Buyers and renters seeking inexpensive housing may want to head to the Midwest. A new Clever Real Estate study names Ohio the nation’s most affordable state. Of 100 U.S. cities analyzed, Toledo ranks the least expensive overall, with Akron, Cleveland, Cincinnati and Columbus all appearing in the top 30.

Clever looked at typical home and rent prices, median income, insurance and property tax rates, and energy costs to determine its rankings. Experts say buyers and renters should consider these homeownership costs as they look for affordable housing options.

Midwestern and Southern cities also ranked well for affordability, while only one in the West – Albuquerque, New Mexico – cracked the top 50. The study shows six of the 10 least-affordable cities are in California.

What drives affordability?

The Midwest and South have a few advantages when it comes to affordability. Plentiful, affordable land and lax zoning laws make building affordable homes easier and less costly. These regions also boast lower taxes and fewer residents.

Moreover, states like Texas, Tennessee and Indiana have lower tax burdens, catering to businesses and keeping overall living costs down. In a recent ranking of the top states for businesses, nine of the top 10 are in the Midwest and South. Ohio came in at No. 7, which is also good news for home sellers.

“Unlike high-demand states, where wages rise too quickly and housing supply can’t keep up, Ohio maintains balance,” says Dennis Shirshikov, head of growth and chief economist at Surge and professor at the City University of New York. “Its large manufacturing base and health care sector provide decent-paying jobs without triggering a frenzy in the housing market.”

When business is booming and wages are steady, mortgages and rents become more affordable. Recent data from Redfin shows the income needed to purchase a median home declined by 1.4% in August for the first time since 2020. Three of the five metro areas with the steepest drops were in Texas, which is building more new homes than any other state.

Rent also fell in the second quarter of 2024, down 6.2% year over year in newly built apartments. All 10 U.S. states with the lowest average monthly rent are in the Midwest or South.

Will people follow prices?

The Sun Belt’s warm climate and low cost of living have long attracted those fleeing cold weather and congested urban centers. Experts believe this trend will continue, especially in the South. However, the Midwest could see an influx due to returning construction jobs and the rise of remote work.

“People are realizing they don’t need to pay San Francisco or New York prices for a decent quality of life,” Shirshikov says. “Cities like Columbus, Ohio, and Indianapolis are drawing in younger, remote workers who want to build wealth without being priced out.”

Remote work and onshore industry may solve one downside of affordable regions: the lack of available jobs. Thanks to government initiatives like the Infrastructure Investment and Jobs Act and the CHIPS and Science Act, manufacturing and construction are booming across the U.S.

One Bank of America study found small business spending has grown the most for manufacturing firms in the South and construction firms in the Midwest. These gains often reflect employment opportunities and migration patterns.

“The real question is how quickly infrastructure and job markets in these affordable regions can keep up with the influx of new residents,” Shirshikov says.

Why is California expensive?

Six California cities sit at the bottom of Clever’s unaffordability list, with San Diego as the most expensive. Here, the median home value is almost 10 times higher than the average household income. In addition, monthly rent payments are 50% higher than the national average.

California’s desirable weather and opportunities attract residents in droves, squeezing an already tight housing market. Another factor affecting the housing supply is Proposition 13, which set property tax rates at 1% of the assessed value. Properties must be assessed at market value when sold, and assessments cannot rise more than 2% annually until the next sale.

“This has essentially led people to decide not to sell a home because their tax liability would change dramatically,” says Marc Moffitt, real estate lecturer at The University of North Texas (UNT) G. Brint Ryan College of Business. “So, you have restricted supply, not as many homes available, but still decent demand. That’s what makes prices go up rapidly.”

As owner-occupancy tenures lengthen, fewer homes are available to renters, delaying their transition to homeowners. From 1970 to 2000, tenure increased by 10% for homeowners and 19% for renters.

Initiatives like Senate Bill 9 aim to bring some relief. Known as the California Housing Opportunity and More Efficiency Act, this bill makes it easier for a homeowner to create a duplex or subdivide an existing lot. A single-family parcel can only hold four units, and property modifications must match the neighborhood’s look.

“(These initiatives) are a step in the right direction, but reversing decades of mismanagement will take time,” Shirsikov says.

Cost of ownership

Affordability goes beyond the home or rent price; it’s crucial to consider the total cost of ownership. Most experts agree that no more than 28% of your gross monthly income should go to housing costs, which include insurance and property taxes.

Insurance rates have nearly doubled in coastal areas and states prone to natural disasters. The average annual insurance rate is $2,377, but experts expect a 6% increase in premiums nationwide by the end of this year. Some states could see double-digit percentage hikes. Renters aren’t immune – property owners often cover these increases by raising payments.

Six of the 10 most expensive states for home insurance are in the South, and two are in the Midwest. Experts project Florida’s annual insurance premium – nearly $11,000 – will rise 7%. Louisiana homeowners could see a 23% increase.

Property taxes are another consideration. Illinois has the second-highest property tax rate at 1.95%, which would add $5,850 a year or $487 a month to payments on a $300,000 home. The four other states with high property taxes are in the Northeast.

Look for a balance

Monthly mortgage and rent payments are falling nationwide, but some areas are doing better than others.

States boasting inexpensive housing will continue to attract new people from other parts of the country, even if insurance rates and property taxes are higher.

Remote work gives people more location flexibility as growing U.S.-based manufacturing jobs in certain regions offer more opportunities for those who can move.

Rather than homing in on the purchase or rent price alone, buyers and renters should consider total ownership costs when seeking affordable housing. This move can strike a balance between income and affordability.

This article was produced by Media Decision and syndicated by Wealth of Geeks.