From Russia with cash
June 18, 2007 7:44 AM   Subscribe

Why is Russia so expensive?

So, a friend of mine sent me this article (link below) that said Moscow is now the most expensive city in the world, second to London. We wonder: how could this be? What has changed in Russia that made this possible? The article focuses mainly on London and makes little reference to Moscow aside from expensive public transport, high rent, and coffee that costs around $6/cup. Also considered was the weakening of the US dollar.

Even so, I'd never have guessed it!

Either the conception of "poor Soviet Moscow" needs an update or else the research method in this article inaccurate or lacking?

I wonder if anyone has any idea about how the current economic situation transpired or at least how the conclusion in this article was reached.

posted by mateuslee to Work & Money (11 answers total) 1 user marked this as a favorite
Here is the company that published this piece of research. I was looking at their site a little earlier as I had the same question as you. Apparently the survey is about the costs incurred by expatriates living in the cities concerned. Moscow and a number of European cities appear to have climbed the index because of the decline in value of the dollar. Since New York is taken as the index city my guess is that they are taking dollars as the native currency of their imaginary expatriate. So a more conservative - but less catchy - headline would be something like "Dollar now buys less in some countries".
posted by rongorongo at 7:58 AM on June 18, 2007

Also the focus of this is on "ex-pat". There is a big difference here in Japan between the way your average gutter foreigner lives and an ex-pat package. It's not always a true indication of costs in a particular city.
posted by gomichild at 8:08 AM on June 18, 2007 [1 favorite]

Well even when the dollar was not in decline, Moscow was really expensive.

I went there in 2002, and had my most expensive meal ever there ($3000 for a party of 4).

A gym membership is currently going for $1500 for six months.

Rent is very expensive in the heart of Moscow, but gets cheaper if you move way out.

Everywhere you turn, it looks as if people are trying to rip you off. Moscow proper seems catered to the expats, gangsters, foreign nationals, and other wealthy people, and has priced itself accordingly.

I think it starts with the rent, and most of the apartments still belong to whoever owned them during the communist days. (Most of the time you lease from a family, not a corporation) They charge you out of the ass, simply because they'll know you will pay it, and if you do not, someone else will. There's a lack of quality housing, which drives up supply- even though the rest of Russia is practically a third world country.
posted by unexpected at 8:11 AM on June 18, 2007

(Disclaimer: words of Russian girlfriend.)

The main thing to understand here is that there are two types of Russian people: those who can afford anything (aka New Russians) and those who cannot (people who still live in the Soviet era). I'm not surprised if the New Russians' lifestyle drives up the statistics enough to make Russia appear so expensive.

(Disclaimer #2: this is all based on my own experiences in Moscow. I know little to nothing about how other cities work.)

Some statistics:
A BMW in Moscow costs about 150% in Euro what it costs in Dollars in America. So a 60K$ car in the US costs 100K Euro (160K$) in Moscow.
Crabmeat can run up to 500$ per kg in Moscow.
A rack of lamb in the supermarket (7th Continent) can cost you 40$ easy.
I know people who routinely spend $100-200 in the supermarket alone, while shopping every other day.

At the same time, an entire lamb at a "real" market (bazar, farmer's market) can cost you $20.
At the same time, in a non-high-end supermarket (Kopeika, Pyaterochka), you can stock your basic produce and foodgroups for a week for $20.
At the same time, a secretary will never make more than $450 A MONTH, and a chauffeur will never make more than $600.
And at the same time, my very good friend in Moscow, living in a studio apartment with a huge german shepherd, constantly buying beer, snacks, dogfood and internet, managed to survive just fine on $150 a month. He didn't have to pay rent.

There's a couple of reasons for this division.

The first real one came with the privatization of property with Perestroika. Every person was given two "vouchers", which was their monetary share of their country. They were to invest the vouchers in whatever they wanted.
What really happened is that people who understood the basics of investment took advantage of the people who didn't. They were often managers of factories and other concerns, who made the unsuspecting workers sign over their vouchers either for free or for some nominal price. Overnight, these managers became the owners of huge industries and became the first New Russians. (This is just one example)

The second came in August of 1998, when overnight the rouble collapsed from 6 roubles per dollar to 30 roubles per dollar.
Those who received their salaries in dollars were unaffected.
Those who received their salaries in roubles suddenly found themselves unable to buy foreign goods and were stuck with domestic (which went up only 20% or so in prices, not 500% like foreign goods).

And so you have it. A division of the country.

There's other factors as well, like for example the fact that only super-expensive new apartment buildings in Moscow are being built, which is seriously blowing up the prices of both luxury apartments and Khruschev-projects. Which I'm sure adds to the "cost of living" as well. But for the most part, I'm sure the cost of living in the study is high simply because of the overwhelmingly insane amounts of money the nouveau riche are spending on basic things like tea, salami and BMWs.
posted by Johnny Assay at 8:26 AM on June 18, 2007 [11 favorites]

"Either the conception of 'poor Soviet Moscow' needs an update or else the research method in this article inaccurate or lacking?"

Well, that conception certainly needs an update. Russia is awash in cash right now: it's one of the biggest producers of oil and natural gas in the world. There's a resource boom on.
posted by mr_roboto at 8:32 AM on June 18, 2007 [1 favorite]

Johnny Assay has it 100%.

Essentially, this is the same thing as moving to 72nd and Lexington in Manhattan, shopping only from 70th to 90th on the East Side, and on that basis declaring all of New York City to be OMG SUPA XPENSIVE.
(which is something a lot of people do)
posted by nasreddin at 9:21 AM on June 18, 2007

This is the same fallacy that people make about africa. Let me explain:

70% of a certain country live below the poverty line -> less than $1 a day. The country has a GDP of $50 Billion a year. Calculate the income of the remaining 30%. Now imagine half of that 30% living in a single city.

Countries that _on average_ are poor, have a reasonably large segment of fabulously rich people.
posted by markovich at 9:27 AM on June 18, 2007

Some observations:

1. Nearly all the oil and mineral money being made by Russia - a lot - is sloshing around in Moscow. So as in London, Manhattan etc you have high prices, esp for real estate and fripperies ;) such as restaurants.

2. Although wages are lower for the middle class, the middle class has a similar or higher disposable income. This is because taxes are lower (and in many cases non-existent) and because many muscovites are not burdened with mortgages/home loans, the reasons being they acquired their flats essentially for free via privatisation.

3. The mafia middle-man/corruption/high import duties put up the prices of imported goods above what you would pay in the West in many cases.

This said, there are plenty of reasonably priced student/artist style places to eat, and to shop, and specifically Russian-style foods usually aren't so expensive; and people, while they pay more for say a computer or camera or new car, economise on say music and dvd movies and software, which is 99% pirated at the individual level. But 'poor Soviet Moscow' it ain't any more.
posted by londongeezer at 9:29 AM on June 18, 2007

Better link for Mercer's.
posted by meehawl at 10:43 AM on June 18, 2007

Just a little nitpicky thing in Johnny Assay's math: 100k EUR = $135k USD. Give or take a little bit. The dollar isn't that weak, yet.
posted by kdar at 11:41 AM on June 18, 2007

Oil money for one has been transforming the capital for the last ten years. That and the Russian mafia seems to like the city. There are many, many nouveau rich in Moskva. Property is a very good business right now that would put the real estate bubble in the US to shame.
posted by JJ86 at 2:36 PM on June 18, 2007

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