There are many factors that influence the cost of living. Housing costs are one of the biggest drivers, but the cost of other essentials also play a big role. External factors, like interest rates and consumer confidence, can also play a large role in the price of all sorts of goods, making them major influences on cost of living as well. For example, higher interest rates usually reduce the demand for expensive items like homes and cars. Low consumer confidence also reduces demand, which can in turn reduce prices.