California has the largest state economy in the United States and salaries above the national average. However, that income is not always enough to offset the cost of living there.
The result does not mean that all residents face exactly the same situation. Living in San Francisco, Los Angeles, San Diego, or a coastal community can cost much more than living in certain inland areas. However, several official data confirm that, on average, California is the state with the highest prices in the country.
California has the highest overall price level in the United States
The US Bureau of Economic Analysis, known as BEA, compared the prices of goods and services across states using their regional price parities.
In 2024, California recorded an index of 110.7, the highest among the 50 states. This indicates that their overall price level was approximately 10.7% above the national average. Hawaii was just behind, with 110, and New Jersey was third, with 108.8.
The most pronounced difference appeared in housing. California's rental index reached 154.3, which is approximately 54% higher than the national average. The BEA itself points out that rents are usually the main factor explaining differences in the cost of living between states.
Housing is the expense that hits Californians the hardest
Buying a home has become especially difficult. The California Legislative Analyst's Office estimated that a mid-priced home costs about $775,000, more than twice as much as a comparable property in the United States as a whole. It also warned that the income needed to obtain a mortgage has increased faster than household income since 2020.
The Census Bureau places the median value of owner-occupied homes in California at $734,700, based on the period 2020-2024. Homeowners with a mortgage face median monthly costs of approximately $2,946, while the median gross rent reaches $2,036 per month.
These state data hide important differences. Coastal areas and large metropolitan areas tend to have much higher prices, while some inland regions are relatively cheaper.
Even so, the problem affects a good part of the state. The cited report notes that California considers an individual salary of $100,000 “low income” in seven counties, including San Francisco, San Mateo, Santa Clara, Santa Cruz, Santa Barbara and Orange.
Rent absorbs a large part of the income
The problem does not only affect those who want to buy a property. Renters also spend a significant proportion of their income on housing.
Nationally, median gross rent—which includes some utility fees—represented about 31% of renter household income in 2024. In California, the nominal rent amount is considerably higher than the U.S. average.
When a family spends such a large portion of its income on keeping a roof over its head, it has less money for food, transportation, child care, health, savings, and emergencies.
Additionally, high mortgage rates and rising property prices have made buying significantly more expensive than continuing to rent in many counties. This difference also reduces mobility, because many owners avoid selling a home financed with an old and lower rate.
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Electricity is also among the most expensive in the country
Another expense that weighs on the budget is domestic energy. The Energy Information Administration reported that California had the second highest average residential electricity price in the United States in 2025, behind only Hawaii.
Through the first five months of 2026, the cumulative average residential price was approximately 32 cents per kilowatt-hour. In May it reached about 33.25 cents.
The specific bill depends on consumption, the supplier company, the climate and the place of residence. However, high rates can put significant pressure on households that need to use air conditioning during hot spells or electric heating in winter.
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Gasoline and car use add pressure
Transportation is another central component of the cost of living, especially in regions where it is difficult to get around without a car.
The California Energy Commission explains that gasoline typically costs more than in other states for several reasons: the state fuel market is relatively isolated, a special blend is used to reduce pollution, there are costs associated with environmental programs, and federal, state and local taxes apply.
In May 2026, the average retail price of gasoline in California reached $5.95 per gallon, according to the estimate released by the state commission.
The impact is particularly strong on workers who live far from employment centers or who must travel daily on highways. In the Los Angeles metropolitan area, housing, food and transportation together represented 65.7% of the average household budget during 2023-2024. The average annual transportation expense was $14,497 and more than 90% was related to the purchase and maintenance of private vehicles.
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Food completes the core of family expenses
Food also takes up a considerable part of the budget, although the official sources consulted show that the main difference between California and other states is concentrated in housing.
In the country as a whole, families spent an average of $10,169 per year on food during 2024, around $847 per month. Housing and transportation combined absorbed half of average household spending.
In large California cities, the cost of eating out, buying food, and paying for utilities can intensify the effect of high rents and mobility expenses. However, the new ranking does not offer a breakdown that allows us to affirm that food is the main cause of the last state position.
High salaries, but lower purchasing power
California maintains high nominal incomes. The cited report notes that the state median income exceeds $100,000, compared to a national average of about $81,600. Still, that advantage shrinks when adjusted for housing, utility and transportation prices.
That contrast is the key to interpreting the ranking: earning more does not necessarily mean living more comfortably if basic expenses are also much higher.
The BEA precisely uses its regional indices to compare purchasing power. California may show high nominal income and consumption, but a significant portion of that difference disappears after adjusting the figures for the local cost of goods and services.
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California Retains Strengths Despite Affordability Challenge
The state did not perform poorly in all areas. In the same ranking, it was seventh in medical care, sixth in quality of care and fifth in public health. It also appeared sixth in higher education.
These strengths explain why California finished 35th overall and not at the bottom of the entire rankings. However, the last place in affordability shows that housing, energy and transportation continue to limit opportunities for many families, even when they have salaries that would seem high in other regions of the country.
