Couldn't you argue the opposite: that current policies penalize workers who don't want to live in an urban high cost of living area? Is there a solution that doesn't penalize one or the other?
Subsidizing high-CoL people who get the advantages of being in a city is not fair at all. It’s only tolerated because high-CoL cities tend to be where the talent is most concentrated so you have to compete for them.
For example, Google will not pay Zurich engineers Bay Area equivalent salaries despite there being similar CoLs.
Would you think it’s fair if you lived in the same city but your company paid more money to people with more expensive houses?
I'm aware of several teams that have done this with success in the past. Everybody, no matter their region of choice, gets compensation enough to enable an appropriately comfortable standard of living desired based on the actual costs of living where they choose. This is what we're talking about when we advocate for adjusting salaries for COL. It creates incentive for your employees to live where they actually want to live, work, and be happy - rather than wherever they feel like they can extract the most cash value from the company.
So the equivalent “comfortable standard of living” they’re used to in Manhattan would require a $5 million annual salary.