How Much Is The Cost Of Living In Arkansas Vs. Texas?

Cost of living is commonly used to determine how expensive it is to live in one location compared to another. For this reason, it is typically one of the major factors that folks use to decide where they want to move. With its excellent weather, abundant outdoor recreation, employment opportunities, and exceptional natural beauty, some view Arkansas as a more advantageous place to live than Texas.

Though, there is still much to love about Texas, as it lacks a state income tax, has numerous job opportunities, is centrally located, and is very culturally diverse. With each state’s unique attributes in mind, how do they stack up in terms of cost of living?

The cost of living index in Arkansas is 79, meaning it is about 21% more affordable to live in Arkansas than the national average (100). In fact, Arkansas boasts the fourth lowest cost of living in the nation. Texas, on the other hand, has a cost of living index of 93.9, so it is more expensive than Arkansas but still less than the national average. The median price of a home in Arkansas is just $145,300, which is about 50% lower than the national average of $291,700. Meanwhile, the median home price in Texas is $243,600 – under the national average but 68% higher than Arkansas.

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

When you consider the fact that the median home price in Arkansas is only $145,300, it is significantly more affordable to purchase a home here than in Texas. While Texas’ median home price is below the national average, you’d be looking at spending about 68% more for a home in Texas compared to Arkansas.

Currently, the housing market in most of Arkansas is red hot, with housing demand far surpassing available inventory. In fact, this is true for most of the U.S., as the COVID-19 pandemic caused people to seek out new homes. This high demand for homes in Arkansas has increased the prices and forced home buyers to change their approach. Houses are receiving multiple offers, which has resulted in home buyers having to make stronger offers. In some cases, the offers are full-price or higher than the original asking price.

Between 30 and 40 percent of Arkansas homes are selling for higher than their value. While housing prices are more expensive than normal and the competition is intense, it’s still cheaper to purchase a home in Arkansas than Texas. In the past year, Texas home prices have risen by about 8.5 percent, causing by the limited inventory and high demand.

Like Arkansas, homes in Texas are receiving multiple offers and a large majority of them are selling for above the asking price. Although it might be a good time to be a seller in both Arkansas and Texas, the situation is not ideal for buyers.

More affordable housing prices is a considerable advantage to living in Arkansas over Texas. Of course, prices vary based on the city you live in. But, it remains unlikely that you’ll end up spending over the national average for a home in Arkansas. In Texas, however, the median home price is below the national average but there are cities in the state with higher prices – such as Austin with a median home price of $551,200.

Although both states are experiencing quite a bit of competitive, higher asking prices than normal, and a classic case of supply and demand imbalance, housing costs are still between 30 and 40 percent lower in Arkansas than Texas.

In the United States, there are twenty-one states with average rents below $1,000 per month. West Virginia has the lowest rental price in the country, with Arkansas following closely behind. At just $745 per month for 2021, Arkansas has the second-lowest average monthly rent in the country. Generally speaking, states with the lowest rental prices usually have the lowest overall costs of living, which is definitely true for Arkansas.

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

From 2019 to 2020, average monthly rental prices decreased in 12 states in the U.S., with Texas included. At just $1,045, average monthly rental rates in Texas cities are typically below the national average. Like Arkansas, rents vary across the state of Texas, based on where you live. For instance, Flower Mound, Texas has the most expensive rental prices in the state at $1,685, while the city of Brownsville is the most affordable place for renters in Texas, at just $730 a month. However, rents are still cheaper overall in Arkansas than Texas.

The table below displays a more detailed look at the average rent you can expect in some of Texas’ major cities:

Arkansas has what’s known as a progressive income tax, which means that the income tax rate you pay is based on how much you make. The state has seven income tax brackets in total, starting at 0% and increasing all the way up to 6.60% for Arkansas residents that make over $79,301 in taxable income.

Texas, on the other hand, is one of the select few states in the country that does not levy a state income tax. This means that whether you’re a dentist, lawyer, real estate tycoon, or dog-walker, you do not have pay any sort of state income tax on your earnings in Texas. However, you still do have to file your federal income tax return and pay your federal income taxes every year.

With a statewide rate of 6.5%, Arkansas’ sales tax rate is one of the highest in the nation. In addition to the state tax rate, cities and counties in Arkansas also charge their own sales taxes. The additional local sales tax rates can add up to as much as 5.125%. With that said, the total sales tax rate you could pay in some locations of Arkansas is as much as 11.625%.

Texas’ statewide sales tax rate is relatively on par with Arkansas – at just 6.25%. Though, when you add up all the extra city and county taxes across the state, 8.25% is the highest sales tax rate that you could be subjected to in Texas. Sales tax rates in the majority of Texas’ major cities – like Houston, Dallas, and San Antonio – do charge an 8.25% sales tax.

Arkansas has some of the lowest property taxes in the U.S., effectively making up for their high sales taxes. The average effective property tax rate in Arkansas is 0.61%, which means that homeowners only pay 0.61% of their home’s assessed value in property taxes annually. Arkansas law limits increased in property tax payments, as the assessed value of a home is not permitted to increase more than 5% in a single year.

Dissimilarly, property taxes in Texas are some of the highest in the nation. The average effective property tax rate is an astounding 1.69%, meaning Texans pay 1.69% percent of their home’s market value in taxes annually. This translates to a statewide average of $3,390 in annual property tax payments for Texas homeowners.

Whether you choose to live in Arkansas or Texas, transportation costs are another factor that you must consider in order to understand the cost of living in either state. These include expenses like gas prices, new vehicle purchase prices, and public transportation costs. Transportation costs in Arkansas are about 18% lower than the national average, likely credited to the cheaper gas prices and public transportation rates.

With Arkansas’ transportation cost index of 81.6 and Texas’ transportation cost index of 103.3, these expenses are, overall, quite a bit more affordable in Arkansas than Texas.