10 Pricey Cities That Pay Off

Salinas, Calif. The Northern California city of Salinas isn't nearly as big a business mecca as nearby San Francisco, yet it has the eighth-highest trade productivity of the areas Albouy examined. Again, the California climate is a big contributor to this city's high quality of life (the third highest on the list). But it's not just the sunshine and access to the coast that make Salinas and other California cities so amenable; their summers don't reach the same brutal temperatures as other warm parts of the country such as Arizona or the Southeast. Albouy points out that very hot weather tends to reduce the productivity of businesses and thus drive down value—possibly because high temperatures limit the ability to work. Salinas strikes the right balance of comfort.

Honolulu. It's no surprise that Albouy finds Honolulu to be an especially nice place to live, and its high housing costs show just how nice people think it is. It has the highest quality of life of any metropolitan area on Albouy's list. That quality of life compensates for trade productivity that is lower than in cities such as Washington and Philadelphia, which don't have as much amenity value overall.

San Diego. This Southern California city has the seventh-highest quality of life and trade productivity that's on par with Philadelphia. San Diego's high value in Albouy's study is probably a product of not only its location but also the presence of many institutions of higher learning, with the University of California-San Diego, the University of San Diego, and San Diego State University all located within the city. Albouy found a strong relationship between the city's quality of life and the share of residents who have college degrees. College students and graduates "support the local arts, and they support walkable, cool downtowns," he says.

New York. Of course, the business capital of the country has great trade productivity, trailing only San Francisco. The large number of high-paying jobs, a unique culture, a highly educated workforce, and a coastal location are all major amenities for New York. But the city rates lower for quality of life than cities like Portland or Washington and far below the aforementioned California cities. New York has the 39th-highest quality of life of all cities. As much as New Yorkers love their city, the sometimes cold climate appears to make it less valuable.

Los Angeles. Los Angeles lands in the top 10 despite having a lower quality of life than any of the other California cities on this list. It's sandwiched between Wilmington, N.C., and Grand Junction, Colo., by that measure. But L.A. has the fifth-highest trade productivity, ranking just above Boston.

San Luis Obispo, Calif. The San Luis Obispo metro area, with a population of 246,681, sits between Los Angeles and San Francisco and thus shares many of the advantages of both cities. It has the fifth-highest quality of life. Why don't more people live in smaller California cities like San Luis Obispo? Albouy says that his study does not take into account building regulations that might make it difficult for the supply of housing to increase, and thus keep housing prices up. "California would have a lot more people if you can build more houses there. And that would probably be good for the country," he says, because more people could benefit from its high quality of life.

Updated on 6/29/09: An earlier version of this article incorrectly stated that a 120 square-meter apartment is 373 square feet. It is about 1,300 square feet.