California has long been seen as the “land of opportunity,” but a new report from the Berkeley Economy & Society Initiative (BESI) suggests the state’s economic model is leaving the majority of its residents behind.
The white paper, titled “California’s Unaffordability Problem” and authored by BESI Senior Researcher and Political Science Alumnus Samuel Trachtman, finds that even California’s high incomes can no longer keep up with its soaring cost of living.
Using Bureau of Economic Analysis data, the report shows that California now has the highest cost of living of any U.S. state — 13% above the national average as of 2023 — and that gap has been widening for years.
“When we compare California metro areas to metro areas elsewhere with similar median incomes, California is systematically more expensive,” Trachtman said. “And once you account for cost of living, California has the highest poverty rate in the nation — ahead of states like Louisiana and Mississippi that we typically associate with poverty.”
The biggest driver of high costs in California is the housing shortage, Trachtman said, with consequences he described as “severe and measurable.” According to the report, housing prices in California are 88% higher than the median state, while utilities cost 58% higher than the national average. For families with modest incomes, roughly 44% of household spending goes to housing and utilities alone, Trachtman said.
“Homeownership has become essentially unreachable for most Californians who don’t already own,” he said.
Data from the Legislative Analyst’s Office shows a household now needs an income of approximately $221,000 to qualify for a mortgage on a mid-tier home — more than double the state's median income.
The report also links the housing shortfall to restrictions on growth that have prevented the housing supply from meeting the massive demand to live in the state.
At the same time, Trachtman notes that “well-meaning regulations” aimed at improving safety, sustainability and quality push up the cost of essential goods and services. He points, for example, to environmental and climate policies that have contributed to higher energy prices, while also citing the role of current federal policies — such as those related to war, tariffs and immigration — in raising overall costs.
Beyond affordability, the paper highlights a significant shift in California’s out-migration. Between 2020 and 2024, the state lost nearly 1.5 million domestic migrants — and this trend extends beyond high-income residents leaving to avoid higher taxes, Trachtman said.
“This matters enormously for the state’s long-term economic vitality. You’re losing working-age families, middle-income workers and the tax base that supports public services,” he said. “If California can’t offer a viable path to economic security for a broad cross-section of people, that threatens the foundation of the state’s prosperity.”
The BESI team plans to continue examining how policy and public investment can address these challenges. Their future research will explore policy reforms that “foster sustainable growth” and “reform regressive regulations,” as well as strategies for California to “make better use of its government programs” and “leverage its relatively large state budget to effectively redistribute and mitigate unaffordability.”
