Mark: California's housing prices are uniquely weird, in that Prop 13 has skewed the market. Elsewhere, a property value rise will raise taxes, which will somewhat limit how high it can go. In California, it won't. Property values are based on what a new buyer is willing to pay now, knowing that his taxes will forever be based on the current price.

Outside bubble conditions, property values are based on more solid issues like local rents, and local rents are based on such factors as size, amenities, desirability of area, predicted desirability of area in the next few years, and how high rents can go up in the future (that's what makes rent-stabilized apartments in gentrifying neighborhoods so hot).

Well, I guess my perspective is this: if you have X amount of brain/muscle energy to expend over the course of your life, and expending it in Silicon Valley will create Y amount of personal consumption, but expending it in Ohio will create Z amount of personal consumption, you can objectively measure whether Y or Z are more beneficial to your health or longevity, no?

If I'm capable of producing $25k per year in Silicon Valley or $15k per year in Ohio, it's a no-brainer that I should do Ohio, since I'll be able to actually eat and clothe myself on $15k in Ohio, something I would not be able to do entirely adequately on $25k in Cupertino.

Thus my thesis that housing costs soak up productive energy in an inherently inefficient manner, considering that they are not priced based on quality or durability but rather asset speculation.

One branch of my family is from a farm my ancestors settled about two hours west of Pittsburgh.

The family home-place is a hill-banked stone house, facing south, next to a spring, built cut stone blocks two feet thick. It's 165 years old already and there is no reason its shell wouldn't stand for 500 more. Family lore says it cost $200, which is maybe $5000 in today's dollars (by FRB COLA estimates). Far from a waste. And it's now heated by natural gas from a well on the property, after years of using local wood and coal.

But is it the "best" house in America because it was built at low cost per square foot in what we would today call a "sustainable" manner to outlast all the rest with minimal maintenance?

No, because it's still in the middle of Amish country in Ohio.

The price of housing within a market reflects quality differences, but from market to market, similar residences will have wildly different selling or rental-equivalent prices (or prices per square foot) because of local demand.

The fair comparison to the Pittsburgh Victorian is a SFO Victorian…and the only thing you'll really be comparing is the demand curves for the same thing in two different markets…which is essentially meaningless because we do not have a national market for housing.

Ultimately that analysis doesn't illuminate anything about the "value" of a particular home or style of home (or the "wasted" investment in it)…it only addresses the perceived value of living in a particular place.

"Waste" of money on housing is indeed a value judgement. Given my family/historical frame of reference, I could perceive almost all houses to reflect "waste".

To some extent, but I am specifically referring to the difference between Victorian-era brick housing in Pittsburgh versus the wood-stucco-and-paper housing in Los Gatos. The wood and paper housing is 20-40 times more expensive per sqft, but objectively inferior in quality, no? Isn't this a misallocation of the productive energy of people?

It is likely that the nationwide statistical bundle includes some parking cost in rental housing, and that is likely skewed by the very high cost of parking in NYC. In most cities, cars are not optional; nationwide, upwards of 80% of workers commute to work alone in a personal vehicle.

Manhattan is expensive relative to much of the rest of the country, but when compared to LA, SF, Chicago, and DC it does not appear to be much different. And I find the city lovely, and you get a lot for what you pay for. If you didn't, it would not be a desirable place for people all over the world to want to move to. I would be willing to pay slightly higher taxes in my city in exchange for improved public transit, city planning, parks maintenance, and other general city beautificaiton.

Mind you, the official cost of living adjustment says rents in Greater New York are 5 times what they are in low-cost cities like Houston and Indy, so even 2.6-3 times for Manhattan is far lower than what the adjustment says.

Nice, upscale secure downtown apartments in Indy in the 1000 sf range would go for $15,000/yr.

Midtown Manhattan? $40-45,000 appears to be the range after doing a quick online search by specification on Apartments.com.

By my calculation that's 2.6 to 3 times the housing cost comparing a "standard" product from "downtown" to "downtown".

Like Aaron, I don't think one can assert a living cost difference of only 25%, considering that huge residential cost differential.

It's not cheaper, but it's closer. The official cost of living adjustment overstates rents, utility costs, and transportation costs in those cities. If you make more reasonable assumptions, even for Manhattan, then the cost of living index drops from 205% the US average to 125%.

In particular, those transit systems drive up the cost of housing enormously by raising land values.

That's relevant if you buy, not if you rent. Those cities all have higher price-to-rent ratios, especially near the train stations, because they're perceived as safer investments than the Indy exurbs. The rents are still higher, but not by that much. For example, if you compare Manhattan and Houston, the rents in Manhattan for the same number of bedrooms are about twice as high. The cost of living index says they should be five times as high citywide.