[Editor's Note: This post by Harry Sit, who has been blogging for years as The Finance Buff, came in response to my Invitation to Contribute a few months ago. As you might imagine, he's a very talented financial writer. What a pleasure to hardly have to edit or format at all! We are co-authors (along with many others) of The Bogleheads Guide to Retirement Planning. We have no financial relationship.]
I'm answering Dr. Dahle's invitation for guest posts after someone suggested that his blog should feature more diversity in lifestyles. I chose the topic “How to be successful financially despite living in a high-cost of living (HCOL) area” because I have experience with it.
VHCOL Meaning…Think San Francisco
My wife and I have worked and lived in San Francisco Bay Area for nearly 20 years now. These years form the bulk of our working life. The cost of living in the San Francisco Bay Area ranks among the highest in the country. In spite of it, we are financially successful by our own standard. We are reducing our savings rate toward breaking-even between what we make and what we spend, with the eventual goal of spending more than we make. Yes, even in a HCOL area you can still be financially successful.
VHCOL? Here's How to Still Be Successful
Our financial success comes in part because of the HCOL.
Good Paying Jobs in VHCOL Cities
Except in say Hawaii where nearly everything has to be shipped in, high cost of living isn't created in a vacuum. The cost of living is high because many people want to live there. Many people want to live there because many good paying jobs are there. Salaries in the San Francisco Bay Area rank among the highest in the country.
Going by the nifty chart from NPR — How Far Your Paycheck Goes, In 356 U.S. Cities — the $42,802 median income in San Jose metro area, where we live, feels like $33,309 after adjusting for cost of living. The $29,331 median income in Salt Lake City metro area, where Dr. Dahle lives, feels like $28,095 after adjusting for cost of living. If a job pays the same multiple of the median income in San Francisco Bay Area versus in Salt Lake City, I'm still better off doing it in the San Francisco Bay area after adjusting for the higher cost-of-living.
Doctors may be different. The income doctors make may not differ as much by where they live (is it really true?), but we are not doctors. The jobs we do in San Francisco Bay Area pay more than the same jobs elsewhere. [One other possible minor criticism on this point is perhaps Harry should have used net income, which decreases the apparent difference between salaries in high cost/low cost areas. At the low end of the spectrum, the lower salary is eligible for more credits. At the high end, the marginal tax rate may be quite substantial. Nevertheless, his point stands for the vast majority-ed]
A high income provides the raw material for financial success. It'll be difficult if you don't have much to work with. For us W-2 employees, it means getting high-paying jobs.
High-Dollar Savings
Even if the pay is less after adjusting for cost-of-living, you can still save more in absolute dollars with a higher pay. Using doctor-scale numbers, suppose you make $300k in San Francisco Bay Area and you save 30%, versus you make 250k in Salt Lake City and you save 30%, you save more in absolute dollars in the higher cost-of-living area — $90k vs $75k — even though your $300k in San Francisco Bay Area feels more like $230k in Salt Lake City.
Remember that you don't have to spend your retirement savings in the high cost-of-living area! If you take your $90k/year savings plus your investment earnings over the years to Salt Lake City, you will have more than if you stayed in Salt Lake City all along.
The key is to maintain your savings rate in spite of high cost of living, which leads to our next topic.
Lower Living Standard in HCOL City
Economics says when something costs more, you consume less of it. A major part of cost-of-living is housing. The average home size in our area is more like 1,600 square feet versus the national average 2,600 square feet. You maintain your savings rate by consuming less housing. If you insist on a 2,600 sq. ft. home, you will have to spend a lot more.
Dr. Dahle has a boat [which he will be using to transport 8 friends to some Lake Powell canyoneering adventures as you read this-ed.] We don't. Dr. Dahle has an $11,000 table set. We don't. In this high cost of living area, our living standard is lower. That's the price you pay for living in the high cost area.
Let the high cost of living squeeze discretionary spending, not the savings rate.
When you are conditioned to a lower living standard, your high-dollar savings will go even farther when you eventually retire to a low cost-of-living area.
Forced Leverage
A 1,600 sq. ft. home still costs a lot in our area. After you buy it though, the higher price also leads to more dollars leveraged. You don't buy a home as an investment but sometimes it becomes an investment whether you intended it to be an investment or not. If by luck you run into a good real estate market, more dollars leveraged means more appreciation.
