10 Reasons California is So Expensive

California Palm Trees

Would you consider paying extra for year-round nice weather, beautiful scenery, an extensive 840-mile coastline, abundant government services, top universities, strict gun laws that result in a relatively low crime rate (ranked 31 in the nation), and a commitment to preserving the environment and fighting climate change? Let’s look at 10 reasons California is so expensive.

Many Californians consider the stress on their wallets a price they are willing to pay for those benefits. Others like what the Golden State offers but simply can’t afford it and choose to move away. Some Californians point out that the state’s expensive reputation is exaggerated and that other states can be just as expensive.

For example, car insurance is expensive in California (long commutes and many uninsured motorists get some of the blame), but six other states have higher auto insurance rates. Twenty-two states have higher healthcare costs. Two states (Massachusetts and Hawaii) and the District of Columbia had higher overall costs of living than California in the second quarter of 2022.

Some costs are no worse than in other states. Karin Traber, a retired San Luis Obispo computer engineer who has owned homes in several other states, says, “it is my experience that things like housing (own or rent), property taxes, and fixed costs like that are quite comparable.” On the other hand, she notes, “food and dining out, fuel, entertainment, and some discretionary costs are much more expensive in California.”

The Reasons that California is So Expensive

1. Food Prices

High food prices may seem like an anomaly in a state where agriculture is the top industry. Samuel Stebbins reported in 2022 (before inflation hit later in the year) on news site The Center Square that a California family of four “can expect to spend an average of $10,543 on food in 2022, the 10th highest amount among states.”

Stebbins attributes this anomaly in part to California’s high wages. “Food costs are partially driven by what residents can afford,” he writes, “and states with higher food costs also often have higher than average family incomes.” 

2. Transportation Costs

High gas prices (see No. 4) result in high transportation costs (second highest in the nation) to get food to market. Diesel fuel used in trucking is 28 percent higher in California than the U.S. median cost.

3. Higher Education

While California has long had a reputation for inexpensive state colleges and universities, those costs are going up, and eight of the most expensive private universities in the United States are in California.

4. Gas Prices

A picture of a gas pump that has 87 "arm" 89 "leg" and 93 "both" representing high gas prices.

California is a highly regulated state, with many regulations aimed at environmental protection and carbon-emission reduction. Consequently, gas prices are among the highest in the nation, with $1.20 in taxes and fees slapped onto the basic gas price.

A lower number of gas stations and refineries also contributes to high gas prices. Patrick De Haan, a petroleum analyst quoted on a Los Angles TV station’s site, pointed to geography as a cause of the state’s high gas prices: “The Rocky Mountains cut off the West from the rest of the country, making it a tight and more secluded market,” De Haan said. 

5. Regulations, especially affecting small business

Many Californians point to small-business owners as most negatively affected by regulations. “Small businesses are over-regulated, and the regulations are pushed through without consideration for relating factors,” says Courtney Miller, a small-business owner in Half Moon Bay. Miller notes that labor costs went up by 30 percent when her county raised the minimum wage from $12 to $15 in early 2021, still at the height of the COVID pandemic. Miller also points to the state’s business-failure rate – the third-highest in the nation.

“While increasing the minimum wage is well-intentioned and needed,” Miller states, “California businesses can’t tolerate it unless something else gives, such as reducing taxes and other fees on businesses. Since there is no policy compensation, businesses must raise prices to meet these demands.” California is know as one of the most liberal states in the Country and Traber agrees, noting, “if you are a business owner in California, you will find costs sometimes twice what they are to run a business compared to other states with much lower expensive regulatory and compliance costs.” (Traber nevertheless declares, “California is my beautiful home, and we love being here.”)

Characterizations of California’s regulatory environment range from “progressive” to “socialistic.” The state “provides welfare supports for its citizens as well as residents and immigrants,” asserts Yvonne LaRose, a southern California organization-development consultant. “People from other states that do not offer welfare programs come to California to take advantage of those benefits in order to have at least a minimal lifestyle rather than become destitute and homeless,” LaRose says. “The costs to live here continue to increase as more move here to survive. “

6. Childcare

Miller calls California’s cost of living “prohibitive to economic opportunity,” especially for women, citing the cost of childcare in California; only Massachusetts exceeds the Golden State in this crucial area.

