Why is California so Expensive to Live in [10 Factors]

There may be a time in your life when you’re weighing up the decision of whether to move to another state, and you might think that California is an expensive place to live.

It’s no secret that California is expensive. It’s so expensive that there are plenty of people who want to leave.

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But why? Why is the cost of living in California so much higher than elsewhere in the US?

There are many reasons for this, and I thought I’d share ten that I find to be the most common.

We can’t guarantee you these will apply to every area of California, but as someone who has already moved from one place in California to another, these seem reasonable enough.


Related: The 13 Most Expensive Cities to Live in California


1. High Car Insurance Cost

The average California household spends $2,065 each year on auto insurance. That’s $400 more than the national average and the second-highest in the country.

The major reason why car insurance is so expensive in California is that it has one of the largest populations in the nation and a high number of uninsured motorists.

California’s population is nearly 40 million people, according to U.S. Census figures, and ranks among the top five largest population states in America.

Because there are so many people living here, there are also a lot of drivers on the road — which means a higher risk for insurers.

2. High demand for real estate

California’s real estate market is booming, leading to higher home prices.

Its housing supply is more limited than other states because of the many people moving there.

There are also strict zoning laws that make it more difficult to build new homes, as well as government regulations that drive up the cost of construction.

California has some of the most expensive real estate in the nation.

Zillow puts the median home value for the state at $745,200.

The median rent price in California is $1,566 per month.

4. Gas price is higher

California’s gas prices are among the highest in the nation, and not just because of the state’s high taxes.

California has its own fuel regulations to reduce pollution, which raise the cost of gasoline by about 17 cents per gallon.

The price of crude oil also fluctuates based on global supply and demand and other factors.

On top of that, California has fewer gas stations and refineries than most states.

That means consumers have fewer options if their favorite brand raises prices or runs out of gas.

5. Presence of High Tech Industries

The Bay Area is one of the most innovative regions in the world, and those companies have to pay their employees quite a bit to get them to move out there.

A lot of those same companies are focused on selling or servicing customers who pay a lot of money too–social media companies, enterprise software companies, and healthcare organizations.

This creates a sort of positive feedback loop–those innovators bring a lot of people with high incomes into the area, which creates demand for a very wide range of other goods and services, which leads to more businesses being able to afford to locate there and pay high wages.

6. High taxes

California has the highest income tax rate in the country, with a top marginal rate of up to 12.3%.

People who earn more pay more taxes, but even middle-class families pay far higher rates than in most other states.

Property taxes are also very high in California, with a statewide average rate of 0.73%.

That’s actually not as high as many other states, but despite lower rates, property taxes are still relatively expensive because California home values are so high.

In fact, if you own an average home in California, you’ll pay about $4,500 each year in property taxes.

7. High labor costs

According to the Bureau of Labor Statistics (BLS), California has a higher average hourly wage than the national average — about $31.61 compared with $11.22 for all occupations.

Lawmakers in California have also approved minimum wages that are higher than the federal floor of $15 per hour.

The minimum wage was increased to $11 an hour for businesses with more than 25 employees as of January 1, 2018, and will rise to $15 an hour by Jan. 1, 2022.

Smaller companies must pay at least $10.50 an hour this year and will hit $16 an hour by 2023.

8. High-Cost Utilities

California utilities are the most expensive in the country.

Electric power, heating fuel, and natural gas are all more expensive than in any other state.

This is partly due to the state’s aggressive renewable energy goals, which have led to a boom in solar and wind power installations, but also to the high taxes that utilities pay.

In recent years, California has experienced gas shortages due to regulations and production issues at local refineries.

This has driven prices up even further as distributors have had to turn elsewhere for supply.

9. Expensive land for agriculture

Californian land is not just expensive for housing but for agricultural purposes as well.

The state leads the nation in both production and sales of produce, making up nearly half of all American agricultural output.

It also has the highest costs for that production, with a typical farmer spending $2.30 to grow one pound of tomatoes.

In Florida, it costs $1.40 per pound—and even that is high relative to the rest of the world.

So what gives? The weather and geography are certainly contributors, as the state’s climate allows farmers to take more risks than in other states and grow more diverse crops.

For example, citrus can be grown in California year-round because some areas are warm enough to allow for multiple harvests a year.

The infrastructure that makes this possible is also expensive — California farmers spend about $58 an acre on energy and irrigation per year, compared with a national average of $17 an acre.

10. Strict Building Regulations

Building in California comes with a lot of regulations and restrictions, which makes construction more expensive.

In addition, high land prices have made it tough for developers to get projects off the ground.

To make matters worse, the LAO says that local governments don’t prioritize new construction and actually discourage development by making builders adhere to more regulations.

The LAO points out that there are regional differences in housing affordability across the state.

In coastal urban areas such as San Francisco, Los Angeles, and San Diego, affordability is at crisis levels, with just one-quarter of households able to afford a median-priced home.

These regulations make it difficult to build new homes or add more units to existing ones.

This limited supply keeps prices high.

Higher Cost of Food

Food costs a lot more than it should.

California produces more food than any other state, but because of its size and population, produce often needs to be imported from elsewhere.

There are also fewer grocery stores per capita in California than in other states, which means less competition and higher prices.

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