$10M at 10% returns is $1M/yr passive. That'll pay for an expensive apartment before you consider working.

In fact, that's sort of the problem: the massive "rich people get paid for being rich in proportion to how rich they are" cash flows run away exponentially from the "poor people get paid for working" cash flows, inflating the price of any inelastic good beyond their reach. The economy stops being about work and starts being about wealth. Which might be fine if most people were wealthy enough to not work, but that's overwhelmingly not the case so it's overwhelmingly not fine.

No sane person would "feel wealthy" if they are living in a shitty 2 bedroom apartment, even if the place costs 1m$. In places where shitty apartments cost that much, a place that would be considered "luxurious" can easily cost 5m$ or more.

Of course rational thing to do would be to take the money and move to a less expensive city, but with the same logic, anyone who has 1m net-worth could liquidate their assets, move to a different country, retire and live a proper wealthy lifestyle.

But we don't see that happening all that much at all. Mostly what happens is that people are choosing to live middle class lifestyles in most expensive areas that they can afford.