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Living costs
The relative costs of the world’s business cities are evolving
in line with shifts in the global economy.
• By Nigel Holloway
Globalization is both a product of and a
contributing factor of economic integration.
As national markets become increasingly
connected, the demand among international
employers for globally-minded executives has
grown. For the jet-setting business traveler, many
markets can seem fairly homogeneous, as they
travel from hotel to hotel, their feet barely
touching the ground.
Yet, despite the trend toward globalization,
the cost of living varies almost as widely from
city to city today as it did 20 years ago. This
is a problem not only for expatriate business
executives trying to maintain their living
standard. It is also a headache for their
employers that seek to keep their top talent
happy, while deploying them around the world
wherever the need is greatest.
With the expatriate in mind, the Economist
Intelligence Unit (EIU) has collected price data
from cities around the world for more than
two decades, comparing costs such as home
rental, private school tuition and the costs of
domestic help. It then ranks the cities on an
index, using New York as a constant baseline at
100. Today, the most expensive city in the world,
Zurich, is at 170, meaning that costs there
are 70% higher than New York’s. Twenty years
ago, the most expensive, Tokyo, was at 171.
The cheapest city today is Karachi at 46. In
1992, the cheapest was Mumbai at 32, which
this year ranked just above Karachi.
Generally, cities in the developed markets of
Europe and Japan are among the most
expensive. Their individual rankings bounce up
and down according to exchange rate
movements, but they remain in the same richer
group. By the same token, cities in the
fast-growth regions of Asia and the Middle East
are among the cheapest. But there are some
notable exceptions. Singapore, for example, is
now in the top 10 and 42% pricier than New
York, thanks to soaring rents and a strong
exchange rate. It is now far more expensive than
rival Hong Kong (115 on the index) and
neighboring Kuala Lumpur (83). Nor are all cities
in other rapidly growing countries cheap.
Luanda, the oil-rich capital of Angola, was one
of the most expensive cities in the world for
expatriates in 2011. Two other African cities
were also prominent on a the list, Ndjamena,
Chad and Libreville, Gabon. Energy and mining
companies have been lured there by the promise
of natural resources. But the lack of
infrastructure means that these firms must build
their own housing and amenities, resulting in
high costs for expatriates’ employers.
Cheapness, in and of itself, does not
necessarily make a city attractive. But as the
global economy tilts towards fast-growth markets,
an increasing number of professionals are seeing
cities in those markets both as a source of jobs
and as places that offer a boost to their careers.
Inevitably, as demand for fine housing grows,
prices go up. Shanghai, on a par with Moscow, is
now slightly more pricey than New York. São
Paulo in Brazil is 12% more expensive than New
York, and pricier than Rome and Berlin.
And the variations within countries are often
as great as from one nation to another. Thanks
to the weak US dollar, American cities are in the
middle of the global rankings. But the gap
between the top (Los Angeles at 102) and the
cheapest (Cleveland at 73) is greater than
between Shanghai (102) and Tianjin (79). In the
US, high unemployment and falling rents have
made the traditional manufacturing heartland
a cheap region in which to do business.
Overall, though, the cities with the lowest
expatriate costs tend to be in non-western
countries. Mumbai, New Delhi, even Panama City
(42% less expensive than New York) would seem
to present enticing bargains to the expatriate.
The question arises, though, as to how much
longer such disparities will last. The foreign
executive living in the lap of luxury on a foreign
assignment, with domestic help covering the
daily chores, may become a thing of the past,
not least as cheap labour finds better-paying jobs
in manufacturing or IT. Indeed, a popular
complaint for wealthy households in São Paolo
today is the soaring cost of domestic labor, as
the pool of available nannies, cooks and cleaners
dries up. Such changes will continue as the
balance of power in the global economy shifts
towards key growth markets.
Ernst & Young Issue 07 T Magazine 23