The Economist Intelligence Unit recently released their Worldwide Cost of Living 2017 survey, a report comparing the cost of living in cities throughout the world. Five of the ten most expensive cities are now in Asia. Singapore and Hong Kong take the top spots followed by Zurich, and then Tokyo, Osaka, and Seoul. Seoul—where property values have long been politically-contentious—has seen a particularly rapid rise in the cost of living: seven years ago it was ranked only 50th. New York City—the only American city in the top ten—comes in at ninth. Chinese cities have seen a recent decline in urban living costs, a development that is a mixed blessing: on the one hand, better for consumers; on the other, worrisome for overbuilt and potentially fragile property markets. (It should be noted that many of the countries at the bottom of the list have historically been Asian as well, primarily in South and Central Asia).
The factors driving costs are not only in the real estate markets, but include consumption goods. Method matters in such exercises. The survey includes more than 160 items in each major city at stores in a variety of higher and lower-end markets. The results are then converted into US dollars at the prevailing exchange rate and weighted to achieve comparative indices. Seoul, Tokyo, and Osaka are the three most expensive places in the world to buy staple goods. A grocery basket is almost 50% more expensive in Seoul than in New York City, suggesting not only well-known problems in the food import regime but perhaps some imperfections in grocery markets as well. Another key element to the cost of living story is underlying commodity prices, which are affected by the exchange rate and whether the typical consumption basket is weighted toward local or imported goods. The report notes that five years ago Sao Paolo was among the 30 most expensive cities in the world but last year was among the 30 cheapest. As the Brazilian Real has appreciated in the last year and experienced near double-digit inflation, Sao Paulo and Rio de Janeiro have risen in the rankings.
Although designed for corporate managers, the index also has broader implications, including for the looming debate about inequality in Asia. As noted property prices have been a major source of political tensions in Korea, where large gaps have emerged between “insiders” who managed to break into the property market and the excluded middle-class that remain renters and feels disadvantaged. We are waiting to see whether similar dynamics could play out in Pyongyang, where the regime has invested heavily in satisfying the country’s elite. Finally, there is also an interesting China angle, and it is global. In Singapore and Hong Kong, we wonder to what extent prices are driven by Chinese investments, which have purportedly been pushing up real estate prices in a number of cities worldwide. Coming soon: will Pyongyang experience these dynamics of growing inequality—already visible in the Pyongyang illusion —and a China investment play.