Why California Can’t Build Enough Housing- and Texas Can

Below is a chart from the Federal Reserve’s FRED database showing new housing units authorized in California vs. Texas over the last two decades.

Despite California having 39 million residents—about 25% more people than Texas—Texas has consistently outbuilt California year after year. This includes boom cycles, downturns, and everything in between.

The implication is clear: Texas continues to add housing at a pace that matches its fast-growing population, while California consistently underbuilds, allowing demand to outstrip supply and push prices higher.

Why California Falls Behind

A recent study quantifies what developers have long known: California’s regulatory and cost structure makes housing dramatically harder, slower, and more expensive to build—market-rate or otherwise—compared with business-friendly markets like Texas.

Below are the key drivers behind California’s chronic underbuilding:

1. Construction Costs Are More Than Double Texas

The study compared total development costs per net rentable square foot (NRSF) for market-rate multifamily projects:

Texas: ~$130–$180 per sq. ft.

California: ~$300–$400 per sq. ft.

California projects cost 2.3× more before considering any unique subsidies or requirements. At these levels, only the highest-rent markets can support new development, while more affordable regions get left behind entirely.

2. Regulatory Friction Adds 22+ Months to the Development Timeline

The study found that California projects take nearly two years longer to deliver than those in Texas.

15 extra months in pre-development, caused by:
-More intensive approval process
-CEQA (California Environmental Quality Act) environmental reviews
-Multiple required agency signoffs

7 extra months in construction, due to:
-Sequential, rather than concurrent, inspections
-Overlapping oversight and compliance requirements

Altogether, the extra 22 months of carrying land, interest, and overhead can turn an otherwise feasible project into one that no longer pencils.

3. Municipal Fees Add Tens of Thousands of Dollars Per Unit

In Texas, impact and development fees are often below $1,000 per unit.

In California, fees average around $29,000 per unit, with many cities exceeding $30,000+, and these costs hit before construction even begins.

4. Design Standards Drive Soft Costs 3–5× Higher Than Texas

California market-rate developers face:
-Detailed architectural requirements
-Local design review boards
-Mandatory sustainability and energy standards
-Strict Height, massing, and shadow restrictions

These significantly lengthen design cycles and inflate soft costs to 3–5× those in Texas.

Texas relies on simpler, performance-based requirements that still ensure safety and quality—without adding layers of complexity.

5. Labor Rules Increase Costs and Limit Contractor Competition

Texas gives builders full labor flexibility.

California often imposes:
-Prevailing wage or union-scale expectations
-Local-hire rules
-Skilled-and-trained workforce mandates

These factors raise labor costs 20–35% and increase scheduling challenges, especially when paired with longer inspection timelines.

Rents Respond to Supply, And Texas Is Seeing the Results

Housing markets are ultimately governed by supply and demand, and Texas is a clear example of what happens when a state consistently builds enough homes to meet its growing population.

Over the last several years, Texas metros have experienced some of the largest rent declines or rent stabilizations in the country, driven largely by a surge in new multifamily deliveries.

In cities like Austin, Dallas, and Houston, developers have delivered record levels of new Class A inventory, which has forced concessions, slowed renewal increases, and in many cases pushed effective rents downward.

Contrast this with California, where rent growth remains elevated in many metros because the state chronically underbuilds, leaving renters to bid on too few units at too high a price.

Closing Thoughts

When a state enables housing to be built at scale—like Texas—supply grows, competition increases, and renters feel real relief. That’s exactly what Texas is experiencing today: rents have flattened or declined in many metros as a wave of new units hits the market.

California’s system produces the opposite outcome. By making development slow, costly, and uncertain, the state chronically underbuilds, leaving renters to compete for too few homes at too high a price. The result is structural scarcity—and persistently rising rents.

For policymakers, developers, and investors, the lesson is straightforward:

If you want more housing, you must create a system that allows it to be built.

-Ben Michel

Ben Michel is the founder of Ridgeview Property Group, an investment firm specializing in multifamily real estate. Register Here to be notified of available investment opportunities.