I think it would be better to set it some degree below the ceiling, not outside of livability for the high-cost locations, but such that it doesn't overly distort the low-average cost locations.

Then it is the individuals choice of paying a portion of the cost for living in a high-cost location, or choosing to live in a lower-cost location and pocketing extra money. This reduction is associated with increased employee flexibility pertaining to their choice of lifestyle. It also might encourage a redistribution of individuals out of the high-cost locations. That would have some benefit (if this was industry standard) to the public in those locations as it could reduce market-demand for housing through redistribution of demand among the broader market.