Harford addresses the perennial cost-of-living question: how come Moscow
always seems to come top? Or, as his reader puts it,
Just wanted to ask if there is an economic explanation for the fact that
real estate in cities in third world countries like India is often more expensive
than in cities in the US. (Except for New York,and a few cities in California.)
It’s worth pointing out immediately that no Indian city has made it onto Mercer’s
cost of living list, which I think is the generally-accepted standard in
such matters. (Then again, there are only two US cities on the list: New York,
in 15th place globally, and LA, in 42nd place.)
But Harford’s questioner has a point. Besides Moscow, in first place, the list
is studded with emerging-market cities. Look at the list from 24th place on
down: Douala, Amsterdam, Madrid, Shanghai, Kiev, Athens, Almaty, Barcelona,
Bratislava, Dakar, Dubai, Abidjan, Glasgow, Lagos, Istanbul. These places might
be expensive, but they’re not necessarily pleasant or particularly desirable
places to live, and they certainly aren’t in the world’s richest countries.
Now one good thing about blogging for the FT is that you get Martin Wolf on
hand to answer your questions, which he does here very well:
My explanations would be: (1) there has been a large and sudden increase
in the number of people being paid rich-country salaries in some cities (even
though they are still a tiny minority of the population); (2) there is a truly
tiny stock of housing that meets the standards of people being paid such salaries;
and (3) planning and other controls (as well as limitations of the construction
industry) make it difficult to build a great deal more such accommodation
quickly.
This is all entirely true, and it’s worth remembering that the list is drawn
up by a multinational human-resources company, which specializes in placing
executives in far-flung cities. We’re not talking about the cost of living for
the average inhabitant, here: we’re talking about the cost of living for, say,
a lawyer or a banker or an oilman who has to move to the city in question and
who is used to a certain lifestyle. In a city with a tiny handful of good restaurants
(by New York standards, say), those restaurants are going to be much more expensive
than they would be in New York, where there’s a lot more competition. And the
same goes – in spades – for luxury apartments.
Let’s say you’re an American high-school student, and you’re toying with the
idea of attending university abroad, rather than in the US. In that case, you
can take a Mercer report like this and throw it out the window. Is Moscow the
most expensive city in the world to be a university student? Of course not.
Neither would living in St Petersburg cost more than living in Paris or New
York. (On the other hand, London really is very expensive, by such
standards: the minimum cost of living there is much higher than it
is almost anywhere else.)
But some things are true no matter where you are on the economic ladder, and
one of those things is that the Americas, generally, are cheap. If you keep
away from New York City, and certainly if you’re happy in great cities like
Toronto or Rio, then you’ll be able to live much better, on any given budget,
than you would be able to almost anywhere else. So using non-NYC US cities as
a yardstick can be deceptive.