Southern states have more affordable childcare because they are less regulated

Raising a child is expensive in the United States, but it is more expensive in some places than others, as shown in our 2022 report. Minnesota, for example, is one of the least affordable states in the country for daycare — more specifically for licensed daycare centers.

So which places are more affordable and why?

In their recently released analysis, Smart Asset did find that southern cities have some of the most affordable metros in the country to raise a child. On the other hand, metro areas in California seem to be among the most expensive in the country to raise a child.

To some extent, differences in the cost of living are to blame for that disparity. The study, for example, includes other costs associated with raising a child apart from childcare. These include housing and food — things which are generally more expensive in some regions than others. But even more generally, a high cost of living usually translates to higher prices for everything, including childcare.

Figure: Annual cost of raising a child in the 15 most and least expensive metros

Source: Smart Asset

But even if differences in the cost of living explain some of the disparity in childcare costs, they do not explain 100 percent of it. In fact, as the Center noted in a previous report, Minnesota generally has price levels well below the national average. However, it is one of the least affordable states for childcare. So what gives? It turns out that stringent government regulations are to blame for the high cost of childcare. And looking at the Smart Asset study also confirms this.

The following table, for example, creates a regulatory index score for infant-based center care based on a number of factors, like staff-child ratios, minimum group size limits, and training requirements for teachers. States with lower numbers are overall less regulated, and vice-versa.

States in the South are more likely to have a score of 1 or 2 — meaning they are less regulated. On the other hand, states in the Northeast and West, are more likely to have a higher score, meaning more stringent regulations. Of course, there are some outliers for both groups.

To account for differences in income as well as the cost of living, we look at childcare cost as a percent of median household income. And here again, states in the south are at the top — more affordable. While states in the west and northeast are more likely at the lower end — that is parents spend a higher percentage of their income on infant center-based care.

Plotting a regression of regulatory environment score vs cost of center-based infant care as a percent of income better illustrates the relationship between cost and regulation.

Source: Center of the American Experiment.

Of course, one can argue that states which are more expensive just generally tend to have more expensive childcare. But then again, states which have a higher cost of living tend to be some of the most regulated, driving up prices for childcare inputs, like housing and labor. So, whether directly, or indirectly, excessive regulation is to blame for making childcare less affordable.