California’s punishing cost of living isn’t inevitable—it’s policy-driven. Burdensome regulations have sent housing and energy prices soaring, crushing incomes and deepening poverty. Smarter deregulation could bring back the Golden State’s long-lost affordability and historic role as a “land of opportunity.”
In 2024, California had a poverty rate of 17.7%, meaning about 7 million people were unable to afford basic necessities, well above the national rate of 10.6%. Child poverty nearly tripled from 7.5% in 2021 to 18.6% in 2024. The state also reports the nation’s largest homeless population of 187,084 individuals in 2024.
These outcomes stem from an economy burdened by regulations, particularly those governing housing supply and energy production, which inflate costs and trap Californians in cycles of poverty.
The Golden State’s housing prices substantially exceed national norms. The price of mid-tier homes (35th to 65th percentile) is twice as high as the typical U.S. mid-tier home, averaging $775,000 in early 2026. Even the cost of California homes on the bottom-tier (5th to 35th percentile) exceeds the national mid-tier median price. This disparity arises primarily from supply constraints imposed by land-use and environmental regulations.
For example, the California Environmental Quality Act mandates comprehensive environmental impact reviews for most development projects. Compliance costs for local zoning, environmental codes, and reports can cost hundreds of thousands of dollars, reaching over $1 million in some cases. Complex CEQA litigation adds an average of two years to a project’s timeline. This ultimately deters investment, reduces housing supply, and drives up home prices.
California leads the nation in the share of households devoting more than half their income to shelter. Approximately 28% of renters and 14% of homeowners fall into this category, far above national averages. Rent caps and legal processes allowing tenants to live rent-free for six months to a year disincentivize affordable new home construction, exacerbating shelter affordability.
These rules and regulations crowd out spending on food, education, healthcare, and savings—locking families in poverty traps.
A 2025 Niskanen Center study finds that rental cost increases from 1980 to 2023 raised the resources needed to lift all of California out of poverty by $13.3 billion, more than offsetting the $11.4 billion in SNAP benefits provided over the same period. Additionally, a 15% decline in relative rental prices in high-cost San Francisco and Los Angeles could deliver poverty reductions comparable in magnitude to the 2021 Child Tax Credit expansion.
In other words, if California made the cost of housing and living more affordable, much of the bloated welfare and social safety net system could be reduced, along with the number of people in poverty.
The Golden State’s energy prices also rank among the highest nationally. Current residential electricity rates average 33.75 cents per kilowatt-hour—roughly 87% above the U.S. average of 18.05 cents per kilowatt-hour—and the state’s gasoline prices boast $6.14 per gallon against the national average of $4.56 per gallon.
A key driver is California’s Renewable Portfolio Standard, which mandates increasing shares of electricity from renewables, as well as tax and environmental policies that have raised compliance costs for utilities. Energy producers like Chevron have fled the state, leading to California’s dependency on oil imports and driving prices higher.
These elevated energy costs, derived from onerous regulations, ripple across the economy into everything Californians do and buy. Households face higher utility bills while businesses pass on increased transportation, production, and distribution costs to consumers in the form of higher prices or workers in the form of layoffs. A deregulated energy sector would, by contrast, foster competition and innovation and put downward pressure on prices.
California has one of the highest regulatory burdens in the U.S., with 420,434 state restrictions as of 2023 and over 1.5 million combined federal and state rules. These regulations contribute to higher costs for businesses—for example, a Salinas Valley lettuce grower incurred $1,600.12 per acre in regulatory expenses in 2024.
The time required to navigate a complex regulatory environment stifles entrepreneurial activity. According to a 2024 Mercatus study, the growth in federal regulations between 1997 and 2015 correlates to 14,442 lost jobs annually, 7.35% higher consumer prices, and 754,458 additional people living in poverty nationwide. These effects are amplified in heavily regulated states like California, where small businesses still rank regulations as a top concern, according to the National Federation of Independent Business.
Until California reins in the regulations that make housing and energy costs skyrocket, affordability will remain out of reach—and so will opportunity.
