11 Prime Reasons: Why is California So Expensive?

“Nearly half of California residents are considering leaving the state, a poll finds. Many cite the cost of living as the main reason”

That was the exact headline published by the US Today. This isn’t just a hook to engage the audience. The California Community Poll states that 4 in 10 Californians are considering.

Why is California So Expensive?

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While the state’s job opportunity and natural beauty remains powerful magnet, the US Census data has released a report indicating that California has experienced a decline in population for three consecutive years (2020 – 2022).

However, due to the challenging cost of living in cities, people are searching for more affordable options in places where the population continues to grow. This statement was made by Dan Schnur, a communication professor at the University Of Southern

Analyzing the high cost of living in California, personally for the past 8 years, tracking my yearly expenses, tracking the cost of wages on a yearly basis, and understanding the reports through Government and private industry sources, I know the exact “ingredients” that make the stew so pricy. 

This blog is about the factors contributing to the high cost of living in California and is it worth the price tag. The truth is – digesting the finances of California is not easy today. 

Let’s know why California is so expensive.

Important Reasons: Why California is So Expensive?

Housing Market Factors

1. Impact of the tech industry on California’s expensive housing

Tech rise companies – Microsoft, Google, REI, Facebook, and Amazon have influenced the adjacent downtowns with urban development like fancy restaurants, coffee shops, cafes, skyscrapers, shopping malls, and housing areas.

In the years 2012 – 2013, as Facebook made its way to the Bay Area, the home value jumped from 17% to 21% resulting in an average home value of nearly $29,800. In 2018, the average price of a house in San Francisco ranged around $ 1.6 million stated by Paragon Real Estate Group.

“Techies” – programmers, designers, and engineer whose salary starts from $100, 000 annually has no idea how much they have to pay in order to just survive. You’ll be surprised to know household annual earnings of $117,400 are considered “low-income group”.

In Sacramento County, 4 in 10 households pay 30 % of their income on housing. A study on the state’s GDP between 1984 and 2021 finds that the cost of goods and services has increased by 173% whereas same time period, the income of households grew only by 4%. 

No doubt, the technology, entertainment, and manufacturing industries offer jobs of high wages to educated workers. Still, workers like security guards are paying their fortunes to afford to live in Silicon Valley.

I remember, Elizabeth V, a 59-year-old security worker in my tech company back in 2014 used to stay in her car because she could not pay to return with her salary of $2,800 per month.

You cannot deny that these wealthy tech companies have also widened the rich-poor gap in the most striking manner in areas like Silicon Valley and Oakland. Hence, labor unions are playing their role in addressing income disparities within these groups.

tech industry in California
Tech industries in California

2. Why is housing so expensive in California?

During the late 1960s, the average price of a home was approximately three times the income of an average household, However, presently, the price has escalated more than seven times the average household income.

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The basic level, housing market in California is so high because of low supply and high demand. In simple terms, there are a lot of people in a place and fewer houses to accommodate, hence an increase in price tag.

As agreed by housing experts and a report released by the State Housing Department in order to maintain house prices over the past decades CA should have built 180, 000 new housing units a year.

However, they have only built less than half of the required demand even that too in the Inland Empire and Central Valley and not where the majority of people work like in San Francisco and Los Angeles. Hence, in the suburbs, you’ll find good affordable places to live in.

The reason for not building houses in these areas is because of Proposition 13. This was an important topic in 1978 that limited how much money the local Government could get from property taxes. Even though it was meant to help homeowners in CA by preventing very high property tax bills but also protects the city’s vacant land.

Hence, people tried to cram into the given area resulting in traffic, high population density, unclean roads, homeless people roaming around, a high crime rate and so more. The statistics claim that between 2010 to 2017 Bay Area witnessed 20% of new California settling there. 

However, the race is not only limited to the Bay area, the other urban cores of California like San Diego, and L. A has also seen an increase in high apartment rent prices. According to Zillow, a two-bedroom apartment in San Francisco is around $3,500 per month. Did you check out the cute beach towns of California?

housings in bay area califronia
Housings in the Bay Area

3. Climate and Coastal Appeal

I was 8 years old when I came to the San Joaquin Valley to my grandmother’s place during my summer vacation. How can I forget the smell of the grapes coming from the vineyard? I was inhaling so much of it that it seemed endless. The feeling was so wonderful! 

