Hi and welcome back to another development diary for Cities: Skylines II! This time we’ll take a closer look at the economic simulation, how citizens and companies manage and use resources, and how you can build a prosperous city knowing where citizens want to live, where companies seek to locate, and why and how to build connections that lay the foundation for citizens, resources, and services moving around the city smoothly.

While the economic simulation of Cities: Skylines is similar in concept compared to the economic simulation in Cities: Skylines II, it was simpler in Cities: Skylines. The production chain was relatively narrow, but the economic simulation served its purpose well within the game’s other systems.

As Cities: Skylines II has been built from the ground up and all of its core systems redesigned, there was also the need to redesign the economic simulation. It governs the households and their money and resource usage, businesses finding suitable locations in the city based on their evaluation of potential profit, available resources, connections, and workforce as well as city service functionality and trade.

Design Philosophy

We wanted to create a deep and complex system without it being too complicated for you to manage, allowing you to spend more time building the city rather than worrying about every minute detail at every possible turn. The system is modeled after real-life economic models to tie more realism into the game, and it is designed to balance itself out in most cases to support both new players and newly-founded cities in their first steps to becoming bustling metropolises. It features financial aid in the form of government subsidies which help the city’s budget by taking care of a portion of the expenses in the early game. The subsidies also include unemployment benefits for private citizens to keep them on their feet, able to improve their lives and become contributing members of society.

While the economic system is designed to support you in your city-building vision the government aid decreases as the city grows and becomes successful allowing you to fully stretch your city-management wings and fly. As you play the game, you can start to delve deeper into the economic simulation and its intricacies, seeing how the various agents make decisions based on your actions as well as the existence of other agents and you can start to make meaningful choices, guiding the city towards whatever your end goal is.

Economic Cycle

The economy is formed by flows of various resources among the agents; households, businesses, and city services. The number of agents naturally grows as the city grows and each agent tracks the amount of money and resources they have. The agents have expenses and income and they try to balance them out by making decisions on what to buy and sell depending on their current situation. Households spend money to buy resources and pay rent, businesses buy resources and turn them into other resources which they then sell to other businesses or customers. Businesses also pay rent for their building which is taken into account when they calculate their profit. Certain city services also consume resources and these expenses are added to their monthly upkeep.

At the core of the economic simulation are the zones and their symbiotic relationships with each other. Households look for homes and workplaces. Industrial companies require access to resources and commercial companies want products to sell and customers to sell them to.

Taxes can be used to encourage or discourage different businesses in the city. If there’s an abundance of a resource or product, setting higher taxes can lower the excess production while still providing the city with a nice boost in tax income. On the other hand, if there is a lack of a resource or product, lowering the taxes, or even subsidizing it by setting negative taxes, brings more of those companies into the city. Subsidizing resources at the beginning of the production chain also benefits companies at the end of the chain as they get easy access to resources they use in their manufacturing processes.

However, money doesn’t circulate in a closed system and it doesn’t appear out of nowhere. Rents, import payments, company profits, and player income are money sinks that remove money from the economic simulation. To balance the money sinks, the simulation also features money sources in the form of paid rents and company profits and the funds used by the player which are distributed so that half of them go to the citizens based on their education level and half are evenly distributed to the commercial buildings’ wealth. Other money sources are export income from businesses and city services, tourists, and the aforementioned government subsidies for the city and individual citizens.

Government subsidies help your city get started and are reduced as your city’s economy grows

Households

Households look for homes in favorable locations that have workplaces, schools, and leisure locations close by. Large families prefer larger apartments found in low density and medium density housing areas while small families are satisfied with smaller apartments in high density and low rent housing areas.

Households also want to reside close enough to workplaces so that their pathfinding cost to work is low. Workplace pathfinding considers the education levels of the available jobs and gives a small bonus to jobs that match the employees’ education level. Additionally, companies with fewer employees are preferred over companies with only a few open jobs, which ensures a somewhat even distribution of workers. The same applies to leisure options and shopping; citizens want to spend more time enjoying the activities than traveling to them. Households with children want to locate near Elementary Schools since all children go to school if the city has any.

