Believe it or not, as beautiful as it is, nearly half of California residents are seriously considering leaving the state, according to the most recent poll. Many even cite the cost of living as the number one reason.
Even if the state’s job opportunities and immaculate beauty are still a powerful magnet, the US Census data indicated that California is currently experiencing a decline in population for three consecutive years (2020–2022).
However, because of the challenging cost of living in certain cities, people are now searching for more affordable options in places where the population is still growing.
If you closely analyze the high cost of living in California, especially for the last 8 years, including yearly expenses, the cost of wages on a yearly basis, and the reports through government and private industry sources, the reasons why California is such a spicy stew are right there. Here’s what you need to know:
Impact of the tech industry on California’s expensive housing
Tech rise companies, whether we’re talking about Microsoft, Google, REI, Facebook, or Amazon, all influenced the adjacent downtowns with urban development, including fancy restaurants, coffee shops, cafes, skyscrapers, shopping malls, but also housing areas.
From 2012 to 2013, while Facebook was making its way to the Bay Area, the home value jumped from 17% to 21%, resulting in an average home value of almost $29,800. In 2018, the average price of a house in San Francisco ranged somewhere around $1.6 million, as stated by Paragon Real Estate Group.
All the “techies,” such as programmers, designers, and engineers, whose salaries begin at $100,000 on a yearly basis, had no idea just how much they had to pay to make ends meet. In fact, you would be shocked to know that household annual earnings of $117,400 are seen as a “low-income group.”.
Why is housing so expensive in California?
During the late 1960s, the average price of a home was around three times the income of an average household. But now, the price has escalated more than seven times the average household income.
On a basic level, the housing market in California is this high because of low supply and extremely high demand. In other words, there are a lot of people in a place and fewer houses to accommodate, which also leads to an increase in price tags.
As agreed by various housing experts and one of the most recent reports released by the State Housing Department, in order to keep up with housing costs over the past decades, California should have built no less than 180,000 new housing units every year.
Climate and Coastal Appeal
Even if everyone wants to come to California for the astounding weather, every positive aspect also has a negative downside. If you think of all that fire activity, flooding, and significant climate change, you might start realizing just how much of an impact it all had on Californians. Older housing puts a lot of pressure on residents to obtain the right residential property insurance.
Tourism and its impact on California’s pricing across different sectors
I think we should start by saying that California’s travel industry isn’t any industry. Starting from lodging, establishments, restaurants, cafes, rentals, retail stores, and shopping centers, it’s a true money paradise.
There are so many semi-skilled laborers who annually migrate to California looking for jobs! In fact, in 2022, California generated no less than 1.09 million tour-related jobs, which shows a 16.8% increase from the year before.
The destination also has plenty of natural wonders that attract tourists from all corners of the world. In 2022, flight tickets were 66% more expensive, and the same goes for hotel and transportation costs. Some of the most popular destinations are San Francisco, San Diego, and Orange County, which have witnessed a 71% growth in international visitors in the past two years.
Urbanization and its connection to California’s high expenses
You can’t deny that the Golden State’s incredible landscapes, thriving economy, and extremely diverse cultural growth attract thousands of people every year, which also results in urbanization. The land scarcity and, as mentioned before, the scarcity of homes, added to the stringent zoning laws in urban areas, have all caused the price of homes to skyrocket.
Only recently has California’s policy of focusing on renewables resulted in serious investments and high prices on products. To support the increasing population, all those sprawling urban areas have limited public transportation, which also imposes pressure on citizens to buy cars, leading to very high fuel costs.
Why is gas so expensive in California?
Believe it or not, California is paying way more at the pump! Back in October 2022, a gallon was $7.59 in South San Francisco. The reason for these high gas prices mainly resides in higher taxes and clean fuel requirements, but also in an isolated market.
The gasoline Californians use is meant to reduce air pollution and environmental costs. The environmental law also states that refineries should try to blend special “ingredients” for the winter and summer seasons so they can save the planet and not make too much smog.
Besides, California has 14 oil refineries, and they all produce 1.6 million barrels every day of crude oil. However, outrageous and unplanned decisions might result in less supply. Only 11 refineries are currently producing transportation fuel in California.
High income tax, sales tax, and property tax
One of the main reasons why California is so expensive is because of its taxes. Income tax rates will usually range from 1% to 13.3% in 2022. For example, an individual who earns $1 million pays income taxes of 13.3%, and an individual earning $10,099 pays 1%.
California’s state-level sales tax, combined with local sales taxes, totals somewhere around 9.75% in major cities. Moreover, if you’re a smoker, you’re also required to pay excise taxes on each packet of cigarettes you buy.
The high cost of living in California
Believe it or not, a family of four in Sacramento County has to earn $87,000 per year to make ends meet. A carton of eggs is $9; rent is getting more expensive every year; and gasoline costs $5.27 per gallon.
In fact, even a six-figure household income is seen as “middle class” in most parts of California. The Pew Research Center also shows that California has the highest cost of living compared to other states. At least in San Diego, a median-class income is somewhere around $121,500.
High healthcare costs
According to the Office of Health Care Affordability (OHCA), there are defined and upheld targets for growth in healthcare costs in California. It’s the same thing as setting a benchmark for expenses. If the doctors and hospital exceed that benchmark, the OHCA authority could easily levy a penalty on the hospital.
It doesn’t even matter that there has been ongoing improvement in healthcare coverage, mainly brought about by the Affordable Care Act. An increasing number of low-income individuals simply can’t afford the average medical treatment. In fact, a recent survey showed that half of those groups have had to postpone treatment because of the associated costs.
California’s car insurance policy
Urban areas are already so populated; imagine what happens when a beginner driver goes out on the road. Accidents happen quite often, and that’s why they now have strict traffic laws and high car insurance premiums. Insurance companies in California have raised their premiums to offset their losses in paying for accidents and injuries.
If you found this article interesting, you’ll be happy to know we have many more in store, such as: The Price of Paradise: 7 Expenses Pushing Florida Retirees to Pack Up