Exactly that.
In My Dorm's alt-world, Morro Bay and Baywood-Los Osos have been replaced for the bigger town of Newport (even at a geological level, so the beach doesn't look the same). Los Osos had 14,276 inhabitants and Morro Bay 10,234 (2010 census) so Newport is around 29,000 (due to being a bit larger than both combined), making it the third city (population-wise) of the county after San Luis Obispo and Paso Robles.
Westport (where Megan lives) has replaced San Simeon (571 hab) + Cambria (6,229 hab) and has nearly 8,000 inhabitants.
I only take into account the location for the displacement times when someone has to drive out of Newport. So Westport and Atascadero are 30 minutes away, and San Luis Obispo (and its airport) needs a ride of around 20 minutes.
You guessed correctly the house location, but in the game world the zone is heavily forested and with some lakes (due to the geological changes) and there isn't a state park. We need those plots to build the Marks neighborhood, right?
The houses are where the marker is shown
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