15 Cheapest States to Live In
In this article, we will take a look at the 15 cheapest states to live in. If you want to see more states in this selection, go to the 5 Cheapest States to Live In.
The rise in inflation over the last year has led many Americans to consider shifting to states with a lower cost of living. The annual inflation rate rose to 9.1% in June 2022 to its highest level since the 1980s. To combat the raging inflation, the US Federal Reserve has already raised the benchmark interest rates by 450 basis points (bps) since March 2022. The benchmark interest rates were in the range of 0% to 0.25% in March last year and are now hovering around the 4.5% to 4.75% range. Economists at Goldman Sachs and Bank of America believe that the Federal Reserve intends to raise the interest rate further to a range of 5.25% to 5.5% in 2023. This could be done by increasing the benchmark interest rates by 25 bps on three occasions this year.
Which States Young Americans are Moving To?
The movement of people within the United States, and its impact on local housing markets, is one of the factors contributing to inflation levels in different states. Based on the number of address change requests from the United States Postal Service over the years 2019-2021, it appears that a significant number of Americans migrated out of states such as New York, California, Illinois, Pennsylvania, and Massachusetts. Meanwhile, Florida, Texas, and Georgia saw a large influx of new residents during this period. Redfin, the real estate broker, released an analysis indicating that the correlation between migration and inflation has become notably stronger as an increasing number of people move from costly coastal cities to more reasonably-priced metropolitan areas. According to an analysis by the National Association of Realtors (NAR), Washington, D.C., experienced a population decline in 2022, with over 3,600 residents leaving the city. One possible explanation for why more individuals relocated to Southern and Western states is due to lower taxes, as stated by the Tax Foundation. High-tax states, such as California and New York, had a net loss of residents in 2022.
Recent Trends in Migration
The rising inflation, coupled with the COVID-19 pandemic, resulted in many changes in lifestyles, such as an increasing preference to work from home, which led to numerous families relocating to find more affordable places to reside. This trend has continued into 2022, with hundreds of thousands of individuals choosing to move to different states. However, despite the pandemic causing significant disruption, the Brookings Institution reported that the historical trend of migration is slowing down in the long run. For example, from 2021 to 2022, only 9% of Americans relocated, including both local and long-range moves. This percentage is considerably lower compared to the 1940s - 1960s, when around 20% of Americans relocated each year. However, according to Brookings, longer-distance migration has increased in recent years, indicating that Americans are finding new employment opportunities in various parts of the country.
Businesses contribute significantly to state-by-state variations in the cost of living in the USA. For instance, businesses that offer housing units, such as construction companies and property management agencies, directly affect a state’s cost of living. The cost of labor, building materials, and land acquisition significantly impact the prices of rental units and houses. In states with a reputation for a high cost of living, such as California and New York, housing costs are a significant contributor. Similarly, retail companies like Target Corporation (NYSE:TGT), Walmart Inc (NYSE:WMT), and Kroger Co (NYSE:KR) influence the cost of living across many states. For example, the everyday low pricing strategy of Walmart Inc (NYSE:WMT) helps reduce the cost of living in states where the retail behemoth is well-established.
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Our Methodology
We have referred to three prominent sources, namely World Population Review, Council for Community and Economic Research (CCER), and Missouri Economic Research and Information Center (MERIC), to compute the average weighted cost of living index for 2023. The national average cost of living is set at 100. Hence, a lower cost of living index reflects greater affordability. We have ranked the states in descending order of their average weighted cost of living index.
Cheapest States to Live In
15. Texas
Average Weighted Cost of Living Index: 92.30
Texas has the distinction of being one of the nine US states with no state taxes, which results in significant cost savings for residents. Furthermore, due to the abundance of natural resources like crude oil and natural gas, the energy cost is lower in the state. Texas also has a strong agricultural industry, which results in lower food prices compared to other states. Moreover, the cost of land in Texas is relatively low, and there are fewer zoning restrictions, making it an affordable place to live. Additionally, the state has a reputation for being business-friendly, with lower business taxes and fewer regulations, making it attractive to entrepreneurs looking to start a new business venture.
14. Nebraska
Average Weighted Cost of Living Index: 91.90
Nebraska is widely known for being an affordable state to live in, especially when compared to other US states. One of the main reasons for this is that the cost of housing in the state is 17% lower than the national average. Furthermore, the cost of utilities is 12.9% lower when compared to the national average. The Midwestern state has the fourth lowest cost of utilities amongst all US states, according to MERIC. Besides, Nebraska is a leader in the production of several essential crops, including dry edible beans, eggs, grain sorghum, popcorn, pork, and soybeans. This means that residents can benefit from lower food prices while enjoying high-quality products produced in their state.
13. Michigan
Average Weighted Cost of Living Index: 91.62
Michigan is one of the seven Midwestern US states on our list of the 15 cheapest states to live in. Housing in the Midwestern states tends to be more affordable than in other regions of the US. This is because the cost of land is generally lower, and housing supply tends to exceed demand in many areas as people are more focused on moving toward bigger cities on the east and west coasts. The Great Lake State has a relatively high concentration of manufacturing and industrial jobs, which tend to pay well and has a lower sales tax that plays its part in keeping the cost of living low.
