California is among the best American states to live in because of its pleasant weather, abundant opportunities, prestigious universities, and overall quality of life. Every facility is readily available, and the hospitable people make residing in this state a dreamy experience. Despite offering numerous benefits, the state’s high cost of living discourages many people from relocating to California.
Let’s uncover 12 top reasons contributing to the state’s high cost of living.
Housing Crisis
California is witnessing a severe housing crisis, where people are finding it financially impossible to own a home. If you plan to buy a decent mid-tiered home, you will need at least $239,000 annual household income to qualify for a mortgage, which is two times higher than the 2022 median California household income. Even rents in California are 33% higher than the national median. Since the housing cost has overgrown Californian wages, the state’s housing crisis has worsened over the years and contributed to the rising cost of living.
High Sales Taxes
While 45 states collect statewide sales taxes in America, California levies the highest state-level sales tax at 7.25%. If you combine the state and local tax burden on Californian residents, the average tax rate is approximately 8.851%, much higher than other American states. All these taxes negatively influence the cost of living in California, making it a rather expensive state to live in.
Expensive Gas
California is infamously known for having one of the highest gas prices in the U.S. While numerous factors determine gas pricing, many blame the state’s high gasoline taxes. The recorded average gas price for a gallon of regular unleaded in the U.S. was approximately $3.40 in March 2024, whereas the same was priced at $4.87 in California. It is putting additional pressure on the residents’ finances, soaring the overall cost of living.
Healthcare Expenses
The healthcare system in California is excellent, but the associated high expenses make it relatively unaffordable for many state residents. In one such glaring incident, a state resident was shocked after receiving a hospital bill of approximately $9,000. Despite having health insurance, her share of expenditure was over $4,600 for a 30-minute outpatient procedure. Many such instances have made California contemplate capping health care spending.
Soaring Grocery Prices
While inflation seems to have reduced post-pandemic, it isn’t reflected in the grocery prices. The prices have risen by approximately 20% since 2020, with California reporting the highest price rise compared to other states. Even food banks in the region have started to face the heat. One food bank in San Francisco reported that the average amount they spend on buying eggs has increased by $2.27 a dozen.
Sky-high Utility Bills
California residents pay the second-highest amount for electricity bills across the U.S., second only to Hawaii. Electric rates have been surging fast over the years in different parts of the state, and it has exerted a notably severe financial strain on most residents. SCE customers in California have seen the rate jump to 91% from 2021 to the start of 2024, while SDG&E customers have been hit with a 72% increase. Such massive electricity bill spikes are now being viewed as a part of the broader affordability crisis looming in this state.
Employment Landscape
While California is known as the home to some of the most prominent enterprises and a thriving business landscape, the state hasn’t been doing that well in recent years. Approximately 7.32 million jobs were created throughout the U.S. between January 2022 and June 2024, but California only accounted for .07%. If the private businesses in California had grown at the same rate as other states, it would have reported a 970,000 job increase, compared to the actual 5,400.
State Income Tax
People living in California pay multiple taxes, such as the state sales tax, income tax, etc., in addition to federal taxes, which puts a lot of financial burden on residents. California had a maximum state income tax rate of 13.3% for almost a decade, but it has been raised to 14.4% from January 2024. Not everyone is taxed at this rate because the state offers nine tax brackets based on the filer’s income, but it still contributes to California’s rising cost of living.
Steep Childcare Costs
If you plan to start a family in California, you must be prepared to tackle the steep childcare costs in this state. A study reveals that the average cost of raising a child from birth to 17 years of age has increased from $270,000 in 2017 to $311,000 in 2022, financially draining many families. The cost of delivering a baby at a hospital has jumped from $11,000 in the 2000s to $27,000 in 2022. Prices of diapers, daycare, baby food, etc., have also seen a sharp jump, worsening the state’s cost of living crisis.
Entertainment isn’t Cheap
California offers numerous entertainment options for residents and tourists but aren’t cheap. While many consider entertainment expenses unnecessary, those interested in them must pay 10% higher entertainment expenses in California than the national average.
Exorbitant Education Fees
While many Californians attending public universities don’t pay tuition fees because of the available grants, the state still ranks among the top three American states for the highest average student debt. Graduate loan debt in California is larger than other states in the country. Since Californians place greater importance on higher education, they often take loans, disrupting their overall cost of living. In-state residents of California borrow an average of $28,300 in student loans yearly, compared to the national average of $22,400.
Inflated Property Insurance
California is grappling with the rising weight of inflated insurance premiums. A survey reported that one in three housing providers witnessed an increase of 25% in their property insurance premiums from 2022 to 2023. Organizations that build and maintain affordable housing have also reported a massive jump in premiums of 400% to 600% for property, liability, and builder’s risk insurance. If measures aren’t taken to curb these inflationary premium rates, the state’s existing cost of living challenges will worsen.
