The issue is, housing is not just houses. Maybe it was 100 years ago when it made no difference whether you live near a plain or a river (just easier access to water?). The problem is, housing become linked to economic opportunity in a particular region. For example, people who might have lived in Long Island might not have a much different life/income than those who lived in ElPaso. It was just different weather.

But the mighty Manhattan changed this. The people who were born to Long Island's households now have access to this city. This is an economic opportunity that is not available to anybody else's in the entire world. Would it be fair to incorporate this economic opportunity in the value of this home? I think so. The market thinks so.

This is a result of the winner take all economies will live in. Whether you are a person, a city or a country. The same logic still applies.