Barcelona, Spain! i love Catalonia culture, and the weather is always wonderful. I took a tour with a friend of mine from Barcelona to Valencia on a motorcycle a couple years ago, and would love to do it with a proper bicycle now.
Scenery wise, it's righ by the Mediterranean, so just imagine a wonderful cycling trip going north to the south of France, maybe into Italy, or taking a ferry and continuing your journey around Greece. Would be nice to take a short plane ride into the Balkan areas and cycle around medieval landscapes.
Cost of living is likely expensive in the city's center b/c of tourism, but there are many apartment buildings with fluctuating prices, i'm sure.
As far as raising a family, it could be wonderful. it's a very eccentric city with art and literature history, and some of the most famous architectural structures (see: Antoni Gaudi). Lots for your children to be positively influenced by, and a trip around Spain as a kid was what fascinated me to learn the language and culture and to return many more times.
Drawbacks, 70% of my family lives in Southern California. i would dearly miss them, and not all them would be able to make the trip to Spain whenever they would like.