You don't seek out high leverage on purpose; leverage also cuts both ways. Sometimes you just get lucky and it contributes to your financial success. [It seems to do that a lot in the Bay Area, doesn't it?-ed]
VHCOL Drives Extra Motivation for Tax Efficiency
California is notorious for high taxes. When you are in AMT phaseout, even qualified dividends and long-term capital gains can be taxed at 40% between federal and state. It creates extra motivation for maxing out all available tax-advantaged accounts: two 401k's, two backdoor Roth IRAs, solo 401k for self-employment income, mega backdoor Roth, HSA, and 529 accounts. You also have to keep your taxable accounts extra tax-efficient, such as putting stock funds in tax-advantaged accounts and muni bonds in taxable.
You can still be successful financially when you work and live in a high cost-of-living area. You have to work extra hard in some aspects. In others, high cost of living actually helps.
I'm sure many other WCI readers also live in a high cost-of-living area. Let us know what you think in the comments section. What did you have to do to compensate for high cost of living? Do you think living in your high cost of living area is net positive or net negative for financial success? Comment below!
Being forced to live in a high COL area has definitely changed my life. I’m forced to stay here to help my parents but it’s actually pushed me to become smart about my finances.
I used to think that i would just hire someone to do all this finance stuff, just like the majority of other doctors. Then I realized I’m gonna be taking a relative pay cut to stay here as opposed to moving and make more somewhere else with lower COL. Physician salaries do often vary greatly depending on location – at least for emergency medicine.
Anyways, with so taxes so high I googled something along the lines of “doctors reducing taxes” and came across WCI about 1 year ago. The rest is history.
Personalfinance and financial independence has become a hobby of mine and I am forcing myself to max out retirement accounts and save extra through taxable accounts. It will make a huge difference when I hopefully retire in a much warmer and more tax friendly state. Thank you to WCI and the Finance Buff for all your posts in educating us and affecting our future.
I wish I could scream this from the rooftops: location matters! Moving to an expensive place to live has absolutely changed everything in our financial life. With high cost of living comes mega-great reimbursement. What we had to realize was that the student loan debt was the same no matter where we lived so taking a job that paid 4x the annual salary was a risk worth taking. Granted, I bought a small personal watermelon for $25 today.
With physicians, high COL does not always mean high reimbursement. Most surveys of physician salary show the opposite- the high COL areas in the northeast and the west have lower salaries than the south and midwest. Less demanded areas often will pay more to entice MD’s to come to work in their less desired regions.
Great point on student loan debt. All of sudden it doesn’t look so daunting when it’s measured in the number of watermelons. 🙂
And in other news, Alaskans have no state income tax and get a permanent fund dividend each year. Alaska isn’t the Bay Area, for better or for worse.
But you’re right that you can’t generalize, you actually have to look at the numbers.
Ha, this was the guest column I was going to write as a 2 physician family in the city of Chicago.
One area where I really want to agree with the poster is home prices. My wife and I are looking in the 700-800 range (combined income around 500 so I think that’s more than reasonable). Yeah, we’re not going to get a 6000 sq foot mansion but we don’t want one. What I notice with my partners who live in the burbs or in smaller cities is that they’re paying the same or more. Obviously they are getting more house, but that’s not really the same as saving money is it?
When we talk about COL areas I think it should really be broken into about 4 categories:
Ultra: Manhattan, SF
High: Chicago, Seattle
Moderate: Nashville, St. Louis, Salt Lake
Low: really small places no one has ever heard of.
The longer I do this the more I suspect that only docs who are really killing it with their COL are the ones who live in truly low COL areas but hey, a lot of us don’t want to live in a place where Chili’s = fine dining… That’s a decision we make just like Jim’s decision to have his much-maligned boat 🙂
Which shows up in 48 hours…
At least in anesthesia there is a definite inverse relationship between income and cost of living. Go to the south or midwest, make big bucks. Stay in high col areas, higher supply of doctors means lower salary.
One exception for anesthesia: Vegas will pay north of 500 if you can put up with terrible schools
As Paul said, physicians in general get paid less living in the Northeast and the West. We moved away from a HCOL area right out of residency not even realizing the magnitude such a transition will have.
When moving translates to making an extra $50k more which is taxed less and then the cash goes much further, you can see how much easier it would be to reach financial independence. It could be the difference of saving an extra $50K+/yr. This increased savings rate is worth millions when you retire.
Moving from a HCOL area was the best decision we have ever made financially speaking. From there it has translated into increased happiness because we were quickly able to create a large financial cushion, travel more, and now have nicer things compared to physicians in a similar field living where I grew up.
