Aspirational economics – why do people flock to cities when they’re so expensive?

Let me catch your first thought there – ‘Silly question, internet person! People flock to cities because that’s where the jobs are.’

Image of shanghai at dusk. Many people come to cities for jobs and tall office buildings are a feature of cities.
Source: Pixabay

For the sake of this imaginary and not at all isolation-induced conversation, I agree. But some cities are more expensive than others. London, New York, Mumbai, Tokyo, Hong Kong, they’re in a class of their own. The average rent in London is 70% more than the rest of the country. Paris residents pay 62% more than the average resident of the Hexagon.

How many Leeds are there in a London? – questions to pass time in lockdown

Yet people still flock to them. In the UK, London was the sixth fastest growing city in the country – at nearly 15% between 2008 and 2018, it obviously drew many people in. 15% of London’s population means it added another 2 Manchesters or 3 Leeds’s. Leedses? Leedi? Pick your favourite.

New York also increased by a less impressive 2.7 percent between 2010 and 2018 (but this only covers the 5 boroughs, whereas London sort of radiates out from one central location). We’ll skip this technicality and just focus on that fact that the population grew. This is despite house prices rising (by 59.8% between 2008 and 2019 according to the Land Registry) and wages around London staying  the same. 

Ok, ok, that’s a lot of numbers to say a pretty simple and obvious fact – cities are expensive but people are still moving in. Wages and salaries aren’t exactly on a rocket-ride, so what gives?

Well the numbers say weekly wages are about £152 higher in London compared to the rest of the UK. And certainly, London is more expensive than Whitby or Bristol, but as Edward Glaeser’s Triumph of the City points out, for all the expense and hassle, life in cities is better than outside of cities. Cities might not dazzle when working 9 to 5 but compare them to the sparse countryside and they all come to life.

Image of London. Skyscrapers and river in the mid-ground.
Image by Pierre Blaché from Pixabay 

There’s a crucial difference that comes up here – the difference between London, UK and a random village in rural Cumbria is a lot less than between Lagos and a village in Sokoto. And that’s cherry picking, sure, but even when we know that, the difference is still there.

The average Londoner man can expect to live to 80.5 years. In the North-East, a much less urban part of the UK, a man can expect a slightly less impressive 77.9 years. The difference for women is smaller, but still there.

So what is it about cities? There’s a simple logic here – the density of cities, the reason you have more rubbish on the streets and disease spreading faster too, that’s also the saving grace of cities. 

The history bit

Even in rural areas, where there’s maybe a handful of people spread over several square miles, the natural tendency is to cluster together. Whether because historically it was easier to trade, meet at places of prayer, defend from attackers or to keep warm by putting one house next to another, clustering is what tends to happen. Cities are the natural evolution once you take transport into account. Villages grew from crossroads trading posts with beasts of burden like horses, camels and oxen, then to towns and finally the cities we know and tolerate once trams, trains and cars rolled around. 

And for most of their history, towns and cities were dens of crime and disease and ripe targets for invading armies. Even as late as the 1800s, every couple of years big cities experienced cullings by cholera, plague and invasions. The City of the World’s Desire, Byzantium/Constantinople/Istanbul, lost some 40% of its population to the Plague of Justinian in the 6th century AD (out of 500,000 people). Three hundred years later, the population had only recovered to between 500 and 700,000. In the 1477 census after the Ottoman conquest – a measly 75,000 people lived in Constantinople.

Paris, London, New York, Xi’an, Delhi and Cairo all experienced the same tidal swells and ebbs. But one thing changed that – sewage. Keeping drinking water separate from all the brown sludge that spread disease, for example John Snow’s (not that one) experience with water wells in London in the 1840s, saved lives.

Night-time picture of cobblestone street. trees line the road.
Image by PublicDomainPictures from Pixabay 

Add in antibiotics and polio vaccines in the early 20th century and the advantages of cities pulled ahead. After all, it’s a lot easier to distribute medicine when you have all the people within a couple square miles. 

The benefits of cities start showing up

However, as much as this is an advantage, no serf in Tsarist Russia or peasant in Mughal India has gone ‘Hmmm, I’m going to uproot my whole life and go to the big city because of those stone pipes they’ve been building underground. They’ll come in handy.’ Instead, cities (much like London these days) had higher incomes. Not just higher incomes, but greater specialisation. Even today, if you live far enough from an auto repair shop or a plumber, you need to fix your car or plumbing system by yourself. That’s just the effect of that distance. 

And that brings us to today’s cities – denser thanks to reinforced concrete and the safety lift, safer thanks to public lighting and publicly funded police, health and fire services and richer thanks to the rubbing of elbows, sharing of knowledge and rapid-fire innovation that happens when you’re in close proximity with dozens or hundreds of people doing similar things as you.

But obviously, that density comes with some drawbacks. Suddenly, you’re better off by being in a city so who wouldn’t want longer life expectancy, shorter commutes to work (compared to trekking for miles around fields of crops) and higher incomes (or at least not the chronic underemployment so common in rural life)? Naturally, people moved to cities. In droves. In developing countries they still are. Countries from India to Argentina are urbanising rapidly. More and more of the world’s population lives in cities. That kind of thing tends to drive up demand for houses. 

In theory, you think – just build more houses and this leads to the very quick and not-at-all-worthy-of-an-entire-research-career question:

Why are cities so expensive?’. 

Now you might already be smelling some of the arguments. Hong Kong is limited by its geography, New York by the same Hudson River and Atlantic Ocean that gave such a wide harbour a leg up. But that leaves examples unconstrained by geography. Paris, London, Mumbai and Rio de Jaineiro.