I’ve been to San Diego County for years. From my house, I can see the sunrise from Palomar Mountain and set over the Pacific Ocean in the evening. I used to see so many tourists coming to the coastal locations to surf, swim, and enjoy the sunshine on nude beaches.  

I remember Harry, my office colleague, was an avid hiker, and now and then I saw him making plans to hike the Sierra Nevada mountains or trek along the rocky coastline of Big Sur. 

I remember how enchanted I used to feel by the climate and weather and the beaches, and I loved hearing people talk about California’s weather. I remember Martha, my friend, who was married to Mark, a military servant who had to stay far from their home. 

She was a schoolteacher but was unhappy because she had to stay alone after coming back home. Later on, she started running and eventually ran marathons too. I think it was only because she was in California that she became a marathon runner as well. There are many cheap places to travel in California, and you should definitely check them out!

However, every positive side comes with a negative side as well. I cannot deny that fire activity, flooding, and significant climate change have had a huge impact on Californians. Older housing puts pressure on residents to obtain proper residential property insurance and more.

Economic and Industry Influences

4. Tourism and its impact on California’s pricing across sectors

California’s travel industry is just not an industry it’s California’s multibillion-dollar industry. Starting from lodging, establishments, restaurants, cafes, rentals, retail stores, shopping centers, and more sell their services to tourists.

There are a lot of semi-skilled laborers migrating to California in search of jobs as data states that in 2022 California generated 1.09 million tour-related jobs, a 16.8% increase from the prior year.

The destination has so much of natural wonders that it attracts tourists from all over the world. In 2022 flight tickets were 66% high. The hotel and transportation costs were high too. Destinations like San Francisco, San Diego, and Orange County witnessed a 71% growth in international visitors by the end of 2022.

LA walking tours
LA walking tours

5. Urbanization and its connection to California’s high expenses

You cannot deny that the Golden State’s mesmerizing landscape, thriving economy, and diverse cultural growth attract people towards it, which has resulted in urbanization and has adversely affected it.  

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The land scarcity, and scarcity of homes, along with stringent zoning laws in urban areas, have caused the price of homes to skyrocket. Recently, California’s policy of focusing on renewables has resulted in substantial investments and high prices on products.

To support the increasing population, the sprawling urban areas have limited public transportation, which imposes pressure on citizens to buy cars, leading to high fuel costs. 

The influx of international students coming here for further studies and settling down has also contributed to high population growth in the given area. Additionally, progressive tax structure imposes an extra burden on high earners making them work more and more to make ends meet.

Lombard Street
Lombard Street

Regulatory and Environmental Factors

6. Why is gas so expensive in California?

California is paying so much more at the pump! It was a story in 2022 October, my sister called me and told me that she was in South San Francisco and paid $7.59 a gallon. The reason for such high gas prices is higher taxes, clean fuel requirements, and an isolated market.

The gasoline Californians use reduces air pollution and environmental costs. The environmental law states that the refineries should blend special “ingredients” for the winter and summer seasons in order to save nature and not make it smoggy.

Additionally, California has 14 oil refineries which produce 1.6 million barrels per day of crude oil but outrages and unplanned decision results in less supply. Only 11 refineries produce transportation fuel to California. Furthermore, if California relies on another state for its supply it has to pay high taxes. Hence, this results in less supply on the West Coast and any increase in price. 

USA Gasoline
USA Gasoline

7. High-income tax, sales tax, and property tax

One of the primary reasons why California is so expensive is its taxes. Income tax rates range from 1% to 13.3% in 2022. For instance, an individual earning $1 million pays income taxes at a rate of 13.3%, while an individual earning $10,099 pays 1%.  

California’s state-level sales tax, combined with local sales taxes, totals around 9.75% in major cities. If you’re a smoker, you’re required to pay excise taxes on each packet of cigarettes you purchase.

In 2022, this tax amounted to $2.87. In terms of property taxes, California ranks as the 10th highest in the nation, with homeowners paying an average of $6,025 per year. Interestingly, despite this seemingly high tax burden, the state also features a notably elevated median home value of $792,877.  

This apparent contradiction can be attributed to Proposition 13, a law enacted in 1978. The legislation sides with homeowners by placing limitations on how much property taxes can increase until a home changes ownership.

Social and Cultural Dynamics

8. High cost of living in California

A family of four in Sacramento County needs to earn $87,000 per year to make ends meet. A few days ago, I was talking to one of my friends who is a digital nomad. She told me that she was leaving California and moving to Texas because she found a cheaper home there.  

