Petersburg and Moscow - how are they so expensive?

June 10, 2012 12:47 PM

Petersburg and Moscow - how are they so expensive?

I'm sure this is a naively simplistic question, and the explanation may be way over my basic knowledge of economics - but how is it that Petersburg and Moscow are two of the most expensive cities in the world despite being in a relatively cheap and poor country?

I feel like I vaguely understand the mechanisms by which cities like New York, Berlin, and Helsinki become expensive. But Moscow being pricier than Zurich just totally baffles me. Is there some explanation for it that I might be able to grasp?

posted by pdq to work & money (5 answers total)

Oil and gas money concentrates in the big cities. There are a ton of really rich Russians these days. It's like asking why property is so cheap in rural Appalachia despite it being in a relatively wealthy country - there's uneven demand for property and services.
posted by Dasein at 12:55 PM on June 10, 2012 [2 favorites]

Resource wealth directed into the hands of the few, rather than the masses.

High inflation rates.

Lack of a middle-class that structures the city into "elite" and "working-class" – "The Two Moscows"

In Berlin and New York, you find a gamut, from the upscale to the working-class. They are cities that are filled with a variety of people and thus function accordingly. Helsinki has very high taxation, thus strong wealth redistribution that creates a middle class (by bringing the working class up and the capital class down to some degree).

Basically, it's the result of an oligopoly, where wealth is concentrated rather than distributed.
posted by nickrussell at 12:59 PM on June 10, 2012

A disproportionate amount of the country's wealth - from oil, gas, other natural resources, arms sales, what-have-you - is concentrated in these cities, Moscow especially. This is because of the nature of Russian corruption: big-money-making is a grace-and-favour business which requires access to the corridors of power: FSB, Putin's circle etc. Otherwise, if you get too big, you get taken down. Real estate transactions for flats are often in cash. In fact, usually in cash. When a flat is sold, hundreds of thousands or millions of dollars are deposited in and picked up from bank safe-boxes by ordinary citizens. As far as the cost of living is concerned, import tarifs and the mafia cut force up prices of all imported goods from tea and coffee to motor cars and tv sets. The only cheap stuff is home produced, and there isn't much of it of good quality. In addition, the combination of low income tax rate - 13% - low utility costs and the odd circumstance that many city-dwellers purchased their flats from the state for trivial prices in the 90s and so have no mortgage or rent payments means that people have more spare cash than the average (say) Londoner even though their wages are lower.
posted by londongeezer at 1:24 PM on June 10, 2012 [2 favorites]

If you're asking about the list of most expensive cities in the world, bear in mind who that list was created for, namely expats working overseas for their home country's company. It's essentially the economist's Big Mac index of purchasing power parity, based on a shopping list of staples. The thing is, the staples are pretty culture specific, things like wine, cheese, beef, and so on. If you're in a culture where those things aren't a big part of the national diet, you're probably looking at a comparitively more expensive grocery bill. That's why Tokyo is more expensive than New York, though conversely, trying to fill a basket with Japanese staples in New York would be more expensive (though less so, recently) than buying the same things here in Tokyo.

Add in what's been said above, that there's a lot of money in a relatively small group, in a setting where foreign goods are a status symbol, and those same goods can be sold for a lot more than they'd otherwise be, since the market, even as specialized as it is, can bear the prices.
posted by Ghidorah at 3:21 PM on June 10, 2012

Previously. In particular, note the words of the Russian woman I was dating at the time here.
posted by Johnny Assay at 7:48 AM on June 11, 2012