Researchers from the University of Warwick and London School of Economics recently came up with yet another stark illustration of the UK’s North-South divide. They found that residents of part of the west London neighbourhood of Notting Hill paid more in capital gains tax than the combined populations of Liverpool, Manchester and Newcastle.
Presumably, one upside of this is that, if you’re a Notting Hill resident, you can easily find fellow high-net-worth individuals with whom to share your tales of CGT woe, down at the local pub. But it also raises an interesting question: is it a good thing that your neighbour is likely to be in the same gilded boat as you? If you’re rich, is it better to live with your financial peers — or should you try to rub along with those of lesser means who are more concerned about utility bills than CGT?
This has become more of an issue in recent years. Wealth has become highly concentrated in certain cities. A 2023 Henley & Partners survey showed that New York had 775 centi-millionaires (people worth $100mn or more), while the Bay Area and Los Angeles had 692 and 504 respectively. London, in fourth place, has 388.
It’s not just cities, either. Places such as the Hamptons, parts of the Cotswolds in the UK, and areas of the South of France have also been turned into billionaires’ playgrounds. Recently, it was reported that the municipal body for the exclusive ski town of Steamboat Springs, Colorado, could not attract a head of human resources despite offering a salary of $167,000 because it was not enough to purchase a property in the resort. Even doctors who could afford to pay £1mn for a home said they were being outbid by cash buyers.
You don’t have to be a socialist to think that, perhaps, something has gone wrong when neither high-earning professionals nor workers on average salaries can afford to live near the place where they work. Steamboat Springs may trade on its image as a place of cowboys and ski bums but it’s an image that’s decades out of date.
Of course, even in the 21st century, not everywhere is ultra-rich. The UK has only one city in Henley’s top 50 for millionaires. Germany, France, and Italy have only two apiece. Perfectly desirable cities — such as Lyon, Manchester and even Berlin — don’t make the list. It’s unusual that Warren Buffett still lives in Omaha, Nebraska — the Midwestern state only has three billionaires, compared with roughly 100 in New York.
But, even if you’re a mere millionaire, should you live in a wealthy enclave at all? What are the pros and cons? One problem is that you wind up with a distorted idea of what constitutes wealth. You see this in cities such as London and San Francisco where a top 1 per cent income is routinely trotted out as ‘middle class’. This can become a problem if the cities’ rich go into government. Having been surrounded only by other rich people, they will tend to assume everyone is like them, and make policy for those on normal incomes having generalised from their own experience.
It can also lead to a lack of empathy and is not a recipe for social cohesion. Surrounded by the rich, you not only believe six-figure incomes are the norm, you can end up believing that wealth is deserved, the poor are lazy, and taxes are theft. This echo chamber effect is at its most acute in Silicon Valley, where billionaire tech-bro libertarians blithely state that the world’s problems can be solved by the simple application of their genius.
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That said, there may be some upsides, too. Rich neighbourhoods tend to have better schools, good restaurants, lower crime, and so on. They also ensure that residents do not have to worry about standing out as the rich person in town.
It’s tempting to believe, then, that living in a rich neighbourhood might be bad for society but good for the residents, personally. However, this is not necessarily true.
In fact, the wealth surrounding you may make you less happy if it causes you to perceive your own status as lower. A 2021 study by researchers from Singapore Management University and Yale found that “when people consider their wealth relative to others, there is a stronger association between money and happiness”.
This is neatly illustrated in Tom Bower’s 2006 biography of the disgraced former media baron Conrad Black and his wife Barbara Amiel when an observer quips, “I don’t understand why Conrad wants to be the poorest billionaire in America.” Black, although objectively fabulously rich, had surrounded himself with even richer people and, so, was constantly playing catch-up.
Perhaps living in Omaha (or Manchester, Newcastle, or Liverpool), then, is the key to wealth and happiness. Unless, of course, you have the strength of character to not compare yourself to your Notting Hill neighbours. Speaking of the study she led, Jacinth Tan, assistant professor of psychology at Singapore Management University, used a quote often attributed to Mark Twain: “Comparison is the death of joy.”
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This article is part of FT Wealth, a section providing in-depth coverage of philanthropy, entrepreneurs, family offices, as well as alternative and impact investment