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Placemaking & the Consumer City

Introduction to Placemaking and the Consumer City
Is the cost of living higher in cities?
How do restaurants shape the experience in a city?

Introduction to Placemaking and the Consumer City

Economic research has long shown that city industries are highly productive.  But cities also have an important role to play in promoting well-being by providing people with abundant, accessible and affordable access to a range of public goods and private goods.  Building great livable places encourages a concentration of talent that helps urban economies to thrive.

Be sure to also see Urban Form and Transportation, as these are closely linked.

Is the cost of living higher in cities?

We’ve come to take it almost for granted that the price of everything must be higher in cities.  But this folk wisdom about the cost of living has come under serious challenge because the data we use to compare prices among cities overlooks the true value that city markets provide to consumers.  In cities, consumers have a much wider variety of available goods and services, they can find them more easily and close at hand, and this combination of variety and convenience makes the effective prices of a wide market basket less expensive than in non-city locations.

For decades the most common tool for comparing living costs among cities has been the ACCRA index compiled by the Council for Community and Economic Research (C2ER). It covers 354 communities and reports on how the price of a standard basket of 61 items ranging from pork sausage and gasoline to teeth cleaning and newspaper subscriptions varies among communties. The ACCRA index suggests, for example, that the cost of living in Manhattan is about twice as high as in the average of all participating communities and the cost of living in several small cities in Arkansas, Oklahoma and Texas is about 15 percent lower than the national average.

Because cities, particularly larger cities offer key advantages of variety, convenience and discovery in consumption this means there are three key flaws with the ACCRA index as in indicator of differences in living standards or well-being among places. First, the index is biased because it excludes whole classes of goods that are important to consumer well-being, particularly the variety of goods that are not available in every location. Second, the index excludes an important component of the “cost” of goods: the amount of time and effort required to search for, travel to and purchase goods and services. And finally, the index mistakenly assumes that a single basket will be representative of the preferences of all consumers when, in fact, there are increasingly many different baskets of goods and services that would need to be evaluated to accurately compare consumer welfare among places.

Economists have begun the process of revising price index computations to account for the much greater variety of goods and services available in cities.  Looking specifically at the variety, availability and price of groceries, Jesse Handbury and David Weinstein have calculated an alternative price index that corrects for heterogeneity bias (some cities have a wider variety of goods) and variety bias (some cities simply don’t have access to a particular good at all).  With these two sources of bias eliminated, their price index shows that the price of food is actually lower in large cities than in smaller ones.

To read more about our take on cost of living, read this blog post about red vs. blue cities.


How do restaurants shape the experience in a city?

One of the hallmarks of a great city is a smorgasbord of great places to eat. Cities offer a wide variety of choices of what, where, and how to eat, everything from grabbing a dollar taco to seven courses of artisanally curated locally raised products (not to mention pedigreed chickens).

The “food scene” is an important component of the urban experience, and has been associated with higher city growth rates and even reduced driving patterns. To shed some light on the individual food experience within each city, we assembled data on the number of full service restaurants per capita in each of the nation’s largest metropolitan areas.

As you might guess, the metro areas with the most restaurants per capita are found predominantly in the Northeast and on the West Coast. Elsewhere, New Orleans and Denver score high as well. The top five metropolitan areas on this indicator are San Francisco, Providence, Portland, New York, and Seattle. Each of these cities has nine or more full service restaurants per capita. With the possible exception of Providence, all of these are recognized as major food cities in the US. (And Portland achieves its high ranking without counting the city’s more than 500 licensed food carts.)

(Note: These data are from the County Business Patterns data compiled by the US Census Bureau for 2012. Note that the “full service” definition basically applies only to sit down, table service restaurants, not the broader category that includes fast food and self-service.) 

It’s important to realize that this ranking doesn’t include anything about quality–simply quantity– but the more restaurants per capita can indicate higher competition (and therefore better quality options), or higher demand (a signal that more diversity of options is valued, allowing for more valuable experiences). It is also highly correlated with per capita income, which makes sense: the more people that are able to afford frequent restaurant outings, the more restaurants there will be.

To read more about this ranking and how food shapes a city’s form, go to our blog post here.