Building multifamily housing in California is more than twice as expensive as it is in Texas, with much of the difference driven by state and local policies that contribute to long permitting and construction timelines, and higher local development fees, according to a new RAND report based on cost information from more than 100 completed apartment projects.
The high cost of housing and its associated effect on homelessness is a defining policy issue in California.
The cost of building multifamily housing is 2.3 times higher in California than Texas and 1.5 times higher than in Colorado, the states examined by researchers.
The time to bring a project to completion in California is more than 22 months longer than the average time required in Texas. Municipal impact and development fees average $29,000 per unit in California, compared to less than $1,000 per unit on average in Texas and $12,000 per unit in Colorado.
Costs vary significantly among California's metropolitan areas. San Diego has the lowest average cost for privately financed apartments at roughly twice the Texas average. Costs in Los Angeles were 2.5 times the Texas average, while costs in the San Francisco Bay Area were three times the Texas average.
The RAND report details how higher housing costs in California are driven, in part, by regional factors such as higher land costs, more-expensive labor and seismic safety standards. But researchers found that most of the higher costs can be attributed to factors such as the lengthy approval timelines and prescriptive building requirements that are policy decisions.
"California is significantly more expensive than both Colorado and Texas in every cost category that we examined," said Jason Ward, lead author of the report and an economist at RAND, a nonprofit research organization. "One way to address California's high housing costs is to look for lessons from states where it is easier and less expensive to build new housing."
For decades, California has ranked second only to Hawaii in housing and rental costs, and the state has seven of the 10 most expensive metropolitan areas in the nation.
Researchers say the new supply of apartments in a region is likely the largest single factor affecting affordability. Areas with the greatest level of new supply in recent years, including the Texas cities of Austin and Dallas, have seen notable rental price declines, a remarkable development during a period characterized by inflation levels not seen since the 1980s.
The RAND report also found that California's publicly subsidized affordable housing costs are substantially higher than new, high-end market-rate projects in the state. On a square footage basis, such projects in California are 1.5 times the average cost of market-rate housing in the state and more than four times the average cost in Texas.
Key drivers of the remarkably high costs of publicly subsidized affordable housing production in California include requirements for affordable housing developers to pay substantially above-market wages and unusually large architectural and engineering fees that are likely related to prescriptive design requirements placed on these projects by funding programs.
"In Los Angeles, for example, these fees on affordable housing projects average twice the cost of those for high-end market-rate housing in the state," Ward said.
The report recommends that California policymakers consider adopting rules similar to a Texas state law that requires local jurisdictions to approve or deny a proposal for a housing development within 30 days or else it is presumed to be approved.
Another recommendation is to create policies mandating synchronized construction inspections, which commonly occur sequentially, as a way to reduce the 7-month average gap in construction time between California and Texas.
The report also recommends that policymakers reconsider the effects of municipal impact and development fees that are roughly 10 to 40 times the level observed in Texas. While local governments depend on these fees, their negative effects on housing production reduce potential property tax revenue and other benefits from more new housing production.
Additionally, the report recommends that environmental gains from new housing subjected to California's strict energy efficiency requirements should be weighed against the negative effects of lower levels of new housing construction due to these costly requirements, since new housing built to less demanding environmental standards would still create average efficiency gains compared to California's aging housing stock, according to the report.
"Within the state, policymakers can look to San Diego for positive lessons since that region has the lowest average housing production costs among the three metro regions we examined," Ward said.
The RAND report uses a large sample of multifamily housing production cost data for both privately funded market-rate housing and publicly subsidized affordable housing built between 2015 and 2024 in California, Colorado and Texas. The study is the first to use detailed cost data on privately funded market-rate housing to estimate the costs of new multifamily housing construction.
The information on market-rate housing developments was obtained from Trammel Crow Residential, a national builder with substantial operations in at least five states. Cost data on publicly subsidized developments were obtained through state agencies that allocate funding from the federal Low Income Housing Tax Credit Program, the largest source of public subsidies for affordable housing production in the U.S.
The report, "The High Cost of Producing Multifamily Housing in California: Evidence and Policy Recommendations," is available at www.rand.org.
Support for the project was provided by a gift from Dennis Wong to the RAND Center on Housing and Homelessness. Assistant policy researcher Luke Schlake coauthored the report.
The RAND Social and Economic Well-Being division seeks to actively improve the health, social and economic well-being of populations and communities throughout the world.
