California’s High Costs Drive Poverty and Out-Migration, New Report Finds

SACRAMENTO, Calif. — California, long synonymous with economic dynamism and opportunity, is becoming increasingly unaffordable, with rising costs outpacing incomes, driving poverty and pushing residents to leave the state, according to a new white paper released by researchers at UC Berkeley.

The report describes a state whose prosperity is more uneven than its global reputation suggests.

 “California is less affordable and poorer than it should be given the strength of our economy,” the authors write, framing the state’s affordability crisis as both deep-rooted and worsening.

Despite boasting one of the largest economies in the world, California now has the highest cost-of-living-adjusted poverty rate in the nation, highlighting a growing disconnect between wealth and well-being.

The report’s authors set out to accomplish three goals: to demonstrate the scope of the problem, explain the underlying causes of California’s relative unaffordability, and outline a path toward a more affordable future.

What emerges from their analysis is a portrait of a state where high costs and unequal income growth have combined to erode economic security for large segments of the population. 

While California continues to generate immense wealth, that wealth is unevenly distributed, and for many residents, the cost of living has outpaced any gains in income.

The argument that California’s high costs are simply a reflection of its high incomes — often cited in policy debates — is directly challenged by the report.

While acknowledging that incomes and costs are correlated, the authors find that California is an outlier even among high-income regions.

“California is systematically more expensive than other places with similar median incomes,” the report states, concluding that “high costs in California cannot simply be explained away by high incomes.”

This mismatch between income and cost is particularly acute in housing, which has long been the central driver of the state’s affordability crisis. 

The report identifies housing costs as a central driver of rising living expenses and financial strain for households.

When adjusted for the cost of living, California has the highest poverty rate in the nation, showing how high prices erode income gains.

“Despite being a state with substantial wealth and generally robust incomes, California has the nation’s highest cost-of-living-adjusted poverty rate,” the authors write.

This finding challenges conventional perceptions of poverty, which often overlook cost-of-living differences across regions. 

In California, the report suggests, even middle-income households can find themselves struggling to afford basic necessities.

The affordability crisis is also reshaping the state’s demographic patterns in ways that would have been difficult to imagine a generation ago. 

For decades, California was a magnet for migrants from across the country, drawn by economic opportunity, climate and cultural influence.

That dynamic has reversed.

“Unaffordability doesn’t just create and worsen poverty. People are voting against California’s high costs with their feet,” the report states.

Since the 2008 recession, California has experienced sustained domestic out-migration, with more residents leaving for other states than arriving from them. The trend has intensified in recent years, particularly in the wake of the COVID-19 pandemic.

Between 2020 and 2024, California recorded the second-lowest net migration rate among states, trailing only New York.

The report attributes much of this shift to affordability pressures, arguing that the high cost of living has fundamentally altered the state’s appeal. 

What was once a destination for opportunity is increasingly a place where residents feel priced out.

Importantly, the out-migration is not limited to any single income group. 

While popular narratives often focus on wealthy residents relocating to lower-tax states, the report indicates that Californians across the income spectrum — including middle- and lower-income households — are leaving.

At the same time, the report finds that California’s high costs are not driven by a single factor but rather by a complex interplay of economic forces and policy decisions.

The state’s success itself is part of the problem.

 “Dynamic industries and natural amenities increase demand to live here, putting upward pressure on housing prices and labor costs,” the authors note.

California’s technology sector, entertainment industry and environmental appeal continue to attract workers and investment, intensifying competition for limited housing and driving up prices.

External factors also play a role.

 The report points to federal policies such as tariffs, as well as macroeconomic conditions like high interest rates, as contributors to rising living costs.

But the authors argue that these factors alone cannot explain the scale of the problem.

“State policies have played a major role in driving unaffordability — and policy reforms at the state level will be critical to solving the problem,” the report concludes.

According to the report, California’s governance structures have often failed to produce policies that promote broad-based prosperity. 

Instead, policymaking has frequently favored established interests and contributed to a system that restricts growth and drives up costs.

The report points to state policy reform as central to addressing the affordability crisis, particularly in areas like housing supply and cost drivers.

The report points to state policy reform as central to addressing the affordability crisis, particularly around housing supply and cost drivers. 

It identifies “restrictions on growth” and cost-increasing regulations as key contributors, and argues that the housing shortage is the “biggest driver of California’s unaffordability,” concluding that increasing the housing stock will be essential. 

In high-demand coastal regions, “high earners are drawn to coastal California, and outbid middle- and lower-income Californians for homes,” pushing other residents inland and driving up prices there as well, reinforcing the need to expand housing supply.

The authors say future reports will examine both the cost side of the equation — including housing, energy and other essential expenses — and the political barriers that have hindered reform.

The goal, according to the authors, is not merely to diagnose the problem but to develop a roadmap for change.

“This white paper is part of a series on creating a policy roadmap for making California more affordable,” the report states.

For now, the report serves as a comprehensive baseline, assembling data and analysis to illustrate the scope and urgency of the affordability crisis.

The report concludes that California’s economic strength has not translated into broad affordability and that policy reform will be critical to improving outcomes.

The report states, “The biggest driver of California’s unaffordability is the housing shortage,” pointing to the need for increased housing supply. 

The good news is this means that policy and governance reforms could make California a much more affordable place to live,” the authors add.

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