The first time I landed in Cusco was 1981. I was a high school exchange student and lived with a Peruvian family for a year. It was magical. It was transformative. I fell in love with the city and the people then and the love affair continues today. Back then, it was a city accustomed to tourists, but mostly the adventurous and backpacking type. I returned in 1999 and while the city had changed a bit, it was still fundamentally the same Cusco. This time back was totally different. I was amazed at how the city had grown. As you head up the hills out of town, the mud huts with no running water or electricity and guinea pigs running around are gone. Entire new sections of the city have sprung up from places no one lived. Out of the main part of town, the hills are covered with buildings; some right next door to Inca ruins once thought of as being "out of town". My family's home from 1981 has been replaced with an 11 story condo building. Many members of my Peruvian family live in that building today.
In many ways, Cusco has managed the tourist growth well. The Plaza de Armas is a nice area for a stroll and the tourist sites and the city do not feel overrun with tourists. San Blas has become hipster central for Cusco and, in spite of the need some people have to open yoga and meditation studios in the Andies, has gentrified into a bustling little tourist haven. While much of the newer business seems to be at the mid to high end level of income [celebrity chef restaurants, designer Vicuna scarves, Patagonia on the Plaza de Armas], there is still a great deal to draw in the back packers and shoestring adventurers.
But while Cusco is still a wonderful tourist experience, the poorer local population is being displaced. The tourist dollars are great and support a growing middle class, but San Blas and areas similar to it used to be inexpensive for locals and were seen as a place where people could live cheap and save up for something better. Those people- the people who