Why Is the Cost of Living Cheaper in Texas?

Texas offers a lower cost of living compared to many other U.S. states, drawing numerous individuals and businesses to the Lone Star State. This affordability stems from a combination of economic, market, and policy factors that collectively contribute to a more budget-friendly environment. Texas consistently ranks with a cost of living approximately 7% to 8% lower than the national average.

Housing and Real Estate Market

The housing and real estate market in Texas plays a substantial role in its overall affordability. Housing costs in the state are nearly 16% lower than the national average, making homeownership and renting more accessible. The median home price in Texas was around $335,600 as of January 2025, significantly below the national median of $352,300. This allows residents to acquire more substantial properties or live in desirable areas at a reduced cost.

Rental costs also reflect this trend, with the average rent across Texas being approximately $1,258 per month as of August 2025, which is lower than the national average. While rent prices can vary considerably in major metropolitan areas like Dallas and Austin, these figures often remain competitive relative to similarly sized cities nationwide. This relative affordability in both purchasing and renting property is partly attributable to the availability of land for development and less restrictive zoning regulations.

Although Texas cities still impose zoning rules that can influence housing density, recent legislative efforts, such as Senate Bill 840, aim to streamline development by allowing residential construction on commercial sites without extensive rezoning, potentially lowering development costs. These policies support a more robust housing supply, which helps mitigate rapid price increases. Texas has some of the highest property tax rates in the nation, with effective rates often ranging between 1.6% and 2.5% of a home’s appraised value. Despite these higher rates, the overall lower property values often result in a lower total housing expense, making housing in Texas more affordable.

State Tax Structure

Texas’s state tax structure significantly impacts the disposable income of its residents. A primary factor contributing to the lower cost of living is the absence of a state-level individual income tax. This means that wages, salaries, and investment income are not subject to state taxation, allowing Texans to retain a larger portion of their earnings compared to residents in states with income taxes. This absence of income tax provides a direct financial benefit to individuals and families.

To compensate for the lack of state income tax, Texas primarily relies on sales tax and property tax for revenue generation. The state sales tax rate is 6.25%, with local jurisdictions having the authority to add up to an additional 2%, leading to an average combined state and local sales tax rate of approximately 8.2% to 8.25%. While this sales tax applies to most goods and services, essential items like groceries are exempt.

Property taxes, levied at the local level by entities such as counties, cities, and school districts, are another significant revenue source. These taxes are calculated based on the appraised market value of a property multiplied by the local tax rates. Although Texas’s property tax rates are among the highest nationally, the comparatively lower median home values in many areas can result in a lower overall tax liability than in states with high property values. Furthermore, the state imposes a franchise tax on businesses, which is a privilege tax for operating within Texas, rather than a corporate income tax. This tax is based on a business’s margin. This business tax environment is considered favorable, potentially leading to lower operating costs for companies, which can indirectly benefit consumers through more competitive pricing of goods and services.

Energy Resources and Utility Costs

Texas’s abundant natural resources, particularly its extensive reserves and production of oil and natural gas, contribute to more competitive energy costs for consumers. The state is the largest producer of both crude oil and natural gas in the nation. This local production capacity helps to stabilize and lower the cost of energy inputs for electricity generation. Natural gas provides a substantial portion of Texas’s electric-generating capacity, often exceeding 40%.

Many parts of Texas operate under a deregulated electricity market, established to foster competition among energy providers. This structure allows consumers to choose their retail electric provider from various companies, leading to more competitive rates and a wider array of plan options. Deregulation has contributed to lower electricity prices in Texas compared to the national average, though reports indicate a mixed impact, with potential for price volatility during extreme demand periods.

Despite the competitive electricity prices, overall utility costs in Texas, which include electricity, natural gas, water, and internet, are about 1% to 3% higher than the national average. For example, the average monthly utility bill in Texas was around $375 in 2023. Local energy production and the competitive market structure offer Texans advantages in managing their utility expenses.

General Cost of Living Indicators

Beyond housing, taxes, and utilities, other factors contribute to Texas’s lower cost of living. Transportation expenses are often more manageable due to the state’s proximity to major oil refineries and its status as a leading oil producer. Direct access to refined petroleum products can reduce transportation costs for goods and services, translating to lower consumer prices. Traffic congestion in major urban centers can still add to commuting times and related costs.

Food and grocery prices also tend to be competitive in Texas. Some reports indicate that grocery costs in Texas are around 3% lower than the national average, with a single person spending approximately $280 per month on groceries. This affordability is supported by large-scale agricultural production within the state and efficient supply chains that minimize the cost of bringing food to market.

A generally business-friendly regulatory environment further contributes to lower operational costs for companies across various sectors. This environment encompasses aspects beyond just tax structure, extending to regulations that may be less burdensome for businesses. Reduced operational expenses for companies can, in turn, be passed on to consumers through more competitive pricing for a wide range of goods and services. Additionally, healthcare costs in Texas are generally on par with or slightly lower than the national average, varying by city. This comprehensive approach to fostering an affordable economic climate allows Texas to maintain its appeal as a cost-effective place to reside.