Households go shopping when the AI detects that it lacks resources. It then checks the household members and their product preferences and chooses a product based on the preference weights. Once the product type has been selected, it picks one of the household members who then travels to a shop selling the desired product and makes the purchase. Once the purchase has been made, the product is transmitted to the household’s resources.

All these decisions are made to maximize the household’s Happiness and the suitability of the household’s apartment is calculated by adding together the pathfinding costs to their various destinations, free time left after work and travel, money they have left after expenses, and the services that match their current needs. If the household can’t pay for the rent and upkeep of the apartment, they look for other available apartments which match their ability to pay rent. The evaluation process again includes all of the above-mentioned points, to find a suitable place and maximize Happiness. They also consider moving out of the city even though it is given a lower probability than finding a home locally. If the household is very poor and unable to find a new apartment and lacks funds to leave the city, they become homeless. In this case, they can live in the city parks until their living situation changes.

A household may be unable to make rent due to high Land Value or a low income

Industrial Companies

Industrial companies want optimal access to resources, places to ship their products, and workers to keep production going. They consider the value of production at the site as they choose where to found the company. The size of the property is relevant to the profit calculation as larger industrial buildings have higher rents. Land Value also affects the rents so industrial companies prefer areas with low Land Value to maximize profits. However, different types of production require different amounts of space so some heavy industry companies set up shop in larger buildings regardless of the cost.

Companies order resources used to manufacture products and when they estimate the suitability of a location for the business, they take into account the transportation costs which are deducted from their profit. The new companies have a slightly higher preference for resources that are not in use in the city yet; either they are produced there but exported without further refining or they are only available from Outside Connections. Transport cost is calculated by the distance and the weight of the resource; for example, metals weigh more than textiles. Similar to resources, the distances to the industrial companies’ customers, resellers in commercial areas, and other manufacturing companies affect the company’s profit. Companies favor short transportation distances when making resource orders to avoid transportation costs reducing the profit margin which makes companies further away less likely to be selected as the resource provider.

When the company is looking for workers, the complexity level of the production is taken into account as it affects the requirements for employee education levels; some companies function well with employees with low education levels while others require adequately educated workers to increase their Efficiency which in turn affects their production speed and profit margin.

As the company's profit increases they are able to invest more into the building upkeep alongside paying the rent which slowly increases the building’s level and the surrounding Land Value. Company level and Efficiency also affect the production rate. This means that as the level and Efficiency of the company increase, they can produce more with the same amount of expenses (water and electricity usage) thus lowering the price of the produced unit.

Industrial companies occasionally evaluate their current production. They seek to maximize their income by finding the optimal number of employees given the current prices for resources bought and products sold, employee wages, transportation costs, and fixed costs (building rent and upkeep). They do this by adjusting the scale of their production: if there is more demand for the products the company makes, they scale up the production and hire more workers. If the demand for the product decreases, they scale the production down and let go of some of the workers in order to still stay profitable. If the financial situation of the company decreases due to not making enough profit, they cannot pay for the rent and upkeep of the building nor can they order resources for production. In this case, the expected company income and wealth become negative resulting in the company going bankrupt and the building becoming abandoned.

Some of the industrial zone buildings are warehouses that don’t produce anything by themselves but are part of the resource trading. When resources are bought from Outside Connections, they are transported to the warehouses where they are stored until further usage. As mentioned earlier, the price of the order consists of the transport costs and the price of the resource, and companies can trade with both warehouses and Outside Connections. Warehouses attempt to stay well stocked and balanced by moving resources around in the city, evenly distributed among the warehouses. In addition to zoned warehouses, many of the cargo transportation buildings function as warehouses as well. As these warehouses have special connections to the outside world, their transportation costs differ from the usual truck traffic.

Cargo trains and ships have large capacities which lowers the prices of even the heaviest of resources and air cargo can carry resources to and from anywhere with very little difference in transportation cost.