Then add that that HCOL areas tend to not have tort reform which leads to more lawsuits and higher malpractice fees. Getting sued I understand can be a very stressful and traumatizing process. A friend of mine went through a lawsuit which also led to divorce.
Physicians need to vote with their feet and run away from these HCOL lower paying jobs.
Definitely an interesting perspective. I live in CA but in a smaller town. I make more moonlighting as a EM resident than many of the cohorts do in the major metropolitan area a few hours south of me. Incomes are on the matter of 50-100k less in the metropolitan area with a significant increase in the cost of living. Additionally I have found the job market to be more competitive making it harder to make partner, less total compensation package (benefits, etc). I would expect this to be true for most fields of medicine, except maybe plastic surgery? Living in a low(er) COL area has definitely added to (the start) of my financial success. Definitely an interesting perspective, but I just have to think that it doesn’t apply to most physicians.
Plastic surgery is no different. Being that Cali has a great appetite for it makes it the place to be, but its still just as tough to find a decent job, etc…as competition decreases prices and physicians arent smart enough to realize they dont actually have to compete directly and attempt to commoditize themselves.
I could probably make more in the MW or somewhere…but would probably not be doing the case mix I want either. Everythings a tradeoff. I tried to mix it up a bit, go where the appetite is, but not quite the cost of living of SF/LA.
MP,
Here is a list of LCOL areas with high paying jobs and good food. This is just a short list of the top of my head.
Nevada, Reno, Dallas, Pheinox, Houston, Fort Lauderdale, Atlanta and I’m sure there are plenty more I have not visited.
And if you eat a lot at home, the cost of living is even lower!
ha, it was just an example i.e. a surrogate for big city culture.
THAT said, you can’t really compare the food scene in Houston or PHX to Chicago dude 🙂
food/culture:MP::boat/rock climbing:WCI
we all have our splurges don’t we?
i know people who make <$100k and drive a brand new car who act like it's just crazy that we occasionally drop $800 on dinner.
Is it bad to spend $800 on rope and think nothing of it? 🙂 Would you think less of me if you knew that with just the amount of rope in my garage I could rappel down the tallest building in the world….3 or 4 times?
i would think more of you, because i agree with you that it’s positive to buy nice stuff that really makes you happy once your are crushing your savings goals (which we are!).
$800 for a rope seems pretty steep, but i guess if that’s all there is between your ass and the floor of the canyon maybe it’s not an area for personal economy.
personally i’ll take my jollies mixed with vermouth, bitters, and an orange zest.
Good climbing/canyoneering rope goes for about a buck a foot. I just took a 300 footer, two 200 footers, a 120 footer, and a 72 footer out of the car last night when I got home. You can probably get a lot of vermouth in exchange for 300 feet of rope, but you can’t tie it to your trailer hitch and descend into Egypt 2 with it.
http://authors.library.caltech.edu/25058/2/swhikes/photos/phegy2.JPG
Have you been to Houston lately> The food is seriously fantastic.
As long as its served indoors, or between November and February, I’m interested. 🙂
Concur – Houston food scene is phenomenal! Also airports are excellent. Weather and traffic not so much.
sounds like somebody who hasn’t been out to eat in houston in the last 10 years…
There are certain things you dont go too cheap on. Climbing rope is in that category, as are bicycle wheels, etc….
Those items also get cheaper the more you use them, or at least your getting your value out of it.
It seems that living in a high COL area can definitely stretch you financially. One detail that I think the author loosely mentioned is that with home ownership in a high COL, after decades of scrimping to pay the enormous mortgage, you potentially have a significant amount of home equity when you retire, if you then move to a lower COL area, you can swap out your two million dollar closet for a $800k mansion and pocket the difference to be used toward living the good life during retirement. We see this all the time in a very nice nearby community in Utah (Alpine). Many of them moving here from…you guessed it, California.
What? Houses here are only $600K? I’ll take two!
This site makes the good point that you can do well in a high COL area if you have a correspondingly increased salary. Of course. In Emergency Medicine at least, San Francisco seems to pay much lower than other areas. Just an hour north, salary goes up almost $100 per hour. Living in SF seems to entail double the cost of housing, increased other daily expenses, and a 30% decrease in salary. Not at all the golden solution proposed in this article.
For a 2 income family such as mine (wife is the doctor, I am an engineer) I agree with the writer that non-medical income is higher in high COL areas. But as others have commented, medicine provides financial incentives to draw workers to low-density parts of the country.
