So, how much do faculty make.
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The US system seems very byzantine on occasion to Us Europeans, lot of gamesmanship.
The IP discusses the situation well, the top private universities - Ivies, Stanford, MIT, Caltech crowd definitely pay top dollar - with the IAS probably paying best.
The large public universities probably pay better than most of the private small liberal arts universities, although it is generally incorrect to say that they receive a lot of funding from the government - faculty term salaries come primarily out of student tuition for science and liberal arts faculty.
The cost-of-living spread across the US is, of course, fractionally much larger than the salary spread, and the higher salaries only correlate weakly with the local cost-of-living.
As Doug notes in the IP comments, a number of universities over the last 10-20 years have tried to sustain recruitment by offering housing subsidies.
These come in various forms, including subsidised loans, split mortgages and equity shares (I think - I have not made a rigorous study of this).
Now, I recall in the early 90s when SoCal went through a little housing dip, the Trustees of one Esteemed Institution became very concerned about the endowments exposure to real estate; which makes me wonder, what is going on now?
If Boston or the Bay Area see significant sustained depression in housing prices, are some universities looking at significant financial damage? Some must be endowment pool funding, and the institutions could (or may have to) take very long term positions.
Further, if I understand some of the programs, where the university splits the mortgage or takes an equity share with faculty, the university has a first lien!
That is fine as long as prices go up, everybody makes money on paper at least, but if prices go down the share of equity held by the university may become large, which means the faculty is paying full interest on the second mortgage, but is not building equity, and may in fact sit on negative equity - a sale might refund the university's capital, but leave the faculty owner owing money. This is a very unstable situation - it can freeze mobility in the faculty market, reduce incentives for future hires to accept the deal, or leave faculty being in a position where they might want to dump the house and rent, but their employer is the other party with major financial stake, which could get unpleasant.
Correct me if I am wrong... what is really going on with faculty housing in the bubble zones, and what is forecast?
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Urban universities almost certainly have significant exposure to real estate, and not just because of faculty housing subsidies. In my undergraduate days it was often said, only half in jest, that MIT's expansion to the north and west, coupled with Harvard's expansion to the south and east, implied that some day the two schools would be battling it out for control of Central Square. Presumably, urban universities have significant holdings in real estate near their campuses for the purpose of future expansion (I know this has historically been true of MIT).
There is another factor, extent unknown, which is not limited to urban universities: the extent to which their endowments are exposed to derivatives based on toxic mortgages. As recently as spring 2007, such investments would have seemed ideal for investors like university endowments: AAA ratings from S&P/Fitch/Moody's, and better returns than could be obtained by conventional means.
My own university is close enough to Boston that their bubble has distorted our real estate market (the distance is similar to Stockton-San Francisco), so my colleagues who bought in the last three years have good reason to be nervous. But AFAIK the university offers no housing assistance to faculty or staff (except for the president, who lives in a university-owned house), so they are not on the hook in the way you describe. I don't know about anywhere else.
Columbia has huge residential real estate holdings in Manhattan, but these are all rented out to faculty, essentially at an artificially low, subsidized rent. So far, housing prices in New York haven't gone down, but when and if they do, the effect would likely be just to effectively reduce the size of the housing subsidy Columbia is providing to its faculty.
Just about all universities I know of buy real estate to hold on to it permanently and use it for one purpose or another. In this case, changes in its market value are pretty irrelevant to them.
Now, whether they've invested a significant amount of their endowments in mortgage-backed instruments that are now toxic waste is perhaps a more serious problem.
On the salary issue, there is lots of focus on starting salaries, but much less on how salary changes over a career. At my university (coastal, high-cost-of-living), this is pretty public and open: our salaries start low compared to the competition, and end relatively high, the progression is predictable, and any individual salary is public info. In contrast, some institutions start high, but have very opaque progressions that depend on the whim of a chair or dean, or on one's willingness and ability to get outside offers. The "value" of different sorts of retirement plans also varies considerably depending on age and mobility, and this can be an appreciable fraction of total compensation. As can other benefits, and even things outside an institution's direct control, like whether a state will allow it to provide partner benefits for a same-sex partner. Fixating on whether a starting salary is $60k or $70k is losing the big picture, even before you start to think about things like quality of life and quality of colleagues.
On housing, we have a variety of programs but no shared equity. These include below-market loans, further buy-down of interest rates, cash (with phased out repayment, so functioning as a forgivable loan), and for-sale houses and condos with restrictive sales agreements that cap appreciation and require sale back to the university housing program (and are therefore offered at about a factor of two below market price). Many of the latter are on university-owned property, with long-term low-cost ground leases providing another sort of subsidy.
All of these have costs, but none have obvious particular risk for the institution except the mortgages, and I doubt they are very risky in either their features or the people they are marketed to. Although some people may be underwater in total housing debt, few if any are likely to be underwater in their first mortgage given the program limits. That could change if the market fell very sharply, but there isn't any sign of that here.
The idea that a falling housing market freezes mobility isn't limited to faculty, of course. And it isn't easy to work up too much sympathy for the tenured, who don't face layoffs that the rest of the economy faces. It is the junior and contingent faculty (and the staff) who potentially feel real pain in a falling market.
Total compensation is certainly an issue, the hidden value of a good retirement plan or a robust and consistent health plan can be very large.
However, disposable income after tax is the short term determiner of living standards, and after housing is subtracted it is what sets the marginal lifestyle.
One of my favourite indicators on this, is whether faculty can plausibly afford to send their own kids to their own institution (not counting any institutional subsidies for faculty kids).
University endowments ought not to be chasing maximum short term returns, they should have a priority of preservation of capital, long term growth and sustained income, in order. After 1999-2001 any university with interestingly large endowment ought to have learned that lesson. Charities should not have the same investment strategies as profit maxmimising entities. This is also the rationale for allowing universities to box car average over many years the mean withdrawal from their endowmnent, to buffer out short term market fluctuations and provide a predicatble short term return.
Clearly also urban universities buying up blocks of border property is prudent long term planning, especially if they do so quietly to and slowly to avoid pusing up prices artificially. We won't talk about the suspicion some places then push in student housing to suppress neighbourhood prices for acquisition... cities get annoyed enough about the long term loss of property tax base.
What is worrying for some institutions, maybe, are systems they have for subsidising faculty housing in nearby but non-contiguous areas, if they use some shared equity schemes, and I am reasonably sure that several well known universities did this moderately extensively in the last decade. That could cost them and make for some awkward ownership issue vis a vis their own faculty.