Unoccupied buildings have no signs to display until a company moves in

Commercial Companies

Commercial companies need products to sell, workers to service the customers, and to be located close to the residential areas which provide the bulk of the customers. Commercial companies order products from manufacturing companies in industrial areas as well as from Outside connections. Similar to industrial companies, commercial companies take transportation costs into account when they evaluate suitable locations in the city as they eat into the profits the company generates.

They try to balance good connections to product manufacturers and customers while they also react to the demand for different products. As an example, if a neighborhood doesn’t have a grocery store and the customers have high transportation costs (time and money from pathfinding calculations) to reach the closest grocery store, the simulation marks the neighborhood’s close surroundings as lucrative areas for grocery stores to appear.

Commercial companies look for a customer service workforce in the same way as industrial and office companies do: citizens who live nearby and who are of a suitable education level, are the best option. Often the customers and workers come from the same areas which means that commercial companies thrive near residential areas in general.

Commercial companies also react to the changes in the economy and adjust their service accordingly by scaling their service level up or down. As commercial companies level up, their Efficiency increases which in turn improves their service level and sales. As the sales increase the individual products become cheaper. This affects the decision-making process of the citizens when they evaluate where to buy the products they need and simulates the real world where cheaper products attract more customers.

Office Companies

Office companies function in much the same way as industrial manufacturing companies. Their production uses Electronics or Software as the input resources and their products are immaterial goods such as Software, Telecom, Banking, and Media. While good transportation connections are beneficial for offices, they are not as reliant on short transportation distances since the resource they require is lightweight and cheap to transport. The immaterial goods that they produce are sold wirelessly to manufacturing companies, other office companies, and customers so they don’t require physical access to their customers and it doesn’t weigh in on their decision-making while evaluating suitable locations for founding the companies. Thus it is more important to be close to the residential areas where the potential workforce lives.

Offices require employees similar to industrial companies. The employees are the engine behind production and it is important that the companies find suitable employees to fill the roles and keep the company Efficiency high. The complexity level of the produced goods dictates the distribution of the education level requirements in the company. Large office buildings can employ hundreds of employees.

The evaluation of profitability and survivability for office companies is the same as other businesses. They scale the production depending on the economic situation, always maximizing income by hiring more employees or letting excess workforce go. If their profit decreases and they are not able to bounce back after adjusting their production scale, they cannot pay the required rent, upkeep, and resource costs and they will go bankrupt.

Production

An important part of the city’s economy is the production chain. Managing and adjusting the production chain adds a whole new dimension to the economy simulation and the gameplay.

The production chain is designed so that you do not have to micromanage it but if you so wish you can really delve deep into the intricacies of what makes up the whole system. Starting from extracting the raw materials all the way up to specializing the industry in the city you can influence any step of the process. Having companies that produce the same resource gives a specialization bonus to those companies’ Efficiency.

Extracting

To get raw materials into the city you have to either produce them locally with a Specialized Industry Area or import them. Having good cargo transportation connections will make it easier to import them, but extracting them locally will also provide income to the city in the form of companies paying taxes from their profit.

To create an extraction area you will need to use the Specialized Industry Area tool which is activated when you place a specialized industry hub building. This tool works similarly to the District Tool covered in City Services letting you define the area by placing corner nodes that create a full loop, however, a small area is already created when the building is placed. You can expand it to cover more land, but the area must be within range of the building itself, which will automatically harvest resources from the area. If the area is producing more of the resources than the city needs then those will be automatically sold to the Outside Connections. Having good cargo transportation options will greatly improve the overall traffic flow of the city and as well as reduce transportation costs for the companies.

Define the extraction area and watch as buildings and vehicles get to work extracting the natural resources

It is beneficial for the city when resource production and consumption are balanced. Overproduction of resources is not beneficial for the city or the companies. When there is a large surplus of a resource, the companies will export that resource to the Outside Connections. However, when companies sell to Outside Connections, they also pay for the transportation costs. The more of the resource is transported the larger the transportation costs will become as it is required to be transported further and further away from the city, and these costs are deducted from the company’s profit margin. A large deficit in resource production causes the companies to order resources from Outside Connections. This incurs additional transportation costs and causes a lot of truck traffic which can hinder the physical transportation of the resources to their destination. These transportation costs are of course also deducted from the companies’ profits.

