What Is The Cost Of Living In Arkansas Vs. California?

In recent years, many Californians have been leaving the state in search of lower tax rates, cheaper housing, and an overall better quality of life. But, where are they heading to? In 2020, Arkansas was one of the top destinations with the highest inbound moving rates – and for good reason. With its employment opportunities, plenty of outdoor recreation, excellent state universities, nice weather, many view ‘The Natural State’ as a more advantageous place to live than California. But, how do these two states compare when it comes to cost of living?

The cost of living index in Arkansas is 79, meaning it is about 21% more affordable to live in Montana than the national average (100). In fact, Arkansas as the fourth lowest cost of living in the country. California, on the other hand, has a cost of living index of 149.9, so it is significantly more expensive than both Arkansas and the national average. Arkansas’s median home price is just $145,300, which is only about 50% lower than the national average of $291,700. Meanwhile, the median home price in California is $684,800 – a staggering 371% higher than Arkansas.

Aside from median housing prices, let’s take a deeper look at how the cost of living compares in Arkansas vs. California.

When you evaluate the fact that the median home price in Arkansas is only $145,300, it is incredibly more affordable to purchase a home here than in California. In fact, you’d be looking at spending almost five times the amount for a home in California, with a median home price of nearly $700,000.

The housing market in much of Arkansas is red hot, with the demand for homes far surpassing inventory. This is the case for most of the country, as the pandemic caused people to seek out property. The demand for homes in Arkansas is driving prices up and forcing home buyers to switch up their strategy. Homes are receiving multiple offers which has caused home buyers to make stronger offers and, in some cases, full-price offers.

In fact, 30 to 40 percent of the homes in Arkansas are selling for more than their value. While competition is fierce in Arkansas and housing prices are higher than normal, the prices are still far cheaper than in California. The median home price in California hit an all-time high in May of 2021 and the state remains in an affordable housing crisis. As a result, California residents are heading to more rural areas or leaving the state entirely to find more affordable housing.

In the U.S., there are about twenty-one states that have average monthly rental prices below $1,000. West Virginia has the lowest average rent in the country, with Arkansas taking second on the list. Arkansas has the second-lowest average rent in the nation, at just $745 per month for 2021. In general, states that have the lowest rental prices typically have the lowest costs of living, which is certainly the case for Arkansas.

With that said, refer to the following table for the average rent in some of the various cities across the state of Arkansas:

On the flip side, rental prices tend to be higher in states with higher incomes. With California being among the list of the top ten highest-earning states in the country, the state also has the second-highest average rental price in the country. Although rents vary depending on the city you live in, California has an average monthly rent of $1,503. Some California cities boast some of the highest recorded apartment rental prices in the nation – including San Francisco and Los Angeles.

Examine the table below for a more comprehensive look at the average rental prices you can expect in some of California’s most popular cities:

Arkansas has a progressive income tax system, meaning the rate you pay is based on your income. The state has seven income tax brackets in total, ranging from as low as 0% for those that make under $4,499 in taxable income to as much as 6.60% for residents that make over $79,301.

Like Arkansas, California also has a progressive income tax. Though, the state has the highest top marginal rate in the country. There are ten total income tax brackets, ranging from 1% for the lowest income earners to as much as 13.3% for those that earn more than $1 million in taxable income.

With a statewide rate of 6.5%, Arkansas has some of the highest sales taxes in the nation. In addition to the state rate, counties and cities across Arkansas also collect their own sales taxes. These additional local sales taxes can total up to as much as 5.125%, bringing the total sales tax rates in some locations to a staggering 11.625%.

With a base sales tax rate of 7.25%, California also has high sales taxes. However, it’s likely that you’ll pay much more than the minimum rate. Like Arkansas, California collects additional taxes at the county and city level. In some areas, such as Glendale, California, you’ll pay as much as 10.50% in sales tax. Los Angeles County alone has sales tax rate of 9.5%.

To make up for the high sales taxes, Arkansas has some of the lowest property taxes in the country. The state’s average effective property tax rate is just 0.91%, meaning homeowners will only pay 0.61% of their home’s value in property taxes each year. Increases in payments are limited by law, as the assessed value of a home cannot increase by more than 5% in a single year.

California, on the other hand, has higher property taxes than Arkansas. The average effective rate in California is 0.73%, which is still lower than the national average of 1.07%. Similar to Arkansas, increases in property tax payments are limited by the law. Proposition 13, passed in 1978, set California’s maximum allowable property tax rate at 1% of the home’s assessed value. It also constrained the increase in assessed value to no more than 2% in a year.

Whether you choose to settle in Arkansas or California, transportation costs are another factor that must be considered in order to determine the cost of living in either state. These costs include things like gas prices, vehicle purchase prices, monthly transit pass fees, bus fares, and other public transportation expenses. Transportation costs in Arkansas are about 18% lower than the national average, likely contributed to the cheaper gas prices and public transportation rates.

With California’s transportation cost index of 133.1 and Arkansas’ transportation cost index of 81.6, these expenses are considerably more affordable in Arkansas than California.

The median household income in Arkansas is $43,813, which is about 24% lower than the U.S. median household income of $57,652. When compared to California, however, California residents earn about 53% more than Arkansas residents – with California’s median household income of $67,169. Though, again, higher incomes usually correlate with higher costs of living.

The unemployment rate in California is quite a bit higher than both Arkansas and the national average. California’s unemployment rate is 8.2%, while Nevada’s unemployment rate is 4.8%.