Why Is California So Expensive? (Housing, Gas, Etc.)

The golden state has everyone dreaming of living by the beach. With its popularity boosted by the serious star power of celebrities living in the state and its perpetual presence on our TV screens, California is a popular place to dream of living. However, the cost of living could leave you reconsidering.

Why is California so expensive, and what are the key costs you’ll face if you consider moving there? Some of the key factors influencing the cost of living in California are housing costs, the price of groceries and utilities, the cost of gas, and the demand in very popular parts.

You’ll also find a real mix of properties and living settings if you consider moving to California. It’s not all beach condos: from very urban apartments to more remote towns close to the mountains or the national parks, California has a real variety of real estate on offer. Let’s have a look at what makes it so expensive.

San Francisco, California, USA

Why Is Housing So Expensive in California?

California is a state with lots of progressive regulations aiming at reducing carbon emissions and preserving the environment. This takes its toll on a lot of prices, including housing costs. California’s land-use regulations have reduced the availability of housing in big cities. Regulation reduces residential development, firstly by dictating exactly how much housing can be developed. Additionally, the fact that cities are constantly growing outside their boundaries – the so-called “urban sprawl” – increases the value of new homes being built. Of course, more people want to live centrally or within an easy commute of their work, so the wider a city spreads, the more this will increase house prices.

According to 2018 data, the average cost of building one apartment or home was $326,000 in California. This also contributes to why the housing costs are so high in the state, and that land itself is just more expensive there.

Expenses

Person in White Long Sleeve Shirt Holding Credit Card

On a monthly basis, Californians pay quite a bit more for their regular expenses than people across America. Why is California so expensive to live in? A large part of it has to do with – you guessed it! – regulation. But let’s have a look at what makes up the cost of monthly living in the state.

Car Insurance

California is the seventh most expensive state to insure your vehicle, leading to residents spending on average $1,962 annually on car insurance. Certain areas are cheaper, but overall, the high mileage people drive and the densely populated cities make it so that the likelihood of accidents is higher, making car insurance more expensive in California than in many other states.

Healthcare

California ranks 23rd in healthcare access and affordability, so it’s in the middle when it comes to these costs.

Utilities

On average, California is a bit more expensive for energy and phone use than the rest of the US. Bakersfield, for example, is 43% more costly for utility than the national average!

However, you would have to research things closely as you can find quite a wide disparity in costs. Orange County residents pay 6% less than the average US household, by contrast, so it’s not all the same.

Groceries

Here as well, California leads the way, unfortunately, when it comes to the high living cost. Expect to spend between 5 and 33% more than in the average US city for your weekly groceries. The extreme is in Oakland, according to this data.

Taxes

Let’s not forget California’s taxation when you consider why it can be such an expensive place to live. California has very high income taxes, although, luckily, residents in the bottom income bracket pay just 1% in income tax.

California has the highest base tax rate for sales, 7.25%, and cities can also add their own so that LA sales tax rates are 9.5%.

It seems that only property tax is less expensive in California, sitting below average than the rest of the US.

The Cost of Gas – One of the Major Factors Influencing Living Costs in California

Woman in Yellow Shirt Filling up Her Car With Gasoline

Another question that comes up a lot when thinking about relocating to the golden state is: “why is gas so expensive in California?”

Just like one of the many factors influencing housing costs, the cost of gas is affected heavily by regulation. Especially in the Bay Area, there are strict environmental restrictions and higher taxes, which drive up gas costs. The combination of state and local taxes goes up to c. 55 cents per gallon, and then California residents also have to pay a federal excise tax of 18.4 cents per gallon. Interestingly, central California had the second-highest gas taxes in the entire US, after Pennsylvania, until 2019, when the excise tax increased.

Everyone knows that California puts a lot of focus on environmental protection from a regulatory perspective. This also affects gas prices through the cap-and-trade program, which requires industries, including fuel wholesalers, to cut down on carbon emissions. Additionally, California has a low carbon fuel standard that needs to be followed. While the actual amounts of these environmental taxes vary, they impact the price of gas.

Finally, California also has a high cost of refining gasoline. The California Air Resources Board requires that gas be made from a formula that produces less air production. While this is good news for everyone’s lungs, it’s bad news for their wallets, adding an extra 5-10 cents per gallon onto their gas costs.

How to Pick the Best Place to Live in California

San Diego, California, USA

When you balance the cost of living with the great natural and cultural diversity, the overall atmosphere, and the proximity of some amazing cities like Los Angeles, San Francisco, San Diego, and more, you may find that it’s all worth it for living in California.

Finding your dream place to live will depend on several variables:

  • Proximity to where you will work
  • Urban vs. natural setting
  • Availability of schools if you have young children
  • All the costs outlined above

Some of the most popular places voted as ideal destinations for people looking to move to California are:

Fremont – San Francisco

This part of the Bay Area is very friendly and filled with affluent residents, making it a community many look to buy into. It’s also been voted the happiest place to live in America by WalletHub.

Irvine – Orange County

This is another well-earning location with a booming job market, safe environment, and very family-friendly. The housing market is relatively stable, and there are many amenities, making it a very “livable” place.

Mill Valley

Just 14 miles from San Francisco, this is a destination with low crime rates, great amenities, and a great housing market. It’s well-known for being one of the safest cities in California.

San Diego

Although a bigger city, San Diego is still a perennial favorite for people looking to move to California. It has an exceptional climate and a well-known restaurant scene. It’s the 7th happiest place to live in America, maybe because of its beautiful beaches!

San Jose

Another great pick, San Jose, is WalletHub’s 2nd best place to live in America with great, sunny weather, a good job market, and stable housing.

There are quite a few other “extremely livable” destinations to consider, although you’ll need to be aware of the high housing prices that show how in-demand these locations are. Choose from Santa Rosa, Santa Monica, San Francisco, or Palo Alto, too.

Conclusion – Is California Too Expensive to Move to, and What Are Your Options?

Golden Gate Bridge in San Francisco, California, USA

It would be difficult to assert that California is too expensive overall. If you do your research on the local housing market, weigh the pros and cons of each location, and consider the benefits of the climate, among others, you may find that you’re willing to make the compromise to move to the coast.

Why is California so expensive compared to the rest of the US? There is a combination of regulation, supply and demand, and many factors contributing to the high living costs. With the right research and decision-making, however, you can still find affordable places there as well.

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