12. Arkansas
Average Weighted Cost of Living Index: 90.56
Arkansas has the fourth lowest cost of groceries among all the states, according to MERIC. In addition to this, the Bear state also has the second lowest cost of healthcare among all the states in the US. In terms of housing, Arkansas ranks 11th in the US, with relatively low housing prices, adding to the state’s reputation for affordability. With a population of just over three million, the state had a GDP of $122 billion at the end of 2022. Meat, beef and poultry processing, healthcare, and petroleum refining are the three biggest industries in the state.
11. Ohio
Average Weighted Cost of Living Index: 90.45
Ohio is another Midwestern US state on our list of the 15 cheapest states to live in. According to MERIC’s data, the Buckeye state ranks at the seventh position in terms of housing prices, which are 24.7% lower than the national average. Ohio has the seventh largest population in the US, with a total of 11.88 million people. Amongst the 15 states listed, Ohio has the highest population density of 283.7 people per square mile as compared to the national average of 94 people per square mile.
10. West Virginia
Average Weighted Cost of Living Index: 90.18
West Virginia has the second cheapest housing among all the states in the US. The average house price in the Mountain State is 31.2% lower than the national average. The lower housing prices are due to the state’s rural nature, which means that there are fewer large cities and lower demand for housing. With a population of only 1.78 million, the state has the lowest population amongst all the states on this list.
9. Indiana
Average Weighted Cost of Living Index: 90.15
Indiana has the 10th lowest cost of housing amongst all the states in the US. This has a significant impact on the overall cost of living in the state. Basic necessities such as food and clothing are also more affordable in Indiana, with grocery prices around 4% lower and clothing costs 4% lower compared to the rest of the country. Indiana is also known for its lower healthcare costs, with services such as doctor check-ups and dentistry priced at 6% lower than the national average. Furthermore, non-necessary expenses like entertainment and grooming services are priced at around 4% lower than in the rest of the country. The state is also home to the Indiana Dunes National Park and the Indiana Dunes State Park. Overall, Indiana state has 24 parks.
8. Tennessee
Average Weighted Cost of Living Index: 89.56
Tennessee is another state on our list of the 15 cheapest states to live in, with no state-level taxes. The average transportation cost in the state is 9.5% lower than the national average and is the third lowest amongst all the states in the US. Meanwhile, the cost of healthcare is fifth lowest amongst all the states and 10.1% lower than the national average. The median home value in Tennessee is approximately $165,000, which is significantly lower than the national average by about $65,000. This gives the state a substantial cost of living advantage. Renting in Tennessee is also very affordable, with prices typically 20%-30% lower than the national average for all types of properties. A three-bedroom house can be rented for around $1100 in many parts of the state, while a studio apartment can be rented at $600.
7. Missouri
Average Weighted Cost of Living Index: 89.54
Missouri is the fifth Midwestern US state on the list of the 15 cheapest states to live in. The state has the seventh lowest transportation cost amongst all the states, which is 7.7% lower than the national average. Meanwhile, the healthcare cost is the eighth lowest among all the states. The average home in Missouri is valued at approximately $151,600, which is $53,000 lower than the national median home value. Furthermore, renting in the state is also budget-friendly, with the average monthly rent costing $809. This is significantly lower than the national median monthly rent of $1,023. The state is known for its barbecues, jazz music, and sports teams, such as the St. Louis Cardinals and the Kansas City Chiefs. It has a diverse geography that includes the Ozark Mountains, the Missouri River, and the Mississippi River. The Show-Me State has a variety of industries, including agriculture, manufacturing, and healthcare.
6. Iowa
Average Weighted Cost of Living Index: 89.52
Iowa is another Midwestern US state on the list that is bordered by Minnesota to the north, Wisconsin and Illinois to the east, Missouri to the south, and Nebraska and South Dakota to the west. It has a diverse geography that includes rolling hills, prairies, and the Missouri River. The population of Iowa is over 3.23 million people, and the largest cities are Des Moines, Cedar Rapids, Davenport, and Sioux City. The state is known for its agriculture industry, specifically for producing corn and soybeans. Iowa offers a cost of living that is over 10% below the national average, with housing being 24% cheaper and utilities costing 4% lower than the national average. Additionally, basic necessities such as groceries and clothing cost about 4% less than the national average. Healthcare costs in Iowa are on par with the national average, with doctor check-ups and dentistry services costing about the same. However, non-essential expenses such as entertainment are 4% less expensive in Iowa. Retail companies like Target Corporation (NYSE:TGT), Walmart Inc (NYSE:WMT), and Kroger Co (NYSE:KR) also have a significant impact on the overall cost of living index across different states.
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Disclosure: None. 15 Cheapest States to Live In is originally published on Insider Monkey.
