You can always adjust your consumption bundle. If I'm living in a high rent city, I'm more likely to find a friend to share an apartment with or settle for something not that great. This is a drop in utility (though I'd argue living with a friend is a positive for myself), but I also have a lot more money to use on other things, which increases my utility. Spending most of your money on rent when you're pulling something like 5,000 after tax a month is a choice, not a given, and is reflective on how much utility you perceive a better apartment to give you. In reality, we're probably terrible at accurately estimating utility of a good, but I personally have lived in a variety of places, and I was most happiest living in my tiny dorm room, so I personally don't care much about having a big place.
Your average friend is likely to want a close to market price for that room. Relying on friends is not a way to plan an economy. A lot of people won't have friends willing to let them stay.
That's not what I was saying at all, but alright. If you're interested in the topic, look up utility curves, income effect, and substitution effect in a microeconomics textbook. It'll probably have a much better explanation than I can communicate through text (unless I start making graphs, which would be a bit time consuming).
Here's a copy paste of my explanation on reddit though (where this topic also constantly comes up):
Living in the Bay Area results in a higher wage, which increases consumption (income effect), but at the same time the price of housing is much higher as well (to a greater degree than the increase in income). You substitute sq ft with other goods. If you place relatively heavy utility on housing by sq ft in comparison to all other goods, then I guess it's a bad idea to come out here, because you're going to be on a lower indifference curve. Otherwise (and I think most people fall under 'otherwise', which is why they come out here ) its not that bad of an idea, and you'll probably end up on a higher indifference curve.
> Your living area is probably No.1 contributor to quality of life.
That might be true for you. Everyone has different indifference curves determined by the utility they place on different goods.
As for sq. feet minimums, at lower levels of sq ft. you will place higher utility on marginal sq. feet, sure, and diminishing returns will probably not have kicked in.