The answer is regulations. Urban FAR regulations limit the number of floors relative to the plot area, effectively meaning you can either build 4 floors up on half your plot or two floors on the entire plot. Like everything in economics – it’s a matter of trade-offs. Higher density and higher buildings unencumbered leaves us with Kowloon-city-style buildings where we’d never see the sun from street-level. Regulated, it keeps buildings more manageable but locks in supply and drives housing prices up. Interest rates also play a big part here but let’s keep it simple. We’ve all got jobs to go to and can’t spend all our time making friends with the imaginary readers of our blogs.

Bridge leading to apartment buildings.
Image by Karsten Bergmann from Pixabay

Another kind of regulation has been historical preservation – here in the UK, almost every other building is Grade II listed, meaning even if you somehow manage to convince the council to allow you to build, you need to preserve the facade. And many times, overzealous local authorities (like in New York) get involved even when buildings aren’t earmarked for preservation. Apart from reducing architectural innovation and making good-looking buildings a thing only developers with deep pockets and political ties can afford, it also limits the density of neighbourhoods. 

Paris’ regulations in the city centre (yes, they have La Defense but that’s a considerable distance away) keep it frozen in time. Tourists will rejoice at seeing Baron von Haussmann’s Paris as he left it, but I doubt the man who remade Paris for *his* time in the 1860s would appreciate the irony of leaving the city stuck in the past.

Mumbai’s restrictive development rules come from India’s state-heavy regulations. The national government had for years devolved the power to regulate construction and Mumbai fell under the State of Maharashtra. Tight regulations made Mumbai exorbitant to live in and apartments regularly rent for multiples of the rent needed in other large cities across India. However, it seems the State government has implemented changes that might alleviate the problem. The new DCR should allow high-density buildings along wide roads, as it links the allowed height of new developments with the width of the adjacent roads.

Sealink to Mumbai with the skyscrapers in the distance.
Image by Yogendra Singh from Pixabay

Rio’s situation is a hybrid one. It has the ocean on one side, with the prized beaches and Sugarloaf Island restricting development and steep foothills on the other. The favelas are also part of the picture and are a by-product of regulation inside the city and lack of regulation outside. But here’s the thing – the people in the favela can leave (the ones with the resources to anyway). But it seems between cities and countryside, they have picked cities. According to this train of thought, even the worst life in the city seems better than rural underemployment. 

What makes cities so aspirational?

Even the rampant inequality that cities exhibit would indicate people still come to them in search of a better life. After all, the great scientists, inventors and business leaders all rose to prominence in cities. You just can’t support an Albert Einstein in the pastoral cantons of Switzerland or a Jack Ma in rural Zhejiang. And yes, those are famous examples. People who made it, in other words. But people come to cities, come to throw their lot in with cities and take that chance because of the power of cities to lift people up. 

Remember, it’s not that cities are perfect, Instead, compare them to rural areas. Compare them to one another. It’s why people move from Pretoria to San Francisco (Elon Musk), Hong Kong to Los Angeles (Jackie Chan) or Minsk to Leeds (Michael Marks of M&S fame).

Cities may come with plenty of issues, from anonymous crime that you just don’t get in a small village where everyone knows everyone, to inequality that makes your head spin. And yet, the poor gravitate towards cities like a beacon that calls for the world’s ‘huddled masses yearning to breathe free’ , the middle classes for the job variety and world-class amenities and the rich for the chance to meet other rich people. 

The alternative

For all this talk of how cities do this and that, I’ve only compared them to rural areas. After all, the modern counterpart to cities is rarely farmland, but suburbia. Cul-de-sacs, identical homes and spacious drives. That sort of thing. 

Now, suburbs have begun to properly compete with cities in the last 60 years. Two key elements have made this happen – the automobile and the government subsidising home ownership. 

Cloverleaf intersection in the middle of a busy city.
Image by Pexels from Pixabay

Of course, the more obvious prerequisite for suburbs is space. In places with high density and not much space (the Netherlands for example), medium density apartment buildings are the norm. Two to four stories tall, perhaps a handful of apartments per building. But in places where there was space, mostly in the vast American midwest and southwest, southern California and Canada’s prairies, it was cheaper to build out and drive into town or into whatever factory, store or office you worked in. 

The car offered that freedom but it wasn’t until mortgage interest rate deductibles, enterprise zones outside city limits (see the UK’s shopping centre building spree in the 80’s) and government-built motorways or interstate highways that suburbs took off. It was on the back of those changes that the suburban flight of the 70s and 80s happened. 

In effect, suburbs were a response to the loss of amenities in the cities that until then had maintained a monopoly on cinemas, shopping and offices. However, the urban renewal in the last two decades in many cities as they reinvented themselves as creative cities after the loss of their industry might move that balance back towards the city.

The sum-up

Cities are just big networking spaces. Better at pooling their resources together (begrudgingly) than less dense places, they also tend to bring about cultural and social change. They have some undeniable advantages and the cities that managed to reinvent themselves, like London after the death of its docks, New York after the bankruptcy of the 70s and Frankfurt as the Ruhr de-industrialised, managed to keep growing. 

In fact, suburbs themselves are testament to cities too. Otherwise, why would families looking for space still stay in cities’ orbit, where the amenities and many opportunities are.

It takes more than a little work to keep cities growing and more importantly, working for the benefit of its inhabitants. But there are some sharp minds at work here and I have no doubt we’ll see more and more the power of cities.

Besides, once you’re done with life in the city, you can always leave (I know I will one day).

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