Why Is Los Angeles So Expensive? (Top 20 Reasons)

 

Are you looking to relocate to Los Angeles California?

Did you look at the available real estate listings and almost faint in shock?

Why is it that the average price for a modest three-bedroom house runs over $650,000?

The answer is not as straightforward as you might think.

The history of the City of Angels, its sunny beachside locale, and its stunning tax rate are only some reasons more residents are being forced to look for a home outside their hometown.

 

Why Is Los Angeles So Expensive? (Top 20 Reasons)

 

1. Location, Location, Location

 

When city centers reach their population peak, they tend to sprawl into the suburbs.

Unfortunately, Los Angeles is geographically located in such a way that it is difficult to expand.

It is situated right on the coast of the Pacific Ocean to the west and is framed by the San Gabriel Mountains to the east.

Beyond the hills and canyons, the desert sprawls in every direction.

Basically, most of the land that is worth developing has already been developed.

Once a city has occupied every inch of land, the demand for new housing still exists.

Developers may opt to build higher, often resulting in higher rents.

People who want to move into the greater Los Angeles region end up in bidding wars to snare even a modest home, once again bumping up the cost of living.

Ultimately, if you want to buy a home in Los Angeles, you can expect to pay an average of $650,000 or spend $2,400 a month to rent a two-bedroom apartment.

 

2. Everybody Wants to Live in the California Sunshine

 

Why did everybody move to Los Angeles in the first place?

In the late 1800s, oil was discovered all around today’s bustling urban center.

While those first American settlers earned millions in black gold, they also discovered that sunshine and a temperate climate were an awesome combination.

Los Angeles enjoys an average of 284 sunny days every year and a mean temperature of 63.7 degrees Fahrenheit.

The average low for the month of December only drops to about 50 degrees F.

Not only does the average Los Angeles resident enjoy that 70°F and sunny lifestyle, but they also have access to all other types of climates without leaving the state.

Head up north to ski, go surfing in the ocean, and travel just an hour or two to go hiking in the desert.

So many people have been attracted to this unique climate that Los Angeles has seen its population climb from 100,000 in 1900 to more than 4,000,000 in 2020.

 

3. Hooray for Hollywood

 

What else drives the booming economy of Los Angeles that keeps driving up the cost of living?

The movie industry earned $69.9 billion in 2018.

Since Universal and Warner Bros. are based right here in Los Angeles, their continued success helps to fuel the booming economy of the city.

All the movie execs, producers, and superstars either make their permanent homes in Beverly Hills and Malibu Beach, or they maintain a second home to live in while they are working on a picture.

With budgets in the hundreds of millions, the filmmaking industry is happy to pay exorbitant prices to rent locations and housing for the crew.

Other supporting industries throughout the region also benefit from the constant demand for services.

With Hollywood happy to pay top dollar for catering, transportation, production services, and security, your average Joe ends up paying a higher price to take care of their business.

Did we mention the studio tours?

Not only does Hollywood produce blockbuster pictures, but the neighborhood is also host to some of the most popular tourist destinations in the state.

Bump up those prices at restaurants, gift shops, and hotels!

 

4. Living Next Door to the Rich and Famous

 

Did you know that Los Angeles County is home to more than 250,000 millionaires?

That is nearly a quarter of all millionaires who call California their home.

If you are shopping for a new house and are told that a bestselling author, pop star, or even financial genius lives in the bungalow at the end of the street, you might be willing to spend a little extra to snare that property.

People have always paid a premium to be seen near the rich and famous.

Along with the desire to move into the top neighborhood comes the need to fence out the curious public.

Watch home prices increase with every gated community and a private security guard on the payroll.

That star-factor also works its way into your local shops.

The hairdresser who caters to big-name stars raised their prices.

Your favorite restaurant hangs a picture on the wall and then adds another dollar to their menu items.

Doctors, private schools, jewelers, and gyms all end up on that exclusively expensive list.

Meanwhile, you have to work harder to buy a simple loaf of bread.

 

5. The Success of Silicon Valley

 

While the tech boom in the 1980s was not specifically located in Los Angeles, the explosion of Silicon Valley to the north did have a lasting ripple effect on the entire California economy.

As the Bay Area became increasingly wealthy in the 1990s and early 2000s, new tech companies searched for more affordable locations to put down roots.

Los Angeles offered a growing international transportation hub with air, rail, and a huge seaport along with an existing prosperous population.

AECOM, SpaceX, and Wyle Laboratories all set up shop in the Los Angeles area and experienced their own boom.

Other corporations built their own headquarters in the area including Panda Express, Dole Foods, Delta Scientific, and TrueCar.

National headquarters means more top-level execs earning seven-figure salaries and that continues to squeeze out the average employee in the housing markets.

 

6. Water Everywhere but Not a Drop to Drink

 

Yes, Los Angeles is literally built on top of the Los Angeles River, but that does not mean there is a reliable source of water able to support the metropolis.

The LA River runs nearly dry for the majority of the year and is heavily polluted.

To supply water to every home in the sprawling city, huge civil engineering projects were built in the early 20th century.

