We live in California and boy, is it expensive! California is a huge state, with its diverse landscape, big cities, and warm climate, which is why everyone wants to live here. But the high cost of living in California has people looking for reasons why California is so expensive.

25 Reasons Why California Is So Expensive

California has an average cost of living that’s well above the national average. Housing is more expensive, gas is more expensive, food is more expensive, electricity is more expensive; you get the idea. Here are the top reasons why California is so expensive: 

1. Out-Of-State Transportation of Gas Leads To High Gas Prices

First of all, Californians pay a lot for gas because we live in one of the most expensive states in the country. The state also has some of the highest costs for transportation.

One reason why gas is so expensive in California is that we have to ship it here from other states.

For example, when you think about where your gasoline comes from, you might imagine a giant tanker truck rolling down an interstate highway with a big “CA” painted on its side. But that doesn’t happen very often.

Most of the time, California gets its gasoline by ship or train from refineries outside of state lines — sometimes even overseas.

That means it has to travel thousands of miles just to get here — adding extra cost to your tanks every month. It makes sense that we’re paying more at the pump than in other states. 

2. Strict Environmental Regulations Lead To High Gas Prices

Another reason why California gas prices are so high is that our state has some strict environmental regulations on oil refineries and fuel distributors that make it harder for them to sell their products at a lower price point than other places around the country.

These rules were put in place to protect our air quality and limit greenhouse gases as California has some of the most stringent air quality regulations in the nation, which means that it has to import its gasoline from other states.

The state also has strict emissions standards that require much cleaner burning engines, which means that cars have to be built differently and more expensively than in other states, which raises their prices too.

As a result, Californians spend an average of $1.21 more per gallon each year than people in other states because they must buy cleaner-burning fuels that cost more money to produce and sell but are beneficial for our health and the environment.

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3. Highest Gas Tax In The Country

California also has the highest gas tax in the country at up to 68 cents per gallon with the national average being 28 cents. These taxes raise the price of diesel by even more than they do regular unleaded.  

4. One Of The Highest State & Local Taxes In The US

The Tax Foundation recently released a study comparing state and local tax burdens across the nation. California ranks the 4th highest in state and local taxes, with New York, Connecticut, and Hawaii ranking at the top.

High taxes may increase prices on goods and services — which can add up to hundreds or thousands of dollars per month for residents who live in high-tax areas like San Francisco or Los Angeles.

5. High Property Taxes 

Another reason for high taxes in California is that it has some of the highest property taxes in the country.

Property taxes are levied by local governments on real estate owners based on what their house is worth and how much it increases from one year to the next (called “assessed value”).

Homeowners pay anywhere from 1% to 3% of this assessed value — depending on where you live — which can be hundreds or thousands of dollars annually. 

houses in Sausalito

6. Highest Top Rate For Income Tax In The US

The state’s tax system is fairly progressive, with higher earners paying a larger share of their income in taxes. California has the highest top rate of 13.3% for personal income tax rate. The state income tax rate for California residents can range from 1% to 12.3%

7. Highest Sales Tax Rate In The US

California has the highest sales tax in the nation at 10.75% combined with state sales tax.

Sales tax rates vary by county, with the highest average being 10.75% in Alameda County and, Contra Costa County, and the lowest being 7.25% in Alpine County, Lassen County, and Modoc County.

8. More Car Accidents Lead To An Increase In Car Insurance Premiums

California’s traffic laws are some of the strictest in the nation. In fact, California has more registered automobiles than any other state with more than 14 million vehicles.

These vehicles are on the roads more frequently than in other states and tend to be driven by beginner drivers who may not have as much experience or take as many precautions as advanced drivers.

This combination makes accidents more likely to happen and more costly when they do occur. If there are more accidents and injuries, insurance companies have to pay more money. In order to offset their losses, they raise their premiums.

view of the Golden Gate Bridge in San Francisco

9. More Ownership Of High-End Cars Leads To High Car Insurance Costs

California has some of the highest insurance rates in the country, which means that even though your coverage might be similar to what you pay elsewhere, you will still pay more than most other people in the country.

The average cost of car insurance in California is $1,429 per year. But there are other factors that contribute to high car insurance costs in California.

There are a lot of people who drive high-end cars, which can be more expensive to insure than regular vehicles.

And it’s not just wealthy people who drive expensive cars — some middle-class families own high-end vehicles as well. 

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10. High Healthcare Costs

One big reason for high healthcare costs: California’s population is older than that of most other states. 1 in 5 California residents will be 65 or older by 2030. And older people need more medical attention than younger ones do.

Plus, the state is home to some of the most expensive medical procedures and prescriptions in the country. 

11. High Land Costs Due To Less Available Land

Land prices are the 3rd highest in the country after Nevada and Colorado because there’s simply less available land for development compared to other states.

That means farmers have to pay more for their land and pass those costs on to consumers through higher prices on goods like fruits and vegetables grown here.

view of the Victorian houses and downtown San Francisco

12. High Demand And Low Supply For Groceries 

California is the most populous state in the country, which means that there are more people to feed.

It’s not just the number of mouths to feed that makes groceries so expensive in California; it’s also the fact that many people who live here have more money to spend on food than their counterparts in other states.

13. High Labor Costs

The cost of labor plays a large role in determining how much it costs to operate a business or store.

In California, wages are high compared to other states which mean that stores need to charge more money for their products so they can pay their employees higher salaries while still making a profit on each sale. If they don’t earn enough profit then they can’t stay open. 

