<p>Part of it is simple supply and demand. Whenever you get thousands or millions of people vying to live in a relatively small area of land, room for building gets scarcer, food must be trucked in from rural communities, incomes in major metropolitan areas are higher so footing higher bills is less of a problem for those earning those higher wages, population densities can't continue growing indefinitely, etc. As for increased tax rates, cities have more services and infrastructure to handle, and taxation (whatever you think of it) is the paradigm that the United States and most other countries have chosen as their main vehicle for financing government services and operations. The demand for housing and other things in major cities tends to be tens or hundreds of times higher than the supply, this is especially true with housing because as mentioned above, there's very limited land to build on in big cities and on top of that, building and zoning restrictions often further limit new construction or the conversion of existing buildings to increased density housing (one such notable restriction that comes to mind is New York City's &quot;floor area ratio&quot; rules, whereby the maximum amount of floor space within a building the NYC government will allow on a lot is no more than a certain number of times the size of the site)</p>

CC BY-SA 4.0
2024-06-28T02:12:40.213Z
2024-06-28T02:12:40.213Z
Costillo
<p>Housing prices, wages, and other goods are higher priced in large cities or areas of high density. One potential explanation is that cities exist due to agglomeration effects and the city center labor markets work as attractors. Because transportation is costly there is a trade-off to be balanced between suffer the high prices of city centers and the high price of other goods while you enjoy the high wages of working there. Live outside the city center where prices are lower but if you still want the higher wages you have to suffer the costly commute.</p>
<p>These are ideas are manifest throughout the greatest authors of urban economics. I will only mention a few here:</p>
<p>The workhorse monocentric city model explains why housing prices are more expensive in the city center. There is an attractor in the center of the city - usually but not exclusively a job market. Being further away from the center implies higher transportation costs for trips to the center attractor.</p>
<p>Why then is there an attractor? Or why do a city center even arise?</p>
<p>In the article <em>On the Internal Structure of Cities</em> Rossi Hansberg and Robert E. Lucas Jr. Econometrica, 2002, 70(4): 1445-1476.</p>
<p>The origin of a business center is explained as the result of agglomeration. Firms colocate due to productive externalities. As the abstract explains it:</p>
<p><em><strong>We proove the existence of a symmetric equilibrium in a circular city in which businesses and housing can both be located anywhere in the city. In this equilibrium, firms balance the external benefits of locating near other producers against the costs of longer commutes for workers. An equilibrium city need not take the form of a central business district surrounded by a residential area. We propose a general algorithm for constructing equilibria and use it to study the way land use is affected by changes in the model's underlying parameters.</strong></em></p>
<p>The higher productivity of firms co-locating is also believed within urban economics to give rise to higher wages. That wages are higher in high-density areas is a well-documented statical correlation. This could be due to the higher productive: Why else would firms endure higher wages?</p>
<p>You can read about this for example in Enrico Moretti's papers and get a good overview in this handbook chapter:</p>
<p><a href="https://eml.berkeley.edu/%7Emoretti/handbook.pdf" rel="nofollow noreferrer">Local labor markets</a></p>
<p>However, another great author is Diego Puga and you can see his research here</p>
<p><a href="https://diegopuga.org/research.html" rel="nofollow noreferrer">Research of Diego Puga</a></p>
<p>A lot, of his work centers on the notion of agglomeration effects as an explanation of the existence of cities and productivity gains that manifest themselves in higher wages.</p>
<p>Finally, what about other goods than housing and labour? Well, you can for example read:</p>
<p>“Where is Standard of Living the Highest? Local Prices and the Geography of Consumption”  (with R. Diamond)  2023</p>
<p>which you can find here <a href="https://moretti.econ.berkeley.edu/research" rel="nofollow noreferrer">Enrico Moretti's research</a></p>

CC BY-SA 4.0
2024-07-30T19:55:18.390Z
2024-07-30T19:55:18.390Z
Jesper Hybel
<p>I have long wondered why groceries, rent, and especially cially taxes increase as cities get larger since the cost per capita goes down, at least according to everything I've read including a summary of Scale:
<a href="https://www.wsj.com/articles/how-nature-scales-up-1498239216" rel="nofollow noreferrer">https://www.wsj.com/articles/how-nature-scales-up-1498239216</a></p>

<p>I could see the real estate gets priced up due to supply and demand, it's also more efficiently utilized, as denser cities are used 24h per day, and all areas see. To be used as work AND home with restaurants that service business customers during the day  residential at  night and both in morning. </p>

<p>And that doesnt explain higher tax Rates, which see, anecdotally at least to be higher. </p>

CC BY-SA 3.0
2017-06-25T22:18:47.850Z
Though another unanswered question asked [Why is poverty worse in larger cities?](https://economics.stackexchange.com/questions/8601/why-is-poverty-worse-in-larger-cities).  In fact it may be easier to be poorer in larger cities than smaller towns because certain basic costs are lower
Henry
CC BY-SA 3.0
2017-06-27T09:51:03.177Z
Becuase there is a monetary surplus in big cities that drive price up.
mootmoot
CC BY-SA 4.0
2024-06-29T06:32:19.107Z
I’m voting to close this question because it is based on an unsupported assertion.
Giskard
<macroeconomics><taxation><urban-economics>
Why does everything get more expensive as cities grow in density/size?
Clay Nichols
# Why does everything get more expensive as cities grow in density/size?

