More infinite evidence

From The Daily Mail (article undated, but Google tells me it's from 1 May 2011):

Millions of Britons have traditionally headed South in search of a better standard of living. But research suggests those with aspirations of wealth could be better off staying put... A study of the true spending power of salaries around the country concludes that those in the North of England enjoy a higher standard of living and a better quality of life...

The study, by Barclays Bank, highlights the fact that, while the biggest salaries are available in the South, the high cost of living there means the money does not go as far as it does elsewhere. It measured average local incomes against the regional cost of living - which includes everything from mortgage repayments to the cost of a pint of beer or a bus ticket...

Barclays' spokesman Gordon Rankin said lower housing costs were a major factor in giving Northerners a higher disposable income. He added: "There is a small, but noticeable, group of people who are realising the equity in their properties in the South-East and moving to the cheaper West and North and buying property outright. Because they do not have to worry about mortgage payments, they are therefore able to survive on smaller incomes."

To cut a long story, yes, there are huge regional disparities in gross incomes; the disparities are reduced by the impact of income tax and the welfare system, and because there is free-ish movement of people and labour within the UK, the differences in net incomes will be competed away to some degree.

However, residual differences in net wages remain. So people try move from low income to higher income areas. Because there is a limited supply of housing in any area (in particular in high wage areas), what then happens is that rents and house prices are driven up in those areas, until they reach a stage where they are so high that there is no advantage in moving to a higher wage area - the extra net income is swallowed up by the higher rent or mortgage repayments. At this equilibrium stage, we observe (as observe we must) there is an equal and opposite pressure for people from 'the South' to cash in their house price gains and move to the West or North again.

As we know from an earlier article (also in the Daily Mail), generic consumer goods in the shops cost pretty much the same anywhere in mainland Great Britain, so we note that the other things which the article says contribute to the higher regional cost of living in 'the South' (cost of a pint of beer or a bus ticket), are both goods/services consumed at point of use, i.e. they include 'embedded rent' (there is no competition between a London pub and a Manchester pub, or a London bus route and a Manchester bus route).