California’s sunny weather, career opportunities and many activities to enjoy make it one of the most desirable places to live in the U.S., but it comes at a cost. The state’s cost of living is considerably higher than most areas of the country.
Ten cities in California have also made our list of the 25 Most Expensive Places to Live in the U.S. The Golden State’s strong economy and higher-than-average income help make up for these extra costs. Still, its high taxes, expensive home and rent prices and other necessary living costs make it unaffordable for the average American.
Still, it has vast appeal. California has some of the country’s best universities, including Stanford, University of Southern California, California Institute of Technology and the University of California campuses at Berkeley and Los Angeles. California also is home to some of the nation’s most beautiful landscapes. Yosemite National Park draws in millions of people each year to marvel at the park’s towering waterfalls, massive rock formations and sprawling forests.
— Why is California so expensive?
— The income you need to live comfortably in California
— California’s cost of living
[READ: The Most Overvalued Housing Markets in the U.S.]
Why Is California So Expensive?
Housing, transportation, food, utilities and taxes are the biggest factors driving the state’s higher cost of living. Lack of affordable housing is one of the state’s most pressing challenges.
According to the California Budget & Policy Center, the high cost of housing is also one of the primary drivers of the state’s high poverty rate. The lack of affordable housing increases economic insecurity among families, and renters and households with the lowest incomes are most affected by the crisis.
The dearth of affordable housing and higher cost of living have even forced Californians to move out. Based on data from the state’s Department of Finance, the state lost around 800,000 residents between 2020 and 2023. California has built roughly 800,000 new housing units since 2015 but still needs 3.5 million more homes to accommodate the current population.
The Income You Need to Live Comfortably in California
Living costs are about 30% higher in California than the national average. This means that if someone from a lower-cost state moves there, they need to increase their income to enjoy the same lifestyle. How much depends on where you live in the state.
Rural areas in Northern California tend to be more affordable, but are still expensive compared with other areas of the country. “If you’re considering living as a middle-class resident in Northern California (Yolo County, Sacramento County, El Dorado County, Placer County, Nevada County, Butte County), a single person should be earning $90,000-100,000 per year and a family of four would want to be in the $130,000-$175,000 per year range,” says Eddie Martini, strategic real estate investment advisor at Real Estate Bees.
The Bay Area, mainly around San Francisco, as well as Los Angeles County and Orange County, is among the most expensive spots in the state. According to Martini, a single person in the Bay Area needs to earn around $175,000 per year to live comfortably, and a family of four should earn over $250,000. In Southern California, a single person would make between $175,000 and $200,000 per year, while a family of four should bring in $250,000 to $350,000 annually.
[These Are the Tax Breaks You Can Get When You Buy a House]
California’s Cost of Living
The Golden State’s high cost of living is influenced by a combination of factors, which you’ll need to calculate into your budget if you plan to relocate. Wages are typically higher in the state, but Chris Motola, special projects editor at lending marketplace National Business Capital, says real personal income has taken a beating since the pandemic.
“The cost of housing is a useful indicator here,” Motola says. “The conventional wisdom is that an affordable home is around 2.6 times the household income. The median cost of a single-family home is over four times that in even the cheaper metros in the state, and nearly 10 times greater in the more expensive areas.”
Here’s a breakdown of the factors affecting California’s high cost of living.
Housing
Housing costs in California are much higher than the national average. The California Legislature’s Nonpartisan Fiscal and Policy Advisor’s Legislative Analyst’s Office found that payments for a mid-tier home, including mortgage, taxes and homeowners insurance, were nearly $6,000 per month in March 2024. This was an 80% increase since January 2020. Payments on bottom-tier homes were over $3,500 per month, an 86% increase during the same period.
California is second only to Hawaii as the most expensive state to buy a house, with a median home value of $786,938, according to the Zillow Home Value Index average over the first quarter of 2024. Hawaii’s average home value is $856,644. The median sales price in the U.S. is $360,681.
National Business Capital’s recently released housing data report found that eight out of the 10 most expensive metropolitan areas with populations over 300,000 were in California.
“There are a number of factors that contribute to housing costs in California, including high property taxes and a generally high cost of living, but the biggest factor is that California just doesn’t build that much housing,” says Motola. “Housing building permits per capita are among the lowest in the nation.”
[How I Budget to Live in the Most Expensive City in the U.S.]
State Taxes
California has the country’s highest individual income tax rates, topping out at 13.3% for millionaires, and higher sales tax rates than most other states. But there are other taxes to consider as well.
“The hidden taxes on things like fuel are what really erode California’s chances of covering their monthly overhead, let alone having money available to save/invest to build wealth,” Martini says. California’s excise tax on gasoline is the most expensive nationwide, and the California Department of Tax and Fee Administration announced that it increased to 59.6 cents per gallon on July 1, 2024.
“Annual property taxes are also high, and retailers and landlords will often pass the costs along to customers,” Motola adds.
Transportation
California is notorious for its traffic, as well as its vehicle-related expenses.
Taxes and regulatory programs have caused fuel prices to average $4.80 per gallon as of June 2024, which is the highest in the country, according to AAA Gas Prices. California also imposes special blend requirements, which are more expensive to produce, and there are high taxes and fees associated with initiatives to reduce carbon emissions.
Auto insurance isn’t cheap, either. Data from The Zebra shows that the average cost in California is $1,713 per year — 20% more than the national average.
Health Care
Over the past two decades, Californians’ spending on health care has increased by 5.4% each year, and the California Public Employees’ Retirement System (CalPERS) has noted it’s grown significantly faster than wages. According to CalPERS, households spend nearly 13% of their median income on health care. Those with employer-sponsored health coverage are paying more out-of-pocket expenses in deductibles, copays and premiums.
Additionally, money deposited into a Health Savings Account (HSA) isn’t tax-exempt in California. This means Californians are less likely to save money for health-related expenses.
Food
A study conducted by HelpAdvisor, a company focused on finance and health, found that Californians spend more money on groceries every week than residents of any other state, based on data from the U.S. Census Household Pulse Survey.
According to the study, the average household spends $1,080 per month on groceries, while Californians spend about $1,190, or $297.72 per week. Prices were even higher in cities like Riverside and San Francisco, where the average household spends around $300 per week on groceries.
Utilities
Californians typically use less water and electricity, but their utility bills are still higher when compared with residents in other states. For example, the Save on Energy June 2024 report found that the average electric bill in the U.S. in 2024 is $151.75, but Californians pay an average of $183.29.
Martini says the push for renewable energy has caused a lot of problems in California. “The power grid system has shown to not be able to keep up with the power demands during summer months, as business and residential A/C use taxes on an outdated power grid,” he says. “Now, the push for charging stations has generated an even greater demand on this power grid.”
More from U.S. News
What to Do if You Lose Your Homeowners Insurance
Can You Build a Fireproof Home?
The Fastest-Growing Places in the U.S. in 2024-2025
Why Is California So Expensive? originally appeared on usnews.com