From the recources...

The zoned industry requires resources that can either be imported from Outside Connections or gained from the Specialized Industry Area within the city. Using these resources the industrial companies process them further into Material Goods. These Material Goods can be then sold to other manufacturing companies for further processing, exported to Outside Connections, or sold to Commercial Companies. Additionally, the Offices function as manufacturing companies, but instead of producing Material Goods they produce Immaterial Goods. Offices require more educated workers and Immaterial Goods which are either produced by other Office companies or imported from outside connections.

...Into products

At the end of the production chain, all of the produced resources and goods find their way to the end customers, whether they are households in your city or the Outside Connections. Thus commercial companies are at the very end of the production chain. They turn the Goods they buy into products that the households then buy to fill their Resources and Leisure demand.

Resouce Production Factors

To provide a small sneak peek behind the scenes of the simulation we are going to talk about the Resource prices and their weights. The design behind the resource gameplay is influenced by real-life resource logistics, simulating how cities are formed and function in the real world. While these are not directly exposed in the game, all of the resources have several factors which affect the simulation, a couple of these are the price, weight, and space.

Price naturally refers to the actual price of a unit of the resource. The price determines how many units of the resource a household can buy when they restock their household resources. The price of the resource is constant but the availability of the resource contributes to the transportation costs which define the end profit margins for the companies.

Weight refers to the abstracted physical weight of the resource, which affects the resource’s transport cost. Light resources like Pharmaceuticals incur a small transport cost while Stone, Steel, etc. are heavy and in turn, incur high transportation costs. Heavy stuff should ideally be produced in the city to avoid high transportation costs, but if it needs to be transported, having a ship or train connection is a good way to reduce those costs.

Space affects the profitability of the resources. Some resources require more space for manufacturing than others, and companies that manufacture resources that take up large amounts of space prefer to be located in areas where the Land Value is low so the company can make the most profit.

Example: A minerals factory

The factory's expenses are mostly dictated by the cost of acquiring its input; stone. As stone is ubiquitous but rather heavy, the transport costs are probably a large part of the cost, making the company more likely to locate near a stone quarry. Additionally, the factory is probably quite large, so it will try to pick a location where the land price is not very high. Another large cost comes from paying the wages of the relatively untrained workers the factory uses. The factory also buys some water and a lot of electricity, the prices of which are set by the player. Lastly, the factory earns money by selling its products to either local electronics or chemical factories or exporting them out of the city. If it has to export, it will also pay the transportation costs and be less profitable. Finally, the player will tax whatever profit is left, or may even subsidize the minerals production if he wants to have more of it produced in the city.

Specialized Industries

In Cities: Skylines the production chain is very simple with four types of raw materials, which can be processed and further turned into goods consumed by commercials. For Cities: Skylines II we wanted to add more depth by providing more specialized industry types, more production variations per resource, and more options to combine those resources into new products.

Specialized industry areas typically require natural resources to function: Fertile Land, Forest, Ore, or Oil, with the exception of Livestock farming and Stone quarrying Specialized Industry Areas which can be built on land without any natural resources. Of the natural resources, Oil and Ore are finite resulting in less and less resources being extracted, while Fertile Land and Forests replenish their resources over time but are vulnerable to pollution.

Cities: Skylines II features 9 different Specialized Industry Areas: You can choose between four types of farming: Livestock farming requires no natural resources, while Grain farming, Vegetable farming, and Cotton farming need to be situated on Fertile Land. Forestry naturally requires Forests, Stone mining can be utilized anywhere on the map, but Coal and Ore mining both need Ore deposits in the ground. Lastly, we have Oil drilling which can extract Oil from underground.

