Why Housing Costs More to Build in California Than in Texas

A new report from the RAND Corporation highlights the differences in the cost of building housing in the Bay Area as compared to Texas.

According to an article by Christian Leonard in the San Francisco Chronicle, just two Texas metropolitan areas, Dallas and Houston, approved more new housing permits in 2024 than the entire state of California, and this largely comes down to the difference in cost. California’s production cost per rentable square foot is 2.3 times higher than Texas’. In the Bay Area, construction costs are three times those in Texas.

A combination of factors, including stricter zoning rules, higher permitting fees, higher labor wages, and earthquake and energy efficiency requirements, all contribute to California’s higher costs. “It takes an average of nearly two years longer to finish a multifamily project in California than it does in Texas, the report found, adding to borrowing and rental costs.”

Among the report’s recommendations to reduce costs in California: requiring cities to approve or deny permits within 30 days to eliminate costly delays; promoting large-scale upzoning and reducing development fees for infrastructure; and adjusting requirements for affordable housing to make them less onerous. However, some experts warn that some costs are necessary and help address issues such as homelessness and climate change that California lawmakers tend to prioritize.