Why Is Living in Texas So Expensive?

Texas, a state long celebrated for its expansive landscapes and independent spirit, has increasingly seen its cost of living rise. Many individuals and businesses have historically been drawn to the Lone Star State by the promise of opportunity and perceived affordability. However, recent trends indicate that expenses across various sectors are growing, prompting questions about the underlying causes. This shift challenges the traditional view of Texas as an inexpensive place to reside, leading many to seek understanding of these evolving economic dynamics.

Rapid Population Growth

Texas has experienced substantial population growth, attracting a significant influx of new residents. This migration is largely fueled by the state’s robust job market, business-friendly environment, and diverse economic opportunities. Historically, the perceived lower cost of living, including no state income tax, also served as a draw.

The arrival of new residents places pressure on existing resources and infrastructure. This expansion creates increased demand across sectors like housing, utilities, transportation, and essential services. As demand outpaces available supply, prices tend to escalate, contributing to a broader inflationary effect. This dynamic shows how population growth, while signifying economic vitality, can simultaneously drive up expenses.

Dynamics of the Housing Market

The housing market in Texas reflects an interaction between high demand and limited supply, leading to cost increases. While Texas constructs more homes than any other state, it has struggled to build enough to keep pace with its rapid population growth. This imbalance has resulted in an estimated shortage of hundreds of thousands of housing units, with one analysis indicating a deficit of 320,000 homes in 2022.

This housing shortage is exacerbated by a slowdown in construction following the 2007-2008 financial crisis and rising construction expenses. The cost of materials and labor has increased, impacting the price of new builds. Building a custom home in Texas can range from approximately $150 to $500 per square foot, with total project costs for an average custom home ranging from $750,000 to $1.5 million. Land availability, particularly in desirable urban and suburban areas, also contributes to higher development costs, which are passed on to consumers.

The impact is evident in both homeownership and rental markets. The median home price in Texas reached approximately $345,200, making homeownership less accessible for many. Rental costs have also seen substantial increases: units under $1,000 per month decreased by 29% between 2012 and 2022, while those between $1,000 and $1,999 rose by 113%, and units over $2,000 increased by 253%. Investment activity and speculative buying can further intensify market competition, adding pressure on prices. State legislative efforts are underway to address housing affordability by reducing regulatory hurdles and encouraging denser development, aiming to increase housing supply.

Key Components of Daily Living Costs

Beyond housing, other daily expenses contribute to the cost of living in Texas. Utilities, encompassing electricity, water, and natural gas, represent a significant portion of household budgets. Texas operates an independent electrical grid managed by ERCOT, which influences its energy market dynamics. The average residential electricity bill in Texas is approximately $170.63 per month in 2025, with rates typically ranging from 15 to 18 cents per kilowatt-hour. Higher energy consumption during hot summers and cold winters contributes to elevated bills.

Water infrastructure also presents a financial challenge. The state’s aging water systems lead to water loss through leaks and breaks, contributing to supply and quality concerns. Addressing Texas’s water infrastructure needs is projected to cost at least $154 billion over the coming decades, with a current funding gap exceeding $110 billion. These investments are necessary to ensure a reliable water supply for the rapidly growing population and economy.

Transportation costs, including fuel, vehicle expenses, and insurance, are another component. The average car insurance cost in Texas can range from approximately $1,505 to $3,508 per year for full coverage, or around $125 to $292 per month. These rates are higher than the national average, partly due to factors such as severe weather events, a higher accident rate, and increased population density.

Texas’s Taxation System

Texas employs a unique tax structure that influences the cost of living for its residents. The state does not impose a personal income tax, a feature that has historically attracted individuals and businesses seeking to reduce their tax burden. This absence of state income tax is offset by reliance on other revenue sources, primarily property taxes and sales taxes.

Property taxes in Texas are among the highest in the nation, with an average effective rate of approximately 1.8% of a property’s assessed value. These taxes are not set at the state level but are determined by various local taxing entities, including cities, counties, and school districts, based on their budgetary needs. For homeowners, property taxes represent a substantial ongoing expense, and their increases directly impact annual household budgets. Even renters are indirectly affected, as landlords often factor property tax costs into rental rates.

The state sales tax rate in Texas is 6.25%, applied to most retail sales, leases, and rentals of goods and taxable services. Local jurisdictions can levy additional sales taxes, which can add up to 2% on top of the state rate, resulting in a combined sales tax rate as high as 8.25% in some areas. This means everyday purchases contribute significantly to the state’s revenue. While the lack of a state income tax may seem beneficial, residents fund public services through these higher property and sales taxes, impacting their overall financial outlay.