Specialized Industries do not affect the Industry zoning demand and the economy of the companies in the Specialized Industry Areas functions differently as they cannot go bankrupt. Instead, they downsize production and the number of employees when profits are down. This can especially happen if the area runs out of the natural resources.

Specialized Industry Vehicles

Specialized industry vehicles are not part of the normal traffic and do not drive on roads but they still travel on paths created by the simulation when industrial areas are created. The vehicles operate within these specialized industry areas only and gather resources within that area. Once they gather enough, they drop the resources at the main building which then processes the resources and sends them to other companies for further processing as part of the production chain.

Specialized industry areas automatically spawn vehicles to harvest and transport resources back to the main building

Economy Panel

One of the core parts of understanding the city’s economy is of course the Economy Panel. From there you are able to take a deeper look at the city’s finances, loans, taxes, service budgets, and production of different resources within the city. With the tools and information provided in the Economy Panel, you can affect the various parts of the simulation and plan and develop your city.

Get a quick overview of your city’s finances with the Budget tab

From the Budget tab, you can take a quick glance at the city’s Revenue, Expenses, and its current Monthly Balance. Additionally, highlighting each section reveals quick details of each of the revenues or expenses on the right side of the panel. It includes a description as well as an overview of where the revenue or expenses come from.

Loans work a bit differently than in Cities: Skylines. Instead of taking one of three loans, there is now only one loan available, but the loan is adjustable and it can be paid back or increased at will. You can take a loan and determine its size by moving the slider right and left; the loan is finalized by using the Accept button. With this same method, you can repay the already existing loan or increase its size to take out even more money. The loan size has a limit that increases on each milestone. The interest rate is based on the size of the loan, and the loan itself is automatically paid back in monthly payments. You can also pay it back manually, either partially or entirely if your city’s finances allow for it. The loan interest rate can be reduced by building the City Hall and the Central Bank.

Loans can be costly but can provide your city with the money it needs here and now

Each of the zone types has its own overall tax rate which can be adjusted with sliders. On top of that, you can adjust the taxes of individual groups by expanding the menu for a specific zone type. For the Residential zones, you can adjust taxes per Education level. For Commercial, Industrial, and Office zones you can adjust the tax rates for each of the different product types. Each tax can be set to be between -10% and 30%. Setting negative taxes is a great way to guide the production of different resources to specialize the city in a certain field.

Adjust taxes for each zone type or expand the type to set individual taxes for products or education levels

From the Services tab, you can adjust different city services budgets which affect the service buildings’ Efficiency and in turn the quality of said services. The service budget can range from 50% to 150%.

For Electricity and Water & Sewage, you can also change the Service Fee which affects the consumption of the service but also Company Efficiency and the Happiness of citizens. For example, lowering the Service Fee for Electricity will increase Electricity Consumption, Companies' Efficiency, and the Happiness of the citizens.

With these tools, you can finetune the service output to match the current demand if you so wish. However, an important design aim of these is that they do not need to be constantly micro-managed. But for the more experienced players, they can provide an additional layer of complexity to the simulation.

You can lower the service budget to save money or if your services more than cover your city’s needs

From the Production tab you can observe each of the Materials, Material Goods, and Immaterial Goods your city is producing, and from that you can also observe whether your city’s production of the resource is either in Surplus or in Deficit. You can highlight each resource to reveal additional information which shows you where the resource can be gained from and where it can be either sold or used. For example, Wood can be produced from Forestry or it can be imported. Wood is also used for Heating and it can further be sold to Processing companies or be Exported to Outside Connections.

Get an overview of what your city needs and produces locally, and see what Materials are needed to produce a certain product

With this information, you can gain a deeper understanding of what your city is consuming and how much your already existing industry is producing. This will help you plan your city and transportation more efficiently which in turn can help reduce traffic and provide more tax income to your city to realize your dreams. We hope this look into the economic simulation of Cities: Skylines II has given you some ideas of how you can specialize your city and benefit from a balanced production chain. We continue our development diaries next week with a look at Game Progression.