There are emergency medicine moonlighting opportunities that pay $300 to $500/hr 2 to 3-hours outside of Chicago (southern Illinois).
For us, we found a good middle ground in Chicago. My wife commutes 1-hour to a hospital northern Indiana for $135/hr (higher than the rates in Chicago itself, plus protection from the malpractice limits in Indiana). I ride the bus or train (or walk on a nice day) to my job in downtown Chicago. And I am home at 5:30 everyday to spend time with our 1-year old son. Some coworkers who live in the suburbs (more house) spend an hour on the train and get home right when it is time to put their kids to bed.
Maybe at some point moving out west (Utah, Montana, Idaho) would be the right move (when the kids are old enough for outdoor recreation. For now, being able to walk to museums, parks, and restaurants plus the high density and diversity of the city (we were able to find a Russian-speaking nanny, something that was important to my Ukrainian wife. Not sure the rural areas would have that option).
Overall, many roads to Dublin and as long as you are maxing out retirement accounts, living below your income, you will be in good shape. Even in high COL areas (Chicago is moderate), an MD can find creative ways to get around low reimbursement (commute to a more rural area). My wife even works with someone in Indiana who commutes in from the DC area to work 3-4 shifts, then goes back home for 4 days to be with his family.
James, a great point regarding diversity. Unfortunately, many people looking for diversity (culture, food, language), are simply unable to find that in some of the smaller (=lower cost of living area). The trick is to find work and hour or 2 from a major metropolitan area and be within reasonable distance between your work and the city.
We all have to decide what to spend our money on. We can spend it on vacations, boats, fancy houses, diversity, being close to family, taxes, good food, early retirement, or whatever. I just encourage people to consider the financial ramifications of their decisions prior to making them.
^^^^ this x 1000
I’ve practiced in San Diego and I’ve practiced in rural Alabama. I enjoyed both although they were very different. Happiness is a choice. Grow where you are planted, etc.
James, I was considering a move to San Diego from the midwest. Now that you’ve been both places, what do you think? I also have a non-MD husband (IT) and a small child. What I’ve researched in my job as a hospitalist, it will be slightly higher salary then the midwest, but I’m afraid of the shock from moving to a LCOL to a HCOL area.
Makes a world of difference depending on the specialty. In deciding to skip LA/SF/NY where most of my family is located, I ended up with double the starting salary (and wound up in an area with no state tax to boot)
Just to add a bit more data to the many anecdotes above regarding how the conventional wisdom of higher salaries in higher COL areas doesn’t hold true for physicians:
http://www.theatlantic.com/health/archive/2015/01/physician-salaries/384846/
This Atlantic article references this Doximity tool:
https://www.doximity.com/careers/methodology
My account hasn’t been verified by Doximity so I can’t access it directly, so the solo datum besides the heat map in the Atlantic writeup is their line: “In an even more drastic example, the average anesthesiologist practicing in Massachusetts would increase her salary by 61 percent if she moved to Wisconsin.”
The salary number isn’t everything, of course (see: match on employer-sponsored accounts, number/quality of tax-deferred accounts, malpractice expense), but it’s a good starting place for broad comparisons.
Does this article reflect current housing costs or 20 years ago? And did he factor today’s costs for kids into the equation? We moved back to the Bay Area after residency last year to be close to my home town and to live in a crap shack to pay off the loans (tks whitecoat!). After being back I realize we severely underestimated how much housing (>900 sqft) has gone up since we lived on the Peninsula a few years ago. The trade-off’s for a family fresh out of residency starting in the Bay Area today are high. ED salary in the Bay Area is low (in neighborhood of 200K depending on how much you work) and good environments where burnout isn’t a concern are hard if not impossible to find. Two kids in daycare, 3-4K if not more a month assuming you get in off the waitlist. Housing costs in good schools probably require a gamble on house appreciation and downsizing before one pay’s off the mortgage. After all that you start to look at taxes and you really begin to question how much good weather is worth. Even with my 130K+ salary and an ED salary the combined income doesn’t allow us to meet our family life goals in the Bay Area. So we’ve decided the COL is to high and are planning a move. But everyone has to answer the where to live question themselves.
The Bay Area cost of living was high relative to other areas in the country back then as it is now. When we bought our home, we paid exactly double what the previous owner paid only 5-1/2 years before. We still made it work, due to factors mentioned in the article. I agree if the pay is low (in absolute dollars, not just relative to the cost of living) there isn’t much point in incurring the high cost of living.
