The Housing Divergence: Why Texas Builds and California Stalls - American Affairs Journal
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Fall 2026 / Volume X, Number 3
Texas and California are similar in many ways. They were the two largest states to emerge from the Mexican-American War. They were both, at least temporarily, their own countries before being incorporated into the United States. At different times, they have both been symbols of a peculiarly American way of life, in a manner that could not be said of any other state in the Union. Yet the two states have in recent years become symbols of the fundamental divide inside America itself. California is the quintessential high-tax, high-regulation, socially liberal blue state; Texas is a quintessential low-tax, low-regulation, law-and-order red state.
Americans have been voting with their feet and leaving California for Texas. There are many reasons for these moves, but foremost is that Texas has a lower cost of living, and by far the most important aspect of cost of living is housing. The obvious reason that California homes are more expensive is that the state makes it harder to build. But the question of why it is so much harder to build in California is not as obvious as some may think. In both Texas and California, land-use regulations are mainly local, and the states’ basic zoning-enabling laws for local government are similar.
There are two major reasons California and Texas diverge on housing. The first reason is California’s peculiar brand of environmentalism. Due to decades of laws and rules aimed at preserving every farm or dale, California cities have had a particularly hard time growing out and sprawling, and developers must ensure their creations, both those growing up and those growing out, have almost no impact on the environment. Texas cities, meanwhile, have been happy to eat up ever more land for single-family homes and subdivisions, with few environmental mandates from state or local governments.
The second reason for the housing divergence is California’s stilted local government system. It is nearly impossible to form new municipalities and new governance bodies for infrastructure in California. Meanwhile, existing municipalities face significant fiscal costs in dealing with new growth and little fiscal upside. In Texas, by contrast, it is almost comically easy for developers or others to form new local governments and create new infrastructure, while cities have strong fiscal reasons to encourage growth.
In both states, the tendencies of either restraint or growth tend to compound over time. California’s expensive housing has created a kind of local “rent,” as economists call it when a good is restricted and has a monopoly price, which has led to ever more mandates that can distribute that rent to interest groups. Texas, meanwhile, has created a growth machine where builders and workers are politically strong enough to encourage ever more development.
In the past decade, pro-housing groups in California have focused on changing state laws to mandate more local development. While much of this effort has been salutary, it misses the fundamental reasons that California’s housing prices differ from states such as Texas. Much of what causes housing to work there, such as minimal environmental rules, innovative local governance, and fiscal decentralization, is not technically about housing. These structures are the underpinnings that allow the state to build. California should work more on reverse engineering what works in states like Texas instead of trying to create its own solution to the housing crisis.
Leading Indicators
The best way to measure housing costs is the price-to-income ratio, which calculates how many years of income it would take a median family to afford a median house in a certain area. According to the research group Demographia, Dallas and Houston, the two largest metros in Texas, have price-to-income ratios of 3.9 and 4.1 respectively; Austin is slightly more expensive at 4.6.
The largest urban areas in California are in a different league entirely. In San Diego, the ratio is 9.0, San Francisco’s is 9.4, Los Angeles’s is 10.7, and San Jose’s is 11.3.1 With the exception of the island city of Honolulu, which is in between San Francisco and Los Angeles on affordability, no other American city comes close to California’s in terms of housing costs.
The simple reason that home prices are higher in California than in Texas is that the latter builds more. Each year, Texas permits around 200,000 new housing units.2 California typically permits about half of that.3 The division is starker when one realizes that California has almost a third more population than Texas.4 Even more surprising, on a simple supply-and-demand framework, finished housing in California is far more expensive. That means there is even more incentive for developers to build there, if they could.
California and Texas also diverge in the types of buildings they...