She mentioned that she had to buy a carton of eggs for $9, and rent continues to climb, with her needing to pay $1,600 per month. Gasoline costs $5.27 per gallon, and she spends $10,600 per year on groceries.

She has to think twice before going out for dinner at a fancy place, and recreation activities cost around $4,500 annually. Getting ill in California means you need to pay a hefty amount even for just a cough and cold. 

From my experience back in 2017, I can say the electric bill runs around $1,800 annually. Having cable TV and internet service can cost around $1,200 yearly. Additionally, if you have a car in the garage, you need to pay $2,200 in annual insurance premiums.

Even a six-figure household income is considered “middle class” in most parts of California. The Pew Research Center states that California has the highest cost of living compared to other states. In San Diego, a median-class income is around $121,500.

Family Homes at Covina Hills 
Family Homes at Covina Hills 

9. High health care costs

As per the Office of Health Care Affordability (OHCA), there are defined and upheld targets for growth in healthcare costs within the state, this is like setting a benchmark of expenses. If the doctors and hospital exceed the benchmark, the OHCA authority can levy a penalty on the hospital.

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In spite of the improvement in healthcare coverage brought about by the Affordable Care Act, a significant number of low-income individuals cannot afford the average medical care treatment. A recent survey shows that half of these groups of individuals have had to postpone treatment due to the associated costs.

A report provided by the Kaiser Family Foundation and California Health Care Foundation states that almost three-quarters of low-income residents have to cut their other household incomes and expenses to take care of their medical expenses.

healthcare faculty in california
Healthcare faculty

10. California’s car insurance policy

Urban areas are already densely populated and Californians have their own cars which all drive on the road. Just imagine such a situation when a beginner driver starts driving on the road, What can happen?

Accidents are natural, and this resulted in strict traffic laws and high car insurance premiums. Insurance companies in California have raised their premiums in order to offset their losses in paying for accidents, and injuries.

Getting fundamental liability auto insurance is a requirement to drive on California public roads. You need to have a minimum level of insurance for the legal and secure operation of your vehicle. The minimal coverage entails $15,000 for individuals, $30,000 for all individuals injured in a singular accident, and $5,000 for property damage. 

11. Education costs in relation to California’s expenses

Undoubtedly, California is home to top-tier public universities, and students from all over the world aspire to attend these institutions to pursue their dream careers. However, were you aware that for a four-year program in the state, the average tuition fee alone for an academic year amounts to $8,192?  

In addition to tuition fees, there are expenses related to books, living costs, fees, on-campus housing, and other supplementary areas. I had a friend named Ninya, studying at the Southern California Institute of Architecture, and spent $54,000 per year for her degree.

Students at Fremont University
Students at Fremont University

Tips to Afford Expensive California

  • Use your car less and opt for walking – not only can you save money on fuel, but you can also maintain your health
  • Prepare your own meals to stay healthy, instead of dining out and spending money on fast food
  • Avoid consumer debt at all costs
  • Consider acquiring a home in suburban areas where the cost of living is comparatively affordable
  • Instead of purchasing gym memberships, engage in outdoor exercises like hiking, swimming, kayaking, or skipping in your courtyard to stay fit
  • Instead of buying new clothes, invest your money in garments from thrift stores
  • If you’re a retiree, choose affordable places to retire in CA rather than the pricey center cities

Read More:

FAQs: Why is California So Expensive?

1. How do education and healthcare costs contribute to the high expenses in California?

A. Low-income earners, immigrant workers, and emerging “middle-class families” face a substantial burden of healthcare and education costs for their children. The expenses related to insurance, pharmaceutical drugs, and fees of medical professionals are so high that a significant portion of the population finds them impossible to bear.

2. Why are there challenges in finding affordable rental housing in California?

A. In urban areas, there is a shortage of housing supply compared to the demand. Due to government rules and regulations, the construction of new houses is restricted, resulting in high rental prices.

3. Is California worth the high cost of living?

A. It truly depends on your work opportunities and the lifestyle you wish to pursue. If you desire to bask in California’s sunshine, explore nature, sample different cuisines, and engage in diverse cultural activities, you might choose California despite its high cost of living. Conversely, if you’re seeking a tranquil life by the beach, then Florida could be a preferable choice.

4. Why are people moving out of California?

A. The high cost of living and the remote work revolution are the primary reasons why many people and tech companies are opting to move out of California. Recently, Tesla shifted from California to Texas to lower its taxes and acquire a more spacious office area.

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