14. High Demand For Electricity

The average price for electricity in California is about $0.30 per kWh, which is 66% more than the national average of $0.18 per kWh. This high rate of electricity can be attributed to a number of factors including: 

  • The increased use of air conditioning during the hot summer months.
  • High demand for electricity due to a growing population and increased development.
view of downtown San Francisco

15. High Taxes On Energy Costs

Energy prices are high in California because the state relies heavily on fossil fuels to produce electricity. Natural gas accounts for 38% of all electricity generation in the state with coal, nuclear power plants and oil following. 

16.  Restrictive Building Codes 

California also has some of the most restrictive building codes in America when it comes to energy efficiency standards for new homes and businesses.

This means that most new buildings have to meet very strict regulations about how much energy they can consume in relation to their size and the use of resources like water or gas for heating purposes.

These strict regulations help keep energy bills down over time by preventing homeowners from using too much at once and driving up their monthly utility fees beyond what’s reasonable for their personal needs.

17. High Housing Costs  

The high cost of living in California is not just due to taxes — it’s also because of what economists call “rental premiums.”

In other words, some people would rather live in nicer homes than they can afford if they had to rent those homes, so they buy instead.

woman sitting on a swing with views of San Francisco and the ocean in the background

That inflates home prices and rents, making it even harder for lower-income people to afford housing here.

California has a median home value of over $800,000 — nearly double than the national average. 

18. High Rent Prices

Rents are rising faster than incomes, so some people can’t afford to buy homes or move elsewhere.

The rising cost of housing makes people more likely to rent than buy a home. That’s because renting is cheaper than buying if you’re not in a position to afford a mortgage. This causes an increase in demand for rental housing, which pushes up rents even further.

19. High Demand And Low Supply In Housing Increases Property Value

High property values are driven by limited supply and strong demand from people who want to live here, especially millennials with families and seniors retiring to warmer climates.

But housing production hasn’t kept up with population growth — there are more people moving into California than there are homes being built here.

Housing supply is limited in many areas of California because building codes and zoning restrictions make it difficult to build new housing units.

The state also has restrictive environmental policies that make it difficult for developers to build on land where people live now or would like to live in the future.

20. Largest Economy In the Country

California contributes a lot to the national economy, which makes it more expensive to live there as well.

California has more than 12% of the nation’s population and accounts for 14.6% of its GDP of $3.4 trillion.

If California was a country, it would be the world’s 5th largest economy, and it’s not just because of Silicon Valley.

It’s because California has an extremely diverse economy — it’s not just tech and Hollywood. It’s agriculture, tourism, and manufacturing. 

21. Home Of Many Successful Corporations

California is home to many successful corporations and that’s one of the reasons why California is so expensive. The headquarters of Apple, Google, Facebook, and Cisco are all in the San Francisco Bay Area.

view of Golden Gate Bridge in the background

These companies’ employees are highly paid and they want to live in areas where they can easily access their jobs. This drives up the cost of housing in areas like San Francisco and San Jose. 

22. Higher-Paying Jobs

California also has a lot of jobs available in technology and entertainment. These can be high-paying jobs that require highly educated workers who can manage large amounts of responsibility.

The tech industry in particular requires skilled workers with advanced degrees who can work long hours on projects with tight deadlines.

This means that companies have to pay higher salaries, which increases costs for consumers everywhere else in the economy as well.  

23. Highest Number Of Millionaires In The US

The cost of living in California is high because it’s home to many rich people. California has the highest number of millionaires than any other state in America.

It also has the highest concentration of billionaires with over 186 residing here. The state has long been a magnet for the wealthy, and that has driven up housing prices and other costs.

24. Year-Round Pleasant Weather 

California has great weather and an outdoorsy lifestyle that is hard to find anywhere else in the country. The weather is what draws people to the Golden State.

The climate is mild and sunny, which makes it an ideal place to live and visit. California’s diverse geography is also a factor.

There are many different types of climates in California that attracts tourists from around the world all year long. You’ll find warm days and if you drive a few hours north, you’ll see snow – all in California.

25. California Has It All

California is home to some of the most popular cities in the world: San Francisco, Los Angeles, and San Diego.

These cities all have a large number of tourists coming through each year, which drives up the price of living in these areas.

The state is also a popular tourist destination because of its beautiful beaches, mountains, and deserts.

a street in San Francisco

Plus its home to Hollywood! California is known for its film industry and a lot of movies are made here. People from all around the world visit California to see their favorite stars.

Another tourist attraction is Disneyland, which was built here. It’s one of the most visited theme parks in America because so many people just want to see and ride on all those rides they have heard about so much. This leads to an increase in tourism, which in turn has made it more expensive. 

Frequently Asked Questions

Is California actually expensive?

Yes, California is expensive if you choose to live in the major cities or its suburbs. If you go further inland, the prices aren’t as expensive but aren’t cheap either. 

Why is living in California expensive?

Living in California is expensive as there is more demand and less supply of resources and most people can afford the higher costs.

Why is California the most expensive state?

Everything in California including housing, groceries and land is more expensive than other states and those costs can add up to a higher cost of living. 

Why housing is so expensive in California?

Housing is so expensive in California as there is a limited supply of housing but a high demand for housing due to an increasing population. 

Final Thoughts

While it is expensive, the Golden State has a lot to offer to the people who live there.  Being from the Midwest, I never understood why California was loved so much until I moved here.

It is home to famous landmarks, great weather, beautiful beaches, and more. It’s not meant for everyone but if you plan to live here, then you can live an exciting life in California.

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