Why Is California So Expensive to Reside In: 7 Valid Reasons

There is no denying that California is a beautiful state, but why is California so expensive? I have come up with seven possible reasons explaining why the state is costly. Let’s explore those causes without further delay!

Why Is California So Expensive? Quick Answer

According to the most recent research, California is the second most expensive state in the US. But why is California so expensive? Here are some reasons:

• California has a low supply and overwhelming demand for amenities such as housing. This, in turn, makes the available supply to be expensive.
• It is a tourist attraction destination. Thus, the prices of most things are kept high.
• Californians are subjected to high rates of taxes, especially those who live in major cities like San Diego, San Francisco, and Los Angeles.

But are these the only reasons explaining why is California so expensive? Certainly not! Read on to find out more.

1. Low Supply and High Demand for Housing

Most people want to live in this very desirable location. As the population increases, it demand more amenities, such as land and supplies. This, in turn, cause shortages and high prices. Let’s know details:

High Land Prices

California is the third largest US state in land area, behind only Texas and Alaska. Yet, its topography makes only a tiny fraction of its territory suitable for construction.

Read also: Oakland vs San Francisco: Which City is Better to Live In

The scarcity of usable land is a significant contributor to California’s high cost of housing crisis. That’s why the only available land tends to be so expensive. 

Constraints on Construction That Are Excessively Restrictive

Regarding density and environmental legislation, California has many strict building codes. These rules add more bureaucracy and raise expenses for the building industry. They are known as rules in Title 24. Some rules include the following:

• Use of occupancy sensors in all office spaces.
• Homes must be equipped with at least one highly-efficient heat pump.
• Buildings must have a manual area, multilevel, automatic shutoff, automatic daylighting, and demand-responsive controls.

Construction costs in California are often higher than the national average due to a combination of factors, including the state’s increased minimum wage for non-union workers and the lack of skilled workers. 

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According to the United States Government Accountability Office, building a home in California is expensive, as a one-bedroom apartment would cost you roughly $232,000.

High Housing Costs 

The median home price in the US in July 2023 was $416,100. On the other hand, the average home price in California is around $758,600.

The high housing prices in major California cities have risen over the past few years. The increased costs are a major reason for people moving from this state.

High Cost of Rent Prices

California is considered the fourth most expensive state in terms of rent: 

• The national median rent price is now $2,029, while the Median Rental Price for California in August is $2,918.

• Renting a one-bedroom apartment will cost you $1,969. A studio costs $1,658, while a two-bedroom will cost $2,405.
• A large family requiring a three- and four-bedroom apartment must pay $3,144 and $3,706, respectively.

Well, that’s all about housing. Now let us see the other reason why is California so expensive.

2. Booming Economy

With a GDP per resident of $89,540 and a total state GDP of $3.5 trillion in 2023, California is the economic powerhouse of the United States. California’s strong economy is attributed to factors like:

California is home to Large Companies

Many companies have their headquarters stationed in Silicon Valley due to the high technology available in the state. Such companies include:

• Wells Fargo;
• Google;
• Cisco Systems;
• Apple;
• Alphabet;
• Facebook;
• Intel;
• Oracle Corporation.

Income Levels in California Are Relatively High 

There is a healthy job market with high-paying jobs with a high demand for experienced professionals in California. Therefore, many companies are willing to pay high wages to retain good employees.

US Department of Housing and Urban Development data shows that:

• In 2023, the median income for the state stands at $109,200, while that of the nation is $56,940;
• Up from the previous year’s median income of $101,600.

High Costs of Labor

The high cost of labor is also an answer to why is California so expensive. The state is home to thriving industries that attract top personnel, making them pay more.

As of January 1, 2023, the minimum wage was increased to $15.50 per hour. However, cities like San Francisco can enact laws about the wages provided they are not lower than the States.

Labor costs are rising because of many factors, including:

• Increasing demand for skilled labor in the computer and entertainment industries.
• The Golden State is home to strong labor unions, which play a role in negotiating wage increases and high labor costs.

Higher Education

It is no secret that the best universities in the US are in California. However, some are too expensive. Did you know that eight of the most expensive universities in the US are in the Golden State? They include:

Let us now look at how tax makes living in California expensive.

3. High Taxes

The residents of California pay the highest state income taxes and sales tax rates in the United States. High taxes are justified, as the money collected is used to maintain and improve the state’s extensive infrastructure.

Regulations Which Mostly Affect Small Businesses

Small businesses are the most affected by the two regulations put forth by California State, which are:

• Minimum wage law: It is also applicable to small businesses as of January 1, 2023. The increase of up to $15.50 per hour affects them as they only get a tiny profit from high taxation.
• Environmental protection regulations: California has some of the toughest in the country.

That’s why Californians are subject to some of the highest state taxes in the country to help cover the costs of these stringent regulations.

State Income Taxes That Are Extremely High

While Californians may get a reprieve on their property taxes, they pay the highest rates on income of any state in the country. Here is the distribution of the income tax rate:

High Sales Rates Tax 

California has the highest state sales tax rate in the United States, at 7.25%. In addition to the abovementioned taxes, counties, and cities have the authority to impose their tariffs, resulting in instances where certain metropolitan regions exhibit sales tax rates exceeding 9 percent.

With the high sales and income tax, there is some good news for Californians. There’s one particular tax that is not that high. Can you guess which one it is? Property taxes!

Property Taxes

The national average property tax rate is 0.99%, while California’s in 2023 is  0.71%. This is a huge relief for the residents as California real estate tax is not as high as other taxes.

