Because that's where the money is. VC are in SV and they want founders/CEOs close by. And founders/CEO want their engineers close by. But honestly even if you

Because that's where the money is. VC are in SV and they want founders/CEOs close by. And founders/CEO want their engineers close by. But honestly even if you really need your headquarters in SV (for VC money, network, saying you're a "Silicon Valley company", etc) your best bet is to open offices in other locations to hire engineers. Not only they can have a better standard of living even if you pay them less, but you will have less competition to hire and retain engineers.