The Most Expensive Cities

There are a number of factors which determine how expensive a city will be. One of these is a distortion of the exchange rate between currencies due to such factors as currency speculation and the raising or lowering of the value of a currency by printing money to stimulate the economy.

Another factor is what I termed "The Wage-Price Spiral", in the postings on the world and economics blog, "The Wage And Price Disparity" and "The Wage-Price Spiral Made Really Simple". This takes place when a nation improves it's industrial efficiency so that fewer people are working in industry. Those that find new jobs that are not actually producing something must "ride" on actual production so that this has the effect of driving up both wages and prices in that country, relative to countries where the majority of workers are engaged in actual production of goods or crops.

Isolation is another factor in prices, if most of what the city needs must be brought in from afar then we can expect that the city will be more expensive than if this were not the case. A good example of this is Hawaii.

But I think the most important factor in how expensive a city ends up being is it's geography. Land is the most fundamental of "The Three Fundamental Costs", as I described in the posting by that name on the world and economics blog. The most expensive cities are those where there is a lot of economic and population pressure to grow, but where the local geography severely constricts that growth. This drives up the price of land, and since that is the first of The Three Fundamental Costs, the elevated price of land finds it's way into most other costs.

One thing that tends to happen is that a city will be established centuries ago in a location that is on water or is an easily defensible location. But today, growing as a modern city, the factors which made it's founding attractive now act to constrain it's growth and drive up prices. This we saw in "The Cities Of North America", on the world and economics blog.

Here is a map link with satellite imagery and Google Street View: www.maps.google.com .

Following are cities that regularly make the lists of the most expensive, and a description of the geographical reason why:

Copenhagen, in Denmark, is not on the mainland peninsula of the country, sometimes referred to as Jutland, but is situated on an island to the east of the mainland which gives it not much room to expand as the modern city which it is today. But this must have been a very desirable location when Copenhagen was founded.

It was natural for an ideal harbor on America's Pacific coast to be the location of a growing city. but today, San Francisco finds itself on a narrow peninsula with the Pacific on one side and San Francisco Bay on the other, with no room to expand. The spiraling price of land finds it's way into everything else.

Singapore is today one of the economic wonders of the world. It was actually once a part of Malaysia, but was ejected from the country. That was long before it became the economy that it is today. But Singapore finds itself on an island, with no room to expand other than reclaiming land from the sea and, as you might expect, that land will tend to be very expensive.

Switzerland is not a big country, but it has three of the cities which regularly appear on lists of the most expensive: Lausanne, Zurich and, Geneva. Part of the reason for the prices in these cities has to do with currency issues. But all three cities are located in mountain valleys, which do not leave much room to expand, and this drives up the price of land which then drives up the price of everything else. Zurich and Geneva also share their valleys with large lakes, which may be very scenic but which further limit room for growth.

Oslo, in Norway, is also constrained by mountains. It is in a scenic valley at the end of a fjord, but these very factors leave it without much room to expand.

Tokyo and Osaka, in Japan, are two more expensive cities that find prices driven up by lack of room to expand. Tokyo Bay makes a fine harbor and an ideal place for a city. But when modern times come, it leaves a city with the bay on one side and mountains on the other.

New York was clearly established because it was not only an ideal harbor on the Atlantic, and centrally located in the early colonial U.S., but also had an abundant source of fresh water in the Hudson River. However, like so many other cities, the very factors which made it a desirable location in the beginning would constrain it's expansion as it grew into a modern city. This drives up the price of land, along with the price of everything else.

London is, of course, notorious for prices. It is not surrounded by water or mountains, as are many expensive cities. But Britain is determined to preserve it's green countryside and London is surrounded by the so-called "Green Belt", into which it is not allowed to expand. This makes land more expensive, and drives up prices. The recent influx of very wealthy people into London has driven up prices still further, making it a literal pressure cooker of prices. I made the suggestion in "Thoughts And Observations. Part Two", on this blog, that London might be permitted to expand as far as the M-25 Motorway around it to relieve some of the pressure on prices.

Hong Kong is another city where land is at a premium, and which is now the largest economic center in the world in terms of currency flow. It regained some land from the sea, as did Singapore, and as we can expect that will make it very expensive.

Basic supply and demand will eventually halt the growth of a city where there is no room by raising prices too high to continue. Notice that some north American cities never seem to be among the most expensive because they have abundant room to expand. These include Winnipeg, Dallas-Fort Worth, Phoenix, Las Vegas, Minneapolis-St. Paul, Houston, Atlanta, Chicago and, Philadelphia.

Prosperity is not the same thing as high prices. We saw in "The Inverse Geographic Prosperity Principle", on the world and economics blog, that if we see a big city where geography seems to dictate that there is no reason for a big city to be there, such as in the middle of a desert. Paradoxically, that means that the city must be prosperous. The less geographic reason that there is for a big city to be there, the more prosperous it will likely be if it is there.