Why is it so expensive to build affordable homes in California? It takes too long | KPBS Public Media

This graphic visually highlights the stark cost differences between building an apartment in California ($430,000) versus Texas ($150,000) and Colorado ($240,000), along with the key factors contributing to these higher costs. Government imposed developer fees in California are off the scale.

TIME EQUALS MONEY: Why California's Housing Construction Costs Triple Those of Other States

April 16, 2025

California's housing crisis has reached a breaking point, with new research revealing that building costs in the Golden State are nearly three times higher than in comparable housing markets, largely due to a factor that money can't easily solve: time.

A privately financed apartment building that takes just over two years to produce from start to finish in Texas would take over four years in California. It takes twice as long to gain project approvals and the construction timeline is 1.5 times longer.

This extended timeline dramatically increases costs across the board, according to a comprehensive study by the RAND Center on Housing and Homelessness. The average apartment in Texas costs roughly $150,000 to produce; in California, building the same apartment costs around $430,000, or 2.8 times more. Colorado occupies a middle ground, with an average cost of around $240,000 per unit.

The time to bring a project to completion in California is more than 22 months longer than the average time required in Texas, putting immense financial pressure on developers and ultimately renters and buyers.

The Cost Breakdown

Land costs in California are over three times the Texas average. "Hard costs," or those related to improving the land and constructing buildings, are 2.2 times those in Texas. California's "soft costs," which include financing, architectural and engineering fees, and development fees charged by local governments, are 3.8 times the Texas average.

Development fees to local governments make up the largest soft-cost difference in California. Such fees average around $30,000 per unit. In Texas, the average is about $800. (Again, Colorado occupies a middle ground at around $12,000.)

In San Diego, for example, these fees on average eat up 14% of total development costs per apartment.

Part of the problem boils down to the (literal) nuts and bolts of housing development. The cost of building multifamily housing in California spiked by about 25% between 2010 and 2020, according to a report by the Terner Center for Housing Innovation at UC Berkeley.

Beyond Earthquake Safety

While many assume California's higher costs stem from earthquake protection requirements, the data tells a different story.

There are some unavoidable California-specific costs, like ensuring buildings are resilient to shaking from earthquakes. But the truly lifesaving seismic requirements explain only around 6% of hard-cost differences, the study estimated. The state's strict energy efficiency requirements add around 7%.

California's high cost of living may drive up the price of labor, but construction wage differences explain only 6% to 10% of hard-cost differences for market-rate apartments. However, for publicly subsidized apartment projects, which are often mandated to pay union-level wages, labor expenses explain as much as 20% to 35% of the total difference in costs between California and Texas.

The Time Factor

The biggest thing driving up California apartment costs? Time.

That means land costs must be carried for longer, equipment and labor are on jobsites longer, and that loans are taken out for a longer term, and so on.

Most of the differences that the study uncovered stem from policy choices made by state and local governments. Many are legacies of the so-called "slow growth movement" in California, which has shaped housing production since the 1980s.

Population Impact

These policies have had far-reaching consequences. Those efforts worked. Population growth in the state went negative for a few years after 2020, due primarily to the high cost of housing. Even more recently, California's growth was half the numbers seen in Texas and Florida, with younger and higher earners disproportionately leaving.

These departures have dire implications for the state's fiscal future and political influence nationally. California recently lost a congressional seat for the first time in its history. If current national population trends hold, it could lose four or five seats in 2030.

Potential Solutions

The California Legislature has become increasingly focused on reducing the cost of living, but meeting this goal requires substantial progress on lowering housing costs. New proposals to exempt urban infill housing production from state environmental law and a package of permitting reforms are steps in that direction.

Researchers recommend creating policies mandating synchronized construction inspections, which commonly occur sequentially, as a way to reduce the seven-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.

Will policymakers also take lessons from Texas and Colorado's cheaper housing methods? That remains to be seen. But the future of California may well hinge on it.

Sources:

  1. Ward, Jason. "Why is it so expensive to build affordable homes in California? It takes too long." CalMatters, April 15, 2025. Why is it so expensive to build affordable homes in California? It takes too long | KPBS Public Media  https://calmatters.org/commentary/2025/04/california-affordable-housing-costs-time/

  2. "Cost to Build Multifamily Housing in California More Than Twice as High as in Texas." RAND Corporation, April 2025. https://www.rand.org/news/press/2025/04/cost-to-build-multifamily-housing-in-california-more.html

  3. "California Housing Market: Trends and Forecast 2025-2026." NORADA Real Estate Investments, March 2025. https://www.noradarealestate.com/blog/california-housing-market/

  4. "Californians: Here's why your housing costs are so high." CalMatters, January 16, 2025. https://calmatters.org/explainers/california-housing-costs-explainer/

  5. "California housing shortage." Wikipedia, April 12, 2025. https://en.wikipedia.org/wiki/California_housing_shortage

  6. "The Cost to Build New Housing Keeps Rising: State Legislation Aiming to Reverse the Upwards Trend." Terner Center for Housing Innovation at UC Berkeley, March 5, 2024. https://ternercenter.berkeley.edu/research-and-policy/cost-to-build-housing-legislation-2022/



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