(Asked by: username_0 on 2017-06-25)

I have long wondered why groceries, rent, and especially cially taxes increase as cities get larger since the cost per capita goes down, at least according to everything I've read including a summary of Scale:
<https://www.wsj.com/articles/how-nature-scales-up-1498239216>

I could see the real estate gets priced up due to supply and demand, it's also more efficiently utilized, as denser cities are used 24h per day, and all areas see. To be used as work AND home with restaurants that service business customers during the day residential at night and both in morning.

And that doesnt explain higher tax Rates, which see, anecdotally at least to be higher.

**Tags:** macroeconomics, taxation, urban-economics

> **Comments:**
> **username_1**: Though another unanswered question asked [Why is poverty worse in larger cities?](https://economics.stackexchange.com/questions/8601/why-is-poverty-worse-in-larger-cities).  In fact it may be easier to be poorer in larger cities than smaller towns because certain basic costs are lower  
> **username_2**: Becuase there is a monetary surplus in big cities that drive price up.  
> **username_3**: I’m voting to close this question because it is based on an unsupported assertion.  

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## 2 answers

### Answer by username_4 on 2024-06-28. Score: 1

Part of it is simple supply and demand. Whenever you get thousands or millions of people vying to live in a relatively small area of land, room for building gets scarcer, food must be trucked in from rural communities, incomes in major metropolitan areas are higher so footing higher bills is less of a problem for those earning those higher wages, population densities can't continue growing indefinitely, etc. As for increased tax rates, cities have more services and infrastructure to handle, and taxation (whatever you think of it) is the paradigm that the United States and most other countries have chosen as their main vehicle for financing government services and operations. The demand for housing and other things in major cities tends to be tens or hundreds of times higher than the supply, this is especially true with housing because as mentioned above, there's very limited land to build on in big cities and on top of that, building and zoning restrictions often further limit new construction or the conversion of existing buildings to increased density housing (one such notable restriction that comes to mind is New York City's "floor area ratio" rules, whereby the maximum amount of floor space within a building the NYC government will allow on a lot is no more than a certain number of times the size of the site)


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### Answer by username_5 on 2024-07-30. Score: 0

Housing prices, wages, and other goods are higher priced in large cities or areas of high density. One potential explanation is that cities exist due to agglomeration effects and the city center labor markets work as attractors. Because transportation is costly there is a trade-off to be balanced between suffer the high prices of city centers and the high price of other goods while you enjoy the high wages of working there. Live outside the city center where prices are lower but if you still want the higher wages you have to suffer the costly commute.

These are ideas are manifest throughout the greatest authors of urban economics. I will only mention a few here:

The workhorse monocentric city model explains why housing prices are more expensive in the city center. There is an attractor in the center of the city - usually but not exclusively a job market. Being further away from the center implies higher transportation costs for trips to the center attractor.

Why then is there an attractor? Or why do a city center even arise?

In the article *On the Internal Structure of Cities* Rossi Hansberg and Robert E. Lucas Jr. Econometrica, 2002, 70(4): 1445-1476.

The origin of a business center is explained as the result of agglomeration. Firms colocate due to productive externalities. As the abstract explains it:

***We proove the existence of a symmetric equilibrium in a circular city in which businesses and housing can both be located anywhere in the city. In this equilibrium, firms balance the external benefits of locating near other producers against the costs of longer commutes for workers. An equilibrium city need not take the form of a central business district surrounded by a residential area. We propose a general algorithm for constructing equilibria and use it to study the way land use is affected by changes in the model's underlying parameters.***

The higher productivity of firms co-locating is also believed within urban economics to give rise to higher wages. That wages are higher in high-density areas is a well-documented statical correlation. This could be due to the higher productive: Why else would firms endure higher wages?

You can read about this for example in Enrico Moretti's papers and get a good overview in this handbook chapter:

[Local labor markets](https://eml.berkeley.edu/%7Emoretti/handbook.pdf)

However, another great author is Diego Puga and you can see his research here

[Research of Diego Puga](https://diegopuga.org/research.html)

A lot, of his work centers on the notion of agglomeration effects as an explanation of the existence of cities and productivity gains that manifest themselves in higher wages.

Finally, what about other goods than housing and labour? Well, you can for example read:

“Where is Standard of Living the Highest? Local Prices and the Geography of Consumption” (with R. Diamond) 2023

which you can find here [Enrico Moretti's research](https://moretti.econ.berkeley.edu/research)


---

