that trend continues, the actual spread would be more like -4.3% for ownership (2.5% cost minus 6.8% appreciation) vs. 3% for renting, or 7.3% altogether in favor of ownership. You'd only come out ahead by renting if you can find an investment returning more than 7.3% per year.
[1] https://www.trulia.com/real_estate/San_Francisco-California/...
If the cost were 0.5% I don't think it would be worth paying, that would buy a lot of seismic reinforcement.
For CA: "Based on where you live, insuring a single-family house can cost from $2.50 to $5.50 per thousand dollars of coverage" .25% to .55% That's quite significant.
https://www.valuepenguin.com/california-earthquake-insurance...
When buying insurance, you answer questions about your property and the insurance company estimates the cost of replacement of the structure. In my case, it’s about 30% of the market value of the home.
My worry with CEA is in "the big one", will they have enough money? They have $17 billion in assets, which is theoretically enough. However, the Northridge quake caused over $10 billion in damage, and the 1906 earthquake was over $8 billion in todays dollars. (Although I question that number too. 500 city blocks were destroyed in 1906. Would it only take $8 billion to rebuild 500 SF city blocks?)
If we see a major San Andreas quake that devastates LA, the CEA could run out of money.
I imagine everyone in the building trades will be fully employed in the rebuilding effort even if CEA runs out of money. The state would probably bail the CEA out, but either way people are going to be waiting for a long time for someone to come give them a new house.
Here's an example: In SF, your cost of ownership is roughly 2% per year (1.4% property taxes, 0.5% for Earthquake Insurance, 0.3% for repairs and depreciation and HOA), which comes to a total of 2.2%.
The average Rent for an equivalent house is roughly 3% of the purchase price per year. So the spread is just 0.8%. Which means, if you can take the equity you would have put into the house and put it somewhere else, as long as you get a 0.8% real return (easier said than done with the high PEs we're facing), then you'll be ahead with renting. And of course, if you need to do a mortgage as most do, that adds a additional 1-3% to the cost of ownership making it even more in favor of the renter.
Now keep in mind, here in SF, it's pretty extreme. Most places have a much larger spread between renting and owning.