Urban Fantasy World Building (how-to)
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When I was preparing to write the second novel in my urban fantasy series, my then-editor blew my carefully researched plot entirely out of the water by telling me, "Our readers don't like alternate dimensions."
When I gathered my jaw off the floor, I asked her about their opinion of books such as The Chronicles of Narnia. This did not sway her one tiny bit. Her view was colored by a desire to make my books appeal not to science fiction/fantasy fans but to paranormal romance fans, who make up a much larger share of the book-buying public. To her market-focused eye, urban fantasy readers also don't like alternate histories; they don't even like foreign settings. What they prefer (according to her) are modern-day American cities, although they might accept London and Toronto and Sydney. Mars would be right out.
I would certainly hope that other editors wouldn't take such a narrow view of where an urban fantasy novel can take place, but clearly some do. If you're a dedicated SF/F/H reader who's wondered about the seeming blandness of many urban fantasy settings, well ... now you know where that's coming from.
If you're a writer interested in tightly targeting your urban fantasy novel to editors at large publishers, you'll want to set it in the present-day in a reasonably major U.S. city, preferably one that hasn't been overused in other popular series. And for the sake of being able to sell your setting to readers who reside in your city of choice, you'll want it to be a place that you're personally familiar with.
You can alter pieces of the landscape, make up businesses and schools etc., but overall Peoria has to seem like Peoria to the people who actually live there. You can use public locations like monuments, parks, etc. pretty much as you see fit; you can refer to real local businesses provided you aren't portraying them in a negative light. For instance, in Spellbent I based the run-down apartment complex the protagonists live in on a real one, but changed the name. The grounding details are all there, but the risk of a libel lawsuit is removed.
Once you've picked your city, you need to think about how the fantasy elements fit in. If Peoria has to seem like real-world Peoria, wizards or vampires can't have been running around in it out in the open from the city's founding, because then the city would be a very different place and you'd be in the realm of an alternate history.
Hidden-world magic is a common and very useful trope in urban fantasy -- J.K. Rowling uses it in the Harry Potter series, and Neil Gaiman uses it in a lot of his work. Another possibility is that the magic or supernatural creatures are coming right out in the open, but that's because of some world-changing event portrayed in your novel or story; your plot would naturally focus on characters dealing with that event. Or, as with Ilona Andrews' Kate Daniels series, it could be shortly after the event, rather like most zombie apocalypse stories but with less focus on horror and more on adventure. You can also use all three elements if you have a series.
Next, you need to consider the finer details of the magical creatures that you'll be using in your novel. If you're venturing beyond vampires and werewolves -- oh, please, do! -- you can mine local legends or borrow from the myths of the people that live in your city of choice and find some really interesting possibilities. For instance, if you have a Jewish community, your characters could be dealing with a golem; if you have a Mexican immigrant community, you could include a variation on the Crying Woman legend or have a chupacabra, etc. (Yes, lots of writers have used chupacabras in recent fiction, so that's not really breaking new ground. I just enjoy the excuse of using that word. Chupacabra. But I digress....)
If you're using human wizards and sorcerers, be careful if you're basing your magic on a real-world religion; in particular, be careful to portray Wicca, Vodou, and Yoruba/Santeria accurately and steer clear of stereotypes. If you're dealing with characters who call themselves witches, and if they're not Wiccans, make that clear. You can have a character who has twisted a "good" religion to his or her own purposes; make it clear they're violating tenets of their own faith. Cults are fair game; however, the difference between a cult and a strange-to-you but legitimate religion may be in the eye of the beholder. Do your research before you decide. Avoid cackling evil wart-nosed witches; in their own way, they're just as old and offensive as blackface minstrels.
Magic doesn't just happen -- it has to have rules and internal logic, or it won't seem believable. Making up a magic system is perfectly fine, but basing your system at least in part on authentic historical folk magic or historical religious practices can help you maintain its internal logic and also can help you give it more depth and grounding detail.
There are a lot of books out there on magic and mythology, and you can find a tremendous amount of information online, especially at http://www.sacred-texts.com ... many of these texts are pre-1923, so be aware of cultural bias, but it is more than a good start for a wide variety of subjects. Offline, I've found the Witchcraft and Magic series from the University of Pennsylvania Press to be useful. These are academic books, and consequently they tend to be dry, but they're packed with research and historical details. (Bear in mind that reading about the witch trials is going to be depressing and infuriating; you can probably get good details from reading about other periods unless your book deals directly with the trials in some way).
The upshot is, the information is out there, so there's no excuse for not doing your research. But at the same time, don't fall into the trap of doing so much reading that you don't actually get around to writing.
Whether you base your fantasy elements on authentic folk magic or make up something new, be sure to ask yourself these questions:
Think about that one hard -- being able to portray realistic, believable consequences is crucial in selling the fantastic elements to the reader. Imagine how your own life would (or wouldn't) change if this fantastic element entered your own world.
And remember: your protagonists don't have to fully understand what's going on-- and you can increase plot tension if they have to guess and guess incorrectly -- but you as the author have to have a grip on how things work in the world you've created.