Your point on the cost of kids is a very important one. Next year I’ll be paying $3,500 for private kindergarten in a small town in the South. I looked up current kindergarten tuition in the New York suburb I grew up in and it was $33,800 where I went to school. And my son’s school is a lot more down-to-earth and has smaller class sizes to boot. To be fair, my old school includes meals in the tuition, which my son’s school does not…
By the way, this isn’t posted to get into a merits of public vs private debate. I just use it as an example of how skewed things can get.
I find it amazing how much more private schools cost in California vs Utah. What might be $10K here is $30K there.
The comments about the SF Bay area ring true to me (2 physician household-no kids yet)
And the HCOL is one of the reasons we’re moving away (closer to my family is another reason)
While I think 2 MD households will always do well (assuming you LBYM) it is hard to “Get by” when you think about student loan repayment, trying to meet the American dream of owning a home, etc.
I hear frequently that physicians more than 5 years out from training can’t afford to purchase a home. The ones who have, often have a non-physician spouse who is killing it in tech, or have some family money (whether to help with the downpayment of a home, or avoided student loans due to family support)
In short, the low pay/HCOL makes the Bay particularly unattractive for physicians purely from financial matters. Now the climate, cultural diversity etc, sure made it a tough decision for us to leave!
I live in hawaii. Average physician pay, nothing great. 10 percent state tax. 3300 monthly mortgage for a 1200 sq foot home. Private schools for the kids 20k per year (hawaii public schools have problems), $6 gallon for milk, currently $3.15 gallon for gas, you get the idea. It’s a struggle to save. So yeah, Alpine UT count me in once I retire.
We live in Seattle. DH is an ER physician and I’m an academic. I grew up in WA state and all my family is here so it is home, which is a strong pull. For the most part only large large universities hire my particularly expertise and so there aren’t many choices close to home. The biggest cost in Seattle, like many high cost areas, is housing. We bought conservatively and got lucky buying 3 years ago. We also are not having kids, which saves money. The cost of my meager academic salary probably (maybe) makes up for living in a higher cost area, though I’m not convinced since my FTE is grant dependent and not steady. But we reliably save >25% and have plenty to live on. And being at the UW I have a retirement and VIP so we have plenty of venues for pre-tax savings.
I would argue for low-cost area any day. What I think should be mentioned is that there are many cities in US that are very affordable and wonderful places to live. Also, having kids makes a big difference. We live in Columbus, OH and it is a wonderful city for kids and I would say is low-cost. We are relatively spoiled here with good schools, nice homes, I refuse to commute longer than 15miles each way here. I cannot imagine people on East Coast or above example from poster in Chicago who commutes 1 hour each way to work.
I guess it is what your priorities are.
As a resident? Sure. “It’s in the book.”
But there are much better places to work and have a family.
MGoBlue.
When I lived in Chicago briefly, I paid to rent a single ROOM what I pay now in mortgage, and it was a good deal (I also pay a condo fee now). If I wasn’t married I could probably live in a podunk LCOL area and make hella bread, but my wife wouldn’t put up with it.
Professional opportunities are sometimes better in HCOL areas for the non-physician spouse. However, in the Bay Area many parents seem to prefer sending their children to private schools, driving up expenses. I’m not sure if this is plainly a phenomenon on the Coasts but it wasn’t much of an issue in the mid-west.
When I worked for a large practice in NYC, the practice manager told me that I was the *only* person maxing out my tax-deferred retirement contributions. Why I asked? Because most of the other physicians just couldn’t afford to contribute under the weight of their “super-jumbo” mortgages, $38K private school tuition, and six-figure nannies, dog-sitters, and doormen. I quickly realized that I was NOT going to get ahead financially in NYC, so I left.
While our desire for luxury hasn’t changed, there is now fierce downward pressure on the wages of physicians in most HCOL areas in almost all specialties, mostly due to the oversupply of new grads in hip, urban centers combined with acquisition of practices by hospital conglomerates and for-profit corporations. Starting salaries are the same as they were when I finished residency 12 years ago (which is a 25% pay cut in inflation-adjusted dollars).
high cost of living + lower income = more stress
What are the right reasons to live in a HCOL areas despite the worsening financial pressures? (1) You have a significant other whose career benefits from the location or (2) you are actively seeking a significant other whose career benefits from the location.
What is the worst reason to live in a HCOL area? Ego – because you secretly think you are better than your peers because you live and practice your specialty in a trendy, cosmopolitan center.
