Houses are insured for replacement value, not market value.

So, if it costs $6M to rebuild a $600K house due to construction labor shortages and permitting bullshit, you still need to insure for $6M.

It’s basically never a financially good idea to build a house in California, since market value will be below construction cost. (Otherwise, we’d have a housing boom instead of a housing shortage!)

So, decreasing the supply of buildable land (as your proposal would do) will only make housing prices go up.

Worse, all the major cities are prone to flooding and hurricane-force storms thanks to climate change, so we’d need to disallow building there too. That’s on top of earthquake risk.