The cost to build multifamily housing in California is 2.3 times higher than it is in Texas and 1.5 times higher than in Colorado, according to a new report from RAND, a nonprofit research organization.
Based on information from over 100 completed apartment projects in the three states, the report details that the higher housing costs in the Golden State are driven in part by regional factors such as higher land costs, more expensive labor, and seismic safety standards. In addition, researchers noted that most of the higher costs can be attributed to long approval timelines and prescriptive building requirements.
According to RAND, the average time to bring a project to completion in California is over 22 months longer than the average time in Texas. In addition, researchers found that municipal impact and development fees average $29,000 per unit in California compared with less than $1,000 per unit on average in Texas and $12,000 per unit in Colorado.
Costs also vary among California’s major metro areas, with San Diego having the lowest average cost for privately financed apartments—still at about twice the Texas average. Costs in the San Francisco Bay Area are three times the Texas average, while costs in Los Angeles are 2.5 times the average in the Lone Star State, according to the findings
“California is significantly more expensive than both Colorado and Texas in every cost category that we examined,” noted Jason Ward, lead author of the report and an economist at RAND. “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.”
Researchers also noted that the new supply of apartments in an area is likely the biggest factor impacting affordability. For example, areas with the highest level of new inventory coming online in recent years, including Texas’ Austin and Dallas, have seen notable rent declines.
In addition, California’s publicly subsidized housing costs are substantially higher than new market-rate developments in the state. The costs for these developments on a square footage basis are 1.5 times the average of market-rate housing in the state and over four times the average cost in Texas. This is attributed to requirements that affordable housing developers pay above-market wages as well as architectural and engineering fees that are likely related to requirements placed on the developments 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 added.
The RAND report makes several recommendations for policymakers, including:
- Consider adopting rules similar to one in Texas that requires local jurisdictions to approve or deny a housing development proposal within 30 days or else it is presumed to be approved;
- Create policies mandating synchronized construction inspections as a way to reduce the seven-month average construction gap between California and Texas;
- Reconsider the effects of municipal impact and development fees; and
- Weigh environmental gains from new housing adhering to the state’s strict energy-efficiency requirements against the negative effects of lower levels of new housing construction due to these costly requirements.
“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,” said Ward.
