Why Housing Costs More in California Than Colorado or Texas
California faces a severe housing shortage, with seven of America’s ten most expensive metros. While building more housing is critical to address this shortage, building costs in California far exceed those in other western states.
In “The High Cost of Producing Multifamily Housing in California,” RAND researchers Jason M. Ward and Luke Schlake analyzed production costs across California, Colorado, and Texas, identifying policy areas where California could learn from neighbors without sacrificing environmental and safety priorities.
Key Takeaways:
- California’s affordable housing costs $640 per square foot versus $228 for market-rate housing in Texas—a 2.8x difference that limits how many homes public funds can build.
- California’s slow permitting timelines—the typical California development takes 49 months, compared to just 27 months in Texas—imposes a substantial “time tax” of $1,284 per unit, per month.
- California’s extremely high impact fees, which average $21,000 per apartment and can go as high as $60,000, are triple the national average and more than 20 times higher than they are in Texas, where fees average less than $1,000 per apartment.
Researchers analyzed 55 market-rate projects and 89 affordable housing developments built between 2016-2024, controlling for building type, size, and financing differences. This methodology reveals the mechanisms driving California’s high housing costs that can’t be explained by market variations alone.
Affordable Housing Premium: California’s affordable housing costs 1.5 times more than its market-rate housing and 4.1 times more than Texas market-rate housing. Fees and wage requirements play a role. Architectural and engineering fees for affordable housing in Los Angeles average $23,249 per unit—twice the market-rate cost and nearly eight times Texas levels. These costs stem from overly prescriptive design standards that go far beyond legitimate safety requirements (cost-of-living differences explain only 10% of this variation). Additionally, prevailing wage requirements on affordable housing can explain 32-56% of hard cost differences between California and Texas. If California had Colorado’s production costs for publicly subsidized affordable housing, the recent $1.25 billion in state funding would have produced more than four times as many affordable homes.
Timeline Penalties: California’s development process is extremely slow, with predevelopment alone taking 27.9 months versus 13.1 months in Texas and 20.9 months in Colorado. CEQA litigation and long waits for sequential inspections contribute to these costly delays. These delays cost money: developers have to make interest payments on their debt, pay property taxes, and cover increasing construction costs while they wait for approvals. California’s extended development timelines directly increase total development costs by about 8%, or $1,284 per unit, per month of delay.
Fee Burden: Municipal impact fees in California average $29,000 per unit compared to under $1,000 in Texas. San Diego developers pay $37,000 per unit—45 times Texas levels. These fees function as exclusionary zoning by other means, pricing out affordable housing and protecting wealthy neighborhoods from development (For more on this, see our report on The Impact of Fees).
To lower costs, California should implement a 30-day approval timeline for housing proposals similar to Texas law. Also, municipal impact fees should be reconsidered, weighing immediate revenue against long-term property tax benefits. Lastly, policymakers should consider the impacts of labor standards and prescriptive design standards to balance worker compensation with maximizing home production from limited public funds. If California could reduce its cost gap with Texas by half, rental prices would drop about 14% (or roughly $363 from an average of $2,577 per month), making housing more accessible for thousands of families.