The cost of living is higher, but it's well under the increase in pay for being in the area. My current living situation is actually pretty cheap; I split a 4BR house, live 7 min from work, and pay $1650/mo for my portion of rent/utilities.
Most people I know tend to get 2BR apartments and split it with someone, usually paying $2000-2500/mo.
I'm not going to claim renting is universally bad, as it has some upsides (mainly flexibility), but it's definitely financially less savvy than buying, and is generally something you wouldn't want to optimize for at high salary.
If the only way people save is "force saving" by diving headfirst into something that sucks all of their other assets in, sure.
How could we make housing a terrible investment?
* It should be illiquid. We’ll make it something that takes weeks, no – wait – even better, months of time and effort to buy or sell.
* It should be something that locks its owner in one geographical area. That’ll limit their options and keep ’em docile for their employers!
* It should be leveraged! Oh, oh this one is great! This is how we’ll get people to swallow those low returns!
(copied from amusing thought experiment for another perspective: https://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terri...)
That said, I bought a place to live anyways.
Homeownership is advertised as owning an extremely leveraged illiquid asset whose margin calls take years, which is the only reason why it works for people that don't have enough cash to be financially independent another way.
Also, houses here tend to all be over $1M, good ones well over $1.5M. The average sold house price last month in Palo Alto was $2.76M with an average ~1900k sqft: https://www.redfin.com/city/14325/CA/Palo-Alto/housing-marke....
Additionally, I'm slightly concerned about a possible real estate bubble + I'm not sure if I plan to live in South Bay for 5+ years (the usual amount of time needed to keep your house for it to be worth it financially).
It's not that I can't afford a house, I can; I'd just rather have my money in an index fund and rent instead right now.