Despite its traffic congestion, smog, "ridiculously high housing prices" and regulatory barriers, Los Angeles rates as the best market for real estate investments, a study said Monday. It listed Houston, Denver and Dallas among "places to be avoided."

The pluses of Los Angeles and all of Southern California - economic diversity, job growth, climate, quality of life and access to the Pacific Rim - outweigh its minuses, says the report."Indeed, growth restriction is one of the things that attracts investors to California and to the other top-ranked areas," the report says. "Developers complain, often bitterly, of the hassles, expense and risk, but they are increasingly resigned to them and willing to accept the responsibilities in return for unsurpassed development opportunities, less competition, and upside profits."

The study drops New York from its "most bullish" list but retains Washington and Boston, saying that housing costs in those cities are a barrier to continued high levels of commercial construction.

"Fewer and fewer people can afford to live in or near those centers, and that will take its toll on economic expansion," said the report. "New York is just too expensive and many firms can't justify the rent."

Real Estate Research Corp., which conducted the study, said it sees New York "as a premier market that will return to favor as its inherent strengths prevail over herd instincts."

The "to be avoided" list includes Austin, San Antonio, New Orleans and Tulsa.

"Any meaningful turnaround is still a year or so off in Dallas and two to three years in Houston," the report said. "Denver, a much smaller market needs a year-or-two respite. When it does come back, it won't be to the level of the early '80s."