No sane person would "feel wealthy" if they are living in a shitty 2 bedroom apartment, even if the place costs 1m$. In places where shitty apartments cost that much, a place that would be considered "luxurious" can easily cost 5m$ or more.

Of course rational thing to do would be to take the money and move to a less expensive city, but with the same logic, anyone who has 1m net-worth could liquidate their assets, move to a different country, retire and live a proper wealthy lifestyle.

But we don't see that happening all that much at all. Mostly what happens is that people are choosing to live middle class lifestyles in most expensive areas that they can afford.