“Most of my mom friends are stay-at-home moms because their paycheck would literally be lost to childcare,” Miller says, “and I know a lot of these moms don’t want to stay home – they have goals, and dreams of pursuing work and a career.”

7. Taxes

Californians are heavily taxed, and both state income taxes and sales tax lead the nation. Maintaining the infrastructure of the most populous state in the nation is cited as one reason for the pricey taxation, and the state’s coastline and topography exacerbate the infrastructure costs. Property taxes, however, rank 16th in the nation.

8. Housing

A picture of an amazing three to four story home with lots of balconies and palm trees along side of it.

The high price of housing in the state is attributed to low supply and high demand in the most desirable parts of California. The supply of land in desirable areas is limited, in part, because of the state’s mountainous terrain. Lumber is surpisingly scarce in California, driving up prices.

The 2022 median home price was $800,000. Of course, the high cost of buying a home is also passed on to renters. High wages (also the result of supply and demand) attract workers to the Bay area and Silicon Valley, where affordable housing is scarce. Regulations and strict zoning laws also contribute to limited and expensive housing.

One school district made headlines recently for asking parents to house teachers who could not afford housing. Even raw land is expensive compared to other states. Regulations hit especially hard in the land-use and housing area.

“Each additional regulation reduces a city’s housing supply by about 0.2 percent per year,” writes financial economist Kristoffer Jackson.

9. High prices resulting from high wages

About those high wages … Many people flock to sunny California for those lofty wages (although nine states ranked higher in annual median wages in 2021), but when business owners are paying high salaries, they compensate by raising their prices, contributing to California’s reputation as expensive.

“When you consider that the starting wage for technology in California is over $50 an hour, well over that of, say in Texas, then yes you will find that the cost of living is made up with the high wages,” says San Diego Realtor Karen Mattonen. Clusters of wealthy people, including celebrities, are common in California, which can drive prices up even more.

One former 40-year resident of California noted that everything changed in her area after Oprah and Prince Harry bought property. The house she rented that had cost the owner $132K in 1980 sold for $2.5 million.

10. Strong economy

The state’s robust economy drives up prices. In 2022 rankings, the Golden State had the third strongest economy in the United States (after Washington and Utah) and is ranked No. 1 for economic activity.

Do advantages outweigh the costs?

Many Californians find the high cost resulting from the heavily regulated climate and other factors worth it. “I’ve lived in California for 40+ years, and I love it,” says Vicki, a retired Redwood City medical administrator. “We often say, ‘thank goodness we live in California.’” Mattonen agrees, citing government services supported by taxes. “California really does a lot for their citizens to help make it sustainable to live here,” Mattonen says. “I think that many leave looking for the magic pill, but often they may find the grass is not actually greener on the other side.”

California’s natural offerings and weather outweigh the cost for many Californians, like Debra Foster of San Luis Obispo, who has lived in several other states and finds the weather consistently better in California. “I think it’s so expensive,” Foster says, “because for the most part, it’s a pretty fantastic place to live, especially if you’re anywhere near the coastline.” A commenter on Reddit noted, “There are very few places on earth where a person could go surfing and snowboarding in the same day.” Pointing out such beautiful outdoor spaces as Yosemite, redwoods, national and state parks, Joshua Tree, the Channel Islands, Big Sur, and more, Foster says, “there may be regulations, taxes, but I honestly believe it’s a matter of California having so much to offer that too many people want to live in the state. Then it becomes a matter of supply and demand.”

In conclusion, you may find yourself agreeing with those who feel the benefits of California living outweigh the high costs and those who assert that the Golden State’s expensive reputation is overblown. Those who feel they can’t afford to live in California may want to look into benefits for lower-income Californians, funded in part by the state’s massive budget surplus.

Related: Liberal Cities in California