Building multi-family homes in California is more than twice as much as Texas

Based on differences from state and local policies, California is more than twice as expensive as multi-family housing, driven by state and local policies that help with long-term allowance and construction schedules, as well as higher local development costs.

The high cost of housing and its associated impact on homelessness are a decisive policy issue in California.

In California, multi-family housing costs 2.3 times more expensive than Colorado and 1.5 times more expensive than Colorado.

It takes more than 22 months to complete a project in California than the average time it takes to Texas. Municipal impact and development fees average $29,000 per unit, while Texas averages less than $1,000 per unit and Colorado $12,000 per unit.

Costs vary widely in the metropolitan area of ​​California. San Diego has the lowest average cost of privately financed apartments, about twice the Texas average. Los Angeles costs 2.5 times the Texas average, while the San Francisco Bay Area costs three times the Texas average.

The RAND report details the higher housing costs in California, partly due to regional factors such as higher land costs, more expensive labor and seismic safety standards. But the researchers found that most of the higher costs can be attributed to factors such as lengthy approval schedules and prescribed building requirements.

“In every cost category we examined, California is much more expensive than Colorado and Texas,” said Jason Ward, the report’s lead author and economist at Rand, a nonprofit research organization. “One way to address the high housing costs in California is to look for courses from states that are easier and cheaper to find new housing.”

California has ranked second in housing and rental costs for decades, with the state owning seven of the 10 most expensive metropolitan areas in the country.

The area’s supply of new apartments could be the biggest single factor affecting affordability, researchers say. The highest new supply levels in areas including Texas cities in Austin and Dallas have fallen significantly in recent years, a significant development in a period of inflation levels that has never been seen since the 1980s.

The Rand report also found that the cost of publicly subsidized affordable housing in California is much higher than the state’s new high-end market interest rate projects. On a square foot basis, such projects in California are 1.5 times the average cost of housing in the state’s market interest rate and more than four times the average cost of Texas.

The main drivers of high cost of affordable housing production in California include the requirements of affordable housing developers to pay more than market wages and may be unusual construction and engineering costs associated with the funding program’s prescribed design requirements for these projects.

“In Los Angeles, for example, the average price of these fees is twice the cost of housing in the state’s high-end market rate,” Ward said.

The report recommends that California policy makers consider adopting rules similar to Texas law that require local jurisdictions to approve or deny housing development proposals made within 30 days, otherwise approve them.
Another recommendation is to develop a policy of mandatory synchronous construction inspections, usually in sequence, to reduce the average gap in construction time between California and Texas.
The report also recommends that policy makers reconsider the impact of municipal impact and development fees, about 10 to 40 times the level observed in Texas. Although local governments rely on these expenses, their negative impact on housing production reduces potential property tax revenues, while new housing production generates other benefits.

Additionally, the report recommends that due to these expensive requirements, the environmental benefits of new housing that meet California’s stringent efficiency requirements should be weighed against the negative impact of lower new housing construction, as new housing builds still produce an average efficiency increase compared to old housing in California.

“In the state, policy makers can look for positive lessons from San Diego because the cost of housing production in the area is the average housing cost for the three subway areas we checked,” Ward said.

The RAND report uses a large number of multi-family housing production cost data to privately funded market rate housing and publicly subsidized affordable housing built in California, Colorado and Texas between 2015 and 2024. The study is the first to use detailed cost data for privately funded market rate housing to estimate the cost of new multifamily housing construction.

Information about market rate housing developments is obtained from Trammel Crow Residential, a country builder with extensive operations in at least five states. Cost data on publicly subsidized developments are obtained through state agencies that allocate funds from the federal low-income housing tax credit program, the largest public subsidy source for affordable housing production in the U.S.

The report “The High Cost of Manufacturing Multifamily Housing in California: Evidence and Policy Recommendations” is available at www.rand.org.

Dennis Wong supports the project to the gift from the Rand Housing and Homelessness Center. Assistant Policy Researcher Luke Schlake co-authored the report.

The RAND Social and Economic Well-being sector aims to actively improve the health, social and economic well-being of the global population and communities.