The cost was exorbitant!

The state spent $23 million in 1908 to install the Los Angeles Aqueduct running from the Sierra Nevada range over 300 miles to the city.

Other water sources include the Colorado River Aqueduct and a huge collection of wells that pump groundwater up to the surface.

If you buy a home in Los Angeles, your utility bill will include the cost of transporting water over hundreds of miles just so that you can do your laundry and take a shower.

 

7. Limiting City Growth in a Building Boom

 

After World War II, America couldn’t grow fast enough!

It seemed like everybody had a job and had the chance to own a house and a car.

The rapid expansion came with a price.

The demand for new infrastructure in urban areas resulted in property taxes jumping through the roof.

To prevent home and business owners from being priced out of their neighborhoods, California enacted Proposition 13 in 1978.

Now that the city and state could not add on extra taxes for new building projects year after year, the rapid development of housing, new neighborhoods, and even industry slowed down.

The urban crunch around Los Angeles began and was further fueled by new regulations and statutes.

It can easily take more than a year to receive approval to begin any type of construction in the city.

Meanwhile, property prices began a slow rise and have never stopped climbing.

 

8. Responsible Development Has a Price

 

California is one of the world leaders in environmental protection.

While it ensures that we all have clean air to breathe and water to drink, it does come with a price.

Before new building plans can be approved for housing, retail, or industry, the engineers must complete an environmental impact study.

Only approved exhaust systems for furnaces may be installed.

There must be a place for stormwater to run off without flooding local streets or polluting rivers.

Landscaping must include green space that helps to balance the carbon footprint of the project.

If the business will draw increased traffic, there must be a plan in place to offset the emissions from the cars.

Every additional project required by California to protect the planet also adds serious dollars to the bottom line.

Even an affordable housing development will end up with a higher price tag due to the local rules and regulations.

 

9. Filling Up Your Gas Tank Costs a Pretty Penny

 

Are you moving to California in search of that epic Los Angeles lifestyle?

Expect to pay an average of 25% more per gallon of gasoline compared to the national average.

As part of the state’s ongoing effort to reduce greenhouse emissions, additional taxes have been added to the regular price of gas.

What other options are there besides driving?

The LA Metro transit system has been affordably priced, but it is not accessible to more than 80% of the commuters in the Los Angeles area.

This means that you will be commuting, and you will likely be driving a car and paying way more for fuel.

You do have the option of buying an electric car, but the plug-in will cost more than $5,000 compared to a traditional vehicle.

California has invested in other types of fuel options including compressed natural gas and hydrogen.

However, finding a station for your special vehicle could leave you high and dry.

Ultimately, you will just end up paying the exorbitant price at the pump.

 

10. Buying a Parking Space Adds to Your Living Expenses

 

Your two-bedroom apartment in downtown LA includes a single parking space.

Your roommate drives their own car.

Somebody is going to have to pay for parking the second ride.

If you are savvy, you may find an overnight garage in the city that charges just $30 a day, adding another $900 to your monthly living expenses.

A smarter solution is to find a coveted monthly garage, but those are few and far between.

What if you decide to try and park the extra car on the street?

Some Los Angeles residents receive more than $5,000 in parking tickets annually.

On the other end of the spectrum, some condos are required to have at least two parking spaces per unit, reducing the amount of space left to build new apartments.

In a way, it is like snob zoning for cars.

 

11. Freeways that Are in Constant Gridlock

 

Of course, with all these cars, that means that the network of freeways in and around the city really gets a workout.

The average citizen of LA will spend one hour, four minutes commuting to and from work five days a week.

When you add in the cost of owning the car, insurance, gas, and the time taken out of your day, it results in a price tag of $6,108 a year spent solely on your daily drive.

If you were able to earn during that wasted hour instead of staring at bumpers, you could see an annual income increase of 14%.

Perhaps you could simply avoid those insane traffic jams and recoup some of your lost time.

Think again.

Rush hour now runs from 6:30 AM to 10:30 AM and kicks back in gear from 2:30 PM to 6:30 PM.

Of course, if there is an accident, that can mess up an entire day.

 

12. Big Business Means Bigger Salaries for the Privileged Few

 

New businesses continue to arrive in Southern California.

Every time that a new software company, entertainment group, or retail chain starts to see annual profits in the multi-million-dollar range, rapid expansion follows.

Before you know it, the burgeoning corporation is hiring a new VP for marketing, development, and human resources.

This success story has been played out time after time in the Los Angeles area.

The result is that Los Angeles plays host to thousands of individuals earning well over the million-dollar mark.

They can snap up high-priced homes even in older neighborhoods, leaving fewer fixer-upper homes available to the blue-collar class.

The divide between America’s success stories and the working poor continues to expand.

 

13. You Can’t Build that in My Backyard!

 

There is decidedly an affordable housing shortage throughout the city of Los Angeles.

At the same time, there are huge swaths of undeveloped acreage on the outskirts.

Those remote areas are also popular neighborhoods for some of the most exclusive mansions and ranches.

If you have managed to get your development plans past the city administration, you will likely face opposition from your new neighbors.

With those deep pockets owning all the land comes access to an experienced legal team.

Builders can watch the cost of construction skyrocket as they fight for the right to build in the courts.

Meanwhile, a new SoFi Stadium for the Rams is quickly coming to completion.

It is all a result of big money spending big money without taking the time to focus on affordable options for future workers and their families.

 

14. Designing Homes that Are Prepared for Earthquakes

 

Everybody is still waiting for the Big Quake to shake the state of California again.

Los Angeles is built on the Hollywood fault.

The San Andreas Fault ends in the San Gabriel Mountains just to the east of the city.

For these reasons, every new home constructed in the Los Angeles area must meet strict earthquake building regulations.

It can cost up to 10% more to build an earthquake-ready home compared to traditional construction.

Each homeowner will need to carry earthquake insurance.

All of this continues to add a few more dollars to the rising cost of living in the area.

However, building better houses will pay back the economy in the end.

When the inevitable does happen, fewer homes will crumble.

Your neighbors will be able to get back to work sooner, so they can pay for that extra earthquake protection.

 

15. Sticker Shock Appears on Grocery Shelves and Gyms

 

It does seem like the real estate crunch is behind the rising expense of living in LA.

Those high rents and mortgage payments end up trickling down into just about every product and service in the city.

Your gym pays a higher lease, so they pass on the costs to their membership.

You get to spend an extra 5% over the national average for your groceries.

A pair of jeans will be more expensive off the rack in downtown Los Angeles compared to shopping at a mall out near Barstow.

Those businesses also have to spend a little extra for the added cost of shipping, security services, and parking space for their customers.

Ultimately, once one person pays more, so will everybody else in their social and economic circle.

 

16. Your Waiter Requires a Bigger Tip to Pay Their Rent

 

How many people do you leave a tip for while living in Los Angeles?

Even the clerk at the grocery store or server at the taco stand has to pay that same inflated rent.

If they are going to manage to keep their head above water, they need to be earning some serious bucks off their daily gratuities.

While 15% is the recommended rate, leaving 20% for your waiter will help them keep the lights on for their kids.

Since everybody in town is struggling with this fight, don’t forget to include your hairdresser, trash collector, delivery service, ride service driver, and even your child’s teacher in your generosity.

Of course, every bit that you hand out to other deserving residents ends up piling more onto your own cost of living.

 

17. State Income Tax Takes a Bite Out of Your Wallet

 

Who gets the biggest bite out of your paycheck after your landlord?

The government.

The City of Los Angeles imposes a total combined sales tax on almost everything that you buy of 9.5%.

This results in one of the highest sales tax rates in the country.

If you earn more than $45,000 a year, you will also pay the State of California an 8% income tax.

Add to that an average federal tax rate of 7.5%, and you are handing back a quarter of your income to the government.

Where does all that money go?

It does help to subsidize one of the most affordable state healthcare systems and lower utility rates compared to the rest of the country.

It might help even more if it resulted in a lower rent for your studio apartment.

 

18. Limited Availability of Property for Sale

 

One of the strongest elements that drive the cost of living in any city is its vacancy rate.

Whether you are looking at the rental market or properties for sale, if you have a vacancy rate below 5%, more people will be competing for the same space.

Landlords can charge an extra $50 and still get plenty of applications.

Real estate brokers can egg on bidding wars.

Los Angeles has experienced low vacancy rates for the past decade, thus continuing to fuel the rising housing costs.

During the pandemic, Los Angeles has seen a slight increase in the vacancy rates as some people left their apartments to move in with family or relocate to more affordable neighborhoods just outside the city.

As the world continues to reopen, you can expect to see those vacancy rates drop once again.

 

19. Finding Public Transit Is a Serious Challenge

 

While Los Angeles does have a robust mass transit system known as the Metro, only about 7% of the population actually takes advantage of the busses, trains, and light rail.

Why is that?

The train tracks do not run through the poorest neighborhoods of the city.

Surface busses are relegated to fighting the traffic on the freeway to reach the next stop.

Travel times can be just as bad or worse compared to navigating the morning rush hour in your own vehicle.

Basically, if you want to keep your awesome job downtown, you won’t want to take the Metro to get there on time.

Why does this impact your cost of living?

You will pay $1,200 per year for a monthly Metro pass.

If you drive a car, you will pay about $1,400 a year for insurance, pay about $10,000 for a used car, and spend 25% more than an average American on fuel.

That does not even include the cost of daily parking.

 

20. Unlimited Entertainment Options that Come with a Price

 

California remains one of the most popular tourist destinations across the nation.

Los Angeles plays its part in welcoming guests from far away with a host of world-famous entertainment hot spots.

Places like Disneyland, Hollywood Boulevard, Rodeo Drive, and Venice Beach only scratch the surface of this bottomless well of fun.

Of course, when you have millions arriving every year to take in the sights, you can expect the prices to rise on every type of attraction.

You will pay more to see a movie, take a sightseeing tour, and attend a concert in Los Angeles.

Even though you drive past Universal Studios every day, you end up paying the inflated prices targeted for a wealthy tourist.