California is the place to be—unless you’re middle income and need an affordable place to live

If you’re looking for a job or a healthy lifestyle, California remains a dream come true.

Our economy created 3.4 million jobs in the 10 years since the worst of the Great Recession, accounting for one out of every seven new U.S. hires. The nine-county Bay Area would itself be the nation’s richest state, although the San Joaquin Valley and Inland Empire together would rank 48th among all states in wealth.

California continues to improve its health outcomes, ranking 12th among all states, compared with a ranking of 25th in 1994. Credit our low rates of smoking, obesity and occupational hazards, high physical activity, and enviable clinical care.

But there’s a problem.

Many Californians can no longer afford California.

In 2019, California lost more residents to other states than it gained from foreign and domestic immigration combined. This continues a worrisome trend of California losing residents to domestic migration for each of the last 19 years.

Academics have produced some evidence that high income taxes are chasing out some very wealthy individuals, but the dominant domestic migration trend is what you would expect in an expensive state: families with lower incomes move out; families with higher incomes move in.

It’s not as if residents cannot earn a decent income in California.

Since the end of the recession in 2011, average household income in California increased by about 25%, well above the national average. The California premium was reflected at every income level. Nearly all our neighboring states lagged California in income growth.

Where our state is losing the competitive edge is in residents’ ability to make ends meet, especially for lower- and middle-income Californians.

How can state leaders reverse these trends?

Quite simply: address the causes and consequences of affordability, especially for middle- and working-class Californians.

California’s infamous housing crisis lies at the center of many of the state’s ills, from our high poverty rate to intractable homelessness and flight of middle-class workers and jobs. Lack of affordable housing remains one of the gravest threats to California’s otherwise booming economy.

Elected leaders can moderate the supply-induced affordability squeeze by capping local housing fees, reinstating tax increment financing for targeted economic development to help pay for local infrastructure and housing, quashing further attempts at rent control, removing litigation cost premiums on new housing, and improving highway and transit capacity for new housing to ease the commute for homeowners unable to afford expensive coastal or urban housing.

Californians are paying the highest and fastest-rising residential electricity costs in the nation. Residential rates and commercial electricity costs are, respectively, 42% and 47% higher than the national average.

Owning, operating and spending time in a car is a major expense for California workers. Even after decades of investment in alternatives, more than eight out of 10 California workers drive to work alone in a private automobile. 

Long commutes by automobile mean substantial fuel consumption, which burdens commuters since the price of motor fuels persistently tops the nation.

Elected leaders can moderate rapid growth in Californians’ energy costs by throttling back the sprint toward costly CO2 reductions whose costs have landed on ratepayers and motorists, but whose direct benefits have been difficult to measure. Leaders also can help by permitting development of in-state energy sources that are clean and price-competitive, or that would simply be replaced by dirtier or less secure offshore sources.

Californians pay among the highest tax rates in the nation, including the steepest and most progressive personal income tax, very high state and local sales taxes, high gasoline and diesel taxes, and stiff local business and utility taxes.

State leaders must maintain fiscal discipline, especially in anticipation of an eventual economic downturn. They should also reject new, discriminatory state taxes based on who the taxpayer is, what the taxpayer makes, or what the taxpayer sells. Elected leaders should also resist efforts to undermine local taxpayer protections, whether by rolling back Proposition 13 or easing the ability of cities and counties to raise taxes.

Sadly—but fortunately—many of the challenges California faces are self-inflicted. By summoning their collective will and overcoming entrenched interests, Gov. Gavin Newsom and the Legislature can modify the policies that have burdened their voters and families with high and rising costs.

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Loren Kaye is president of the California Foundation for Commerce and Education, a think tank affiliated with the California Chamber of Commerce, loren.kaye@calchamber.com. He wrote this commentary for CalMatters.To read his past commentary for CalMatters, please click here.