If there's an equally qualified dev willing to take $1494/day less, employer would take that one. But if the only available people live in resorts, then the employer has no choice.

As I hiring manager I can say that is a huge if. You get what you pay for. Eventually people who are really good wise up and up their rates (as they should) even though their cost of living is lower.

I have met Indian developers living in India making just about as much as they would in the US and they were always busy.

Indeed. The key is to never be that developer who leaves all that money on the table. The company you're negotiating against will be happy to take it.

The thing is, willing to live in a bungalow might be a competitive advantage, all other things being equal (and maybe even if they are not, sadly).

Lower living expenses is a stupid reason to charge lower rates. I am not a contractor, but I can only imagine lowering my rates (if I were) if I was consistently underbid and not getting enough work or if I were doing charity work for a nonprofit doing important work.

If my living expenses were far below my rate, I'd save my money happily against the possibility my living expenses would go up or my income would go down in the future, and would not lower my rates.

If I occasionally lost a bid but still got enough work, I would not lower my rates.

As a worker, lowering your rates unnecessarily screws other workers, and future-you is another worker getting screwed.