Well, that's not true. Magic is very useful and people like the effects of magic…
But…
It can be slightly dangerous to say the least and noone wants an alchemist of sorcerer living in the house next to them incase they end up living next to a crater, or worse yet living in a crater themselves.
Therefore all the magic researchers, practicers and meddlers have been told (in the nicest possible terms of course) to `please stay in this part of the city and don't try to expand any further because decent folk want to live in peace and if you disturb them it just leads to more problems for us thank you very much.'
There is a section of the city to the north next to the city limits where all the people who want to experiment with slightly more dangerous things can go. They're not forced to live there by any means as long as they don't insist on taking their work home. This part of the city is… volatile to say the least. Accidents do happen and they happen here most of all. The buildings are old and most are tumble down. If you look closely you'd wonder what's actually holding some of them up and then quickly realise that you really don't WANT to know what's holding them up incase it decides to stop working while you're peering too close.
Don't ask about contamination in the water supply. You wouldn't want to know about the water supply.
No one likes living in the areas adjoining this area but sometimes there's no getting away with it. Those who work in the area tend to try and keep the neighbours happy… those with slightly less dangerous projects tend to keep to the edge while the heart of the area is possibly the most dangerous place in the city! (no mugging to be sure but incredibly weird stuff is likely to happen to you if you're not careful – the residual overspill is often hard to contain and who knows what the hell is brewing in the deep dark corners where no one else goes!)
The authorities would really like to get rid of the dangerous aspect of magic research but the benefits that come out of this smoking crater are often worth the risk. They'd just rather it wasn't their risk. All attempts to move the researchers out of the city altogether and into a special `town' of their own have been met with cries of protest about lack of resource, danger of attack, lack of neutrality (since the `town' would have to be in one country or another rather than in the middle) and after many years of protest the authorities have finally given up trying to shift them.
Key characters to be defined when the magic system is fleshed out a bit more. Probably a number of experts in each field.