4. Cost of Living

The cost of living is bound to increase due to the higher salaries in the state. However, this is due to more than just a high average salary. Let’s examine some of the most important parts of the cost of living to determine what’s causing it to be so high.

High Cost of Healthcare in Cities

High costs of healthcare also contribute to California’s high cost of living. Rising healthcare expenditures and higher out-of-pocket expenses are causing financial hardship. This affects many people in the state who have health insurance via their jobs.

Consider the following table highlighting different premiums for people of different ages.

Maintaining a healthy lifestyle can reduce premiums, but costs will vary.

High Costs of Child Care

It will cost you a lot more to raise an infant in California than in other states. This high cost has also contributed to California’s expensive cost of living. The country’s average cost of childcare is $14,760 annually.

• In California, infant care costs an average of $16,945 per year or $1,412 monthly. 
• $11,475 per year or $956 monthly is needed to care for a four-year-old child in California, while the country’s average cost is $7,287.

High Grocery Costs

The expensive groceries are another reason California is so expensive. Food costs are typically twice as high as in other parts of the country.

The average yearly cost of meals outside of restaurants in California is estimated to be $3,865 per person by the Bureau of Economic Analysis. That is approximately $322.08 a month per person.

• A typical monthly grocery bill for a household of four might be $1,288.

• The national average grocery cost for a family of four is $1,047.

Car Insurance Costs

The national average for full-coverage car insurance is $4,211 per year. Auto insurance in California costs a little higher than the rest of the US, averaging:

• $4,556 per year for full coverage;
• $1,407 annually for minimal car insurance coverage.

Cost of Gasoline 

California’s high gas prices are another factor contributing to the state’s reputation as one of the most costly in the United States. Because of the state’s dedication to environmental safeguarding, Californians are hit with some of the country’s highest tax rates and gasoline prices. 

• The US average for a gallon of gas in 2023 is $3.54.
• California’s average cost of a gallon of gas in June 2023 was 4.781. This is a 0.4% increase from January’s cost of 4.368.
• Silicon Valley and Bay Area have significantly higher gas prices.

Cost of Utility 

Californians also pay a hefty premium for their utility bills. The highest electricity prices in the country are paid by San Diego residents who use San Diego Gas & Electric as their provider.

Californians pay roughly 29 percent more per month for their utilities than the rest of the country. Consider the following table:

The cost of Utility can add up quickly because of internet and cable costs. The average monthly utility cost in California is $380, while that of the country is $366.

5. California Is Known as an Entertainment Hub

The high expense of living in California is partly attributed to the state’s status as an entertainment paradise. San Francisco and Los Angeles, two of the state’s most populous cities, are known worldwide for their contributions to the next industries:

• Film;
• TV;
• Music. 

California is considered an entertainment hub because of the following:

California Culture

The Golden State is famous for its cultural diversity. The state is known to have every type of entertainment that you can think of. Here you can experience:

• Gambling: California has over sixty casinos, such as Yaamava Resort Casino and Pechanga Resort Casino.

• Sports culture: Enjoy games from famous Californian teams like the San Francisco 49ers and Los Angeles Lakers.

You can meet amazing people in this state, eat tasty cuisines and drink wine from Napa Valley in San Francisco.

Hollywood

The world’s largest and most successful film business, Hollywood, must almost inevitably be brought up while discussing California.

• The enormous US film business is headquartered in Hollywood.
• The studios that operate there are in charge of producing the hundreds of fantastic films we see each year.

Coachella

Another well-known California entertainment export is Coachella. Coachella is the most famous musical festival globally, attracting almost 250,000 visitors annually.

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Since its beginning in 1999, Coachella has been hosted in Indio, California. Every April, the festival features performances by some of the top stars in the world during a three-day weekend. Tourists from all over the world are drawn there as well, and they do so in search of:

• Delicious food;
• To see celebrities;
• Energetic atmosphere;
• Artist’s surprises.

These three factors make up California’s entertainment hub, which attracts many people to the state.

6. Beautiful Climate

The pleasant year-round temperature is another reason behind our question, “Why is California so expensive.” The conducive climate attracts a lot of people. Given the region’s 310 sunny days and moderate temperatures per year, why people desire to relocate there is understandable. 

This leads to several disadvantages, such as:

• The state’s expensive cost of living is pushed even higher. 
• Competition for housing increases as more people and families relocate, increasing home prices and rents. 
• Prices for necessities like food and transportation have also rised.

7. Tourist Attraction Destination

Tourists in California spend money on lodging, food, transportation, and other things while they’re here. Since demand for services stays strong throughout the year thanks to the influx of tourists, prices may be kept high. 

The high prices are fantastic for the state’s economy since it creates jobs and brings in money from tourists, but it is a reason why is California so expensive.

Every year, millions of tourists from all over the world flock to California. It has something for everyone: 

• Dazzling shores;
• Breathtaking parks;
• Illustrious entertainment centers;
• Beautiful landmarks and signs include the Golden gate bridge and the Hollywood sign;
• Theme parks like Hollywood and Disneyland. 

Frequently Asked Questions

Conclusion 

California is a beautiful state with so much to offer its residents. Currently, the population of California is 38.9 million, a 0.3% drop from the previous year’s population of 39.1 million. The decline is attributed to the high living costs associated with the state.

So, why is California so expensive? California’s expensive reputation is due to the high real estate prices. There is not enough housing thus, the available ones tend to become too expensive. The increased tax rates, strong economy, and California’s reputation as an entertainment hub and a significant tourist attraction venue are some of the reasons.

I hope you have now understood the reasons why is California so expensive. Please share this article with your friends so they, too, can know.