California is known for its sunny weather, beautiful beaches, Hollywood glitz and glamour, and Silicon Valley innovation. However, behind the shiny veneer lies a harsh reality – living in California is incredibly expensive. Between the high cost of housing, taxes, food, transportation, and healthcare, making ends meet can be a real struggle for many residents.
Why is the Cost of Living so High in California?
Several key factors contribute to the sky-high cost of living in the Golden State:
Housing Shortage Drives Up Home Prices
California faces a severe housing shortage, especially in desirable coastal cities like San Francisco and Los Angeles. With population growth far outpacing new construction, competition for limited housing inventory has pushed home prices into the stratosphere. California’s median home price is over $800,000 – more than twice the national average. Renters also suffer from a tight rental market where the average one-bedroom apartment rents for well over $2000 per month in many areas.
High State Income Tax and Sales Tax
California has some of the nation’s highest income and sales tax rates, eating away at residents’ hard-earned paychecks—the state income tax ranges from 1% to 13.3% depending on income level. In addition, the statewide sales tax rate is 7.25%, plus localities can levy additional sales taxes. For example, residents of Los Angeles pay a whopping 9.5% sales tax on top of state income taxes.
Steep Gasoline Prices at the Pump
It’s no secret gasoline costs much more in California compared to other states due to higher gas taxes and special fuel blend requirements. The average price for a gallon of regular gas is over $6.00 statewide. Drivers feel the pain every time they fill up at the pump, especially if they have long commutes.
High Healthcare and Health Insurance Premiums
The cost of medical care and health insurance in California equals some of the highest rates in the U.S. Covered California healthcare exchange plans still carry expensive monthly premiums, plus most programs have high deductibles. Overall, healthcare spending consumes over 18% of California’s GDP, according to data from CMS.gov.
Costly Utilities Like Electricity and Water
California’s Utility costs are inflated partly due to strict regulations and renewable energy mandates. Electricity rates per kilowatt hour are among the highest nationally, averaging around 22 cents for residential customers. Meanwhile, water rates keep rising to fund infrastructure improvements, especially in drought-prone regions like Los Angeles.
How High Prices Affect California Residents
The high cost of living in California takes a real toll on the well-being and lifestyle of many residents:
Long Commutes From Outlying Affordable Areas
Younger workers and families seeking affordable housing often endure mega commutes from far-flung exurbs. For example, commuters may drive 2+ hours from inland valleys to live in cheaper areas while working in expensive coastal job centers like San Francisco. Lengthy commutes impact health and quality of life.
Overcrowded Housing Situations
To afford rent in metro areas, it’s common for Californians to share apartments and houses with other roommates and families. But adding more residents can lead to overcrowded conditions, noise issues, lack of privacy, and added wear and tear.
Homelessness Rates Are Among Highest in U.S.
Unfortunately, many Californians living on the financial edge end up homeless – and the state has one of the largest homeless populations nationally. Lack of affordable housing pushes people onto the streets, with poverty, untreated mental illness, and addiction issues.
More Residents Live Below the Poverty Line
The high cost of living leaves a more significant portion of Californians living below the poverty line compared to other states. According to Census data, 17.2% of California residents live below the poverty level compared to 12.3% nationally. High prices make it very difficult for lower-income families to make ends meet.
Budgeting for Essentials Eats Up Paychecks
When most paychecks go towards high rents or mortgage payments, taxes, student loans, healthcare, utilities, gas, and food, there’s little left over for entertainment, vacations, or extracurricular activities. Discretionary spending suffers. Luxuries become rare splurges.
Weighing the Pros and Cons of California Life
Before moving to California, prospective residents must carefully weigh the benefits against the steep cost of living.
Potential Reasons to Live in California Despite High Costs
- Excellent career opportunities in lucrative fields like tech, healthcare, and entertainment.
- Nearly perfect weather and proximity to beaches, mountains, and deserts.
- Great cultural diversity and arts scene – especially in L.A. and San Francisco.
- Top-notch universities like Stanford and U.C. system schools.
- Lower costs in certain Eastern or Northern rural areas.
Downsides to Consider Besides the High Cost of Living
- Long commutes to major job centers like Silicon Valley and L.A.
- Potential for social unrest, protests, and wildfires in populated areas.
- Remote work opportunities reduce the need to live in California for tech jobs.
- Overcrowded popular public spaces and heavy traffic congestion.
- Drought and future water insecurity affecting arid Southern regions.
Tips for Living Comfortably in California on a Budget
While the California dream comes with a hefty price tag, there are ways to enjoy the state’s benefits without going broke:
- Split costs with roommates – Having one or more housemates helps reduce rents and bills tremendously. A room in a shared house or apartment with roommates costs substantially less than living alone.
- Drive older paid-off vehicles – Avoid expensive car payments by sticking with an economical older used car. Also crucial – minimize gas costs by living close to work.
- Use public transit – Popular commuter trains like Caltrain, BART, Metrolink, and L.A. Metro and S.F. Muni systems help reduce transportation costs.
- Shop sales and secondhand – With the rise of apps like Poshmark, Mercari, and OfferUp, it’s easy to score deals on high-end secondhand fashions. Also, hit up thrift stores, flea markets, estate sales, and garage sales for housewares, furniture, and clothing.
- Enjoy accessible beaches and nature – California offers plenty of budget-friendly outdoor recreation like hiking, biking, surfing, and accessible public beaches. Take advantage of this perk instead of overspending on entertainment.
California offers abundant employment opportunities, perfect weather, and unique attractions. But the West Coast lifestyle certainly isn’t cheap or affordable for everyone. Understanding the high-cost drivers, budgeting wisely, and making intelligent trade-offs allows savvy California residents to enjoy the state’s advantages at a reasonable price.
FAQs About Cost of Living in California
Q: Which city has the highest cost of living in California?
A: Currently, San Francisco has the highest prices for housing, food, utilities, transportation, and healthcare in the state, making it California’s most expensive place to live overall.
Q: Is it cheaper to buy or rent a house in California?
A: Due to sky-high home prices, it’s generally cheaper to rent than buy in most California metro areas. Rentals require a smaller financial commitment upfront without property taxes, maintenance, and mortgage payments.
Q: What is considered a good salary in California?
A: With the high cost of living factored in, an individual annual income of around $100,000 or a household income of $150,000 per year is considered good money in California, according to finance experts. However, a six-figure salary goes less far in California than in other parts of the country.
Q: Why are taxes so high in California?
A: California has high personal income tax rates of up to 13.3% and a 7.25% statewide sales tax. Additional local taxes help fund education, healthcare, transportation, and other government services. But critics argue taxes are too high and stifling for residents.
Q: What is the cheapest place to live in California?
A: While no place in California is cheaper anymore, some more affordable options include inland areas like Bakersfield, Fresno, Redding, and rural Northern California. However, residents will need to tolerate hot summers and limited big-city amenities.