Adam Summers: Why California’s high cost of living is not inevitable

Politicians as diverse as socialist New York City Mayor Zohran Mamdani and Republican President Donald Trump have recently tapped into voters’ concerns about affordability. This has already been an issue for some time in California. While there is little debate that it is becoming harder and harder to get by comfortably, there are significant differences in opinion over how much of the problem is nature versus nurture.

I was discussing this with a friend of mine who is politically left-of-center on most (though not all) issues. Shouldn’t we expect California to be a more expensive, he argued, given how desirable a place it is to live? There certainly are reasons why residents would be willing to pay a “sunshine tax,” I acknowledged. The Golden State has some of the best weather in the nation, its famous beaches and other natural wonders, year-round recreational opportunities and virtually unlimited entertainment options, all of which naturally lead to higher demand (and higher prices). Yet, the state has long held those advantages and still it used to be far more affordable.

The inescapable conclusion is that most of the wounds of California’s affordability crisis are self-inflicted. Here are but a few examples.

One of the most obvious, and significant, examples is the cost of housing. While housing costs in California have long been higher than the national average, it is only in recent decades that this gap has widened substantially. As the state’s nonpartisan Legislative Analyst’s Office has noted, in 1970 California home prices were about 30% above the national average. By 1980, they were 80% higher, and by the 2010s they were twice to two and a half times the national average, and have remained at those lofty levels ever since.

This widening gap coincides with the rise of environmental laws, such as the California Environmental Quality Act in 1970, and zoning and urban growth boundary restrictions that have limited housing supply and driven up prices. CEQA is so broad and so burdensome that it can kill, or cause years-long delays, in housing developments for reasons that have nothing to do with environmental impacts. Add in prevailing (union) wage mandates, excessive building codes and development impact fees, and all the red tape involved with project approvals, and you have a recipe for failure that actively discourages housing development.

The cost of government is another significant driver of affordability, or the lack thereof, and California’s is one of the most onerous. California has not only the highest marginal income tax rate in the nation, it has the three highest rates, according to the Tax Foundation. Even the state’s lower rates on middle incomes — 8%, which kicks in at $56,000 in annual income, and 9.3%, beginning at $70,606 — are significantly higher than those of other states.

The Golden State also has the highest state sales tax in the nation (7.25%) and the seventh-highest combined average state and local sales taxes at 8.98%. And the state’s corporate income tax rate of 8.84% is the sixth-highest in the nation. All of this translates to a woeful overall rank of 48th in the Tax Foundation’s “2026 State Tax Competitiveness Index.”

In addition, California has the highest gas tax in the nation at 61.2 cents per gallon. On top of that, California requires a special fuel blend that adds another 15 cents per gallon, the state’s cap-and-trade program costs another 26 cents and a special sales tax for gas contributes another 10 cents, according to the California Energy Commission. Thus, at current average gas prices of $4.22 a gallon — second only to the $4.40 average in Hawaii, an isolated island chain, and 50% higher than the $2.80 national average — more than a quarter of the price drivers pay at the pump goes to the government.

Numerous state and local laws and regulations drive up the costs for other businesses in the state as well. Whether it is the imposition of some of the highest minimum wage rates in the country; a legal system that encourages abuses of product liability, disabilities and environmental laws, oftentimes in cases where there is no actual victim; or a generally permissive attitude toward certain crimes like shoplifting (which led to a voter backlash with the overwhelming passage of Proposition 36 in 2024), all of these policies result in consumers paying higher prices for goods and services in California.

Then there are the purely wasteful and irresponsible decisions the Legislature and Gov. Gavin Newsom make, such as blowing a $12 billion hole in the state budget, driven by decisions such as expanding Medi-Cal health benefits to unauthorized immigrants or throwing away billions on the high-speed rail boondoggle.

These are all political decisions that make California less affordable, and put the California Dream further and further out of reach for too many residents. As millions of former California residents have already concluded, that is something that no amount of sunshine, sand or Hollywood glitz and glamor can overcome.

Summers is a columnist, economist and public policy analyst, and a former editorial writer for the Southern California News Group. He is also editor and coauthor of “Beyond Homeless: Good Intentions, Bad Outcomes, Transformative Solutions.”