That’s not unusual. In my group of 100+ docs, only 8 of us maxed out the DBP until recently.
stories like that give me a headache.
i tell my residents “you shouldn’t even KNOW what your paycheck would be if you weren’t maxing out your retirement accounts.”
We live in the Bay Area and according to the logic of some one should not get married, have kids and keep living on a mattress on the floor in a rented room (which I did in med school/training) to keep costs down. I think piece’s point is that it takes more work/attention to make the numbers work in high COL areas. If you don’t place much value on art, culture, diversity, etc. just round/see patients, say hi to kids, go to sleep, repeat then you should find the state with the cheapest COL and go there.
That said, seems like I still see a lot of Teslas in the doc lot.
I think the idea of culture , art etc you flippantly observe as being the property of a high COL is questionable. one the high cost is relative. in New York there are high taxes same with Cali. what if you don’t live in a big city- you miss out on these so called artsy experiences yet still have a high COL.
Furthermore, the claim that big cities provide arts and culture over smaller areas is questionable. I think tech wise i may miss a few (latest app for a big city) or maybe I am missing on certain experiences like art galleries but if I really want the occasional opera i can always travel there instead of paying an arm and a leg to experience it.
Technolog- i.e. the internet makes a lot of your arguments moot- i can easily see movies/ theater etc through video streams that make these experiences available. If I really want to I can travel for a week and stay at a city and see whats there to offer. But to actually think living in these place makes my life somehow more meaningful is absurd.
I think what the OP posted about higher COL area paying more is true in the IT market but is certainly not true in the medical field. There are many medium to large sized cities that have decent COL and pay very well. The trick is to find a good job there.
As regards to saving a lot and living like a miser in the earlier years, one can save and also take good vacations, have a decent house and drive good cars if you live in a lower COL. It is all about one’s priorities in life.
“certainly not true” … I cited a counterexample. It can be true.
As an OB/GYN, sometimes the jobs in LCOL areas can be quite scary, particularly as a new physician. At the end of residency, I was offered a job in Indiana with a starting salary in the $300 range with some loan repayment. My parents thought I was nuts for not taking the job. From a practice perspective, the setting was not ideal for my first job. The hospital lacked in-house peds, in-house anesthesia, or an in-house OB/GYN. I would have been all alone if something went south quickly, which it very often can in OB. I would also be responsible for my patients if they went in to labor M-F 7am-5pm, as well as take call Q4. Oh, and the job was to cover two different hospitals…each in a different county! I settled on a HCOL area, and while yes, I wish I made more, I have tremendous job satisfaction and fabulous support. My marital status also played a large factor in choosing a HCOL area. As a young, single, professional woman, it’s very difficult to meet people to date. I figured I had a better chance at meeting someone not only romantically, but also to find a similar female friend group in a HCOL area rather than rural Indiana. While I’m young and single, I plan on enjoy the city life while still working to save for retirement. Maybe later I’ll move to a LCOL area, but just not yet!
There’s more to life than money.
Great post which really resonates with me, a Londoner.
Two points I’d add. One is that high salaries are well and good until you retire, but then what? Leave the area or make do with the same (investment) income you’d have anywhere else, but a higher cost of living? No right answer but I’d be interested to know your thoughts.
Secondly it seems to me one of the angles to play in a pricey place like the Bay Area or London is to include property as an investment in its own right – ie own rental properties (‘buy to lets’ as we Brits call them). Then you are at least partially hedged against the cost of living.
Welcome! Glad to see a Londoner on here. I love your city, but I confess the food in the rest of the British Isles was not my favorite part!
Regarding your first point, it can be a very profitable move to make all your money in a place like San Francisco, Manhattan, or London, and then move somewhere else with lower taxes and cost of living. But most people want to stay where their friends, family, and chosen lifestyle is.
Real estate can be a great investment. But I wouldn’t just assume that the real estate market in a high cost of living area is any stronger than that anywhere else. Once you buy a house, the mortgage no longer needs to be hedged against. It’s fixed. And in California, so are the property taxes!
buying too much house is a problem. We live in a HCOL area, but we live in a smaller 3 bedroom, Our mortgage is less than 10% of our before tax income. I have a colleague who lives in a home with more bedrooms than she will ever need (because nothing screams success more than a big mansion in a ice area of town) but tells me she has less than 10k saved for retirement 4 years out of residency. Not to mention taking mat leave, she tells me she and her hubby who is not a physician are living on credit. House rich, cash poor. People seem to think that real estate will go up but always discount the costs associated with owning.