I'm not sure how carefully you read the page you cite.
Firstly, that 35th is 35th from the bottom - which means that California has the 17th highest poverty rate amongst the 51 states and federal district of the USA.
Secondly, that rank is based on a definition of poverty based on income thresholds that do not vary across the country:
http://www.census.gov/hhes/www/poverty/about/overview/measur...
It therefore does not take into account geographical variations in the cost of living, such as housing. Since the whole point of the article is that California has a higher cost of housing, it is therefore not a useful measure in this context, or indeed at all. That's probably why, in 2010, the census bureau adopted a better metric, the Supplemental Poverty Measure:
http://www.census.gov/hhes/povmeas/methodology/supplemental/...
Helpfully, the 2012-2014 average of this measure is also tabulated on the page you cite, and if you sort the states and the district by that, you can see that California does indeed have the highest poverty rate in the country - 23.8%, just pipping Washington DC's 22.7%
The static list measures by income - assuming that costs are the same across areas. Which isn't true.
So you can bypass convention and build $100k worth of improvements. But once the property hits the market again, the economic odds favor a buyer coming along with $600k who puts in $1200k worth of additional improvements. And then the property is at $1.8 million. It's casino odds, so to speak.
The general term is "highest and best use" and that's where property heads over time. The real estate business naturally accelerates that process because there's usually more net revenue on $1.8million properties than $600k properties, but the amount of work required to develop and sell a property is roughly constant regardless of price, e.g. it's about as hard to get a building permit, secure financing, or close a sale for a $600k project as a $1.8million project.
California ranks 35th in terms of poverty rate. [1] The graph that follows the statement shows that California's poverty rate is higher than the US average. That's not an auspicious premise for quality economic reasoning.
The constraint on housing prices in places like San Francisco is land cost. If developable land costs $500,000 per buildable dwelling unit on the open market, then $1,500,000 and up is where finished dwellings need to be priced to make development economically viable. Land supply is mostly fixed pending large investments in public infrastructure, particularly efficient extension of public transit.
[1]: https://en.m.wikipedia.org/wiki/List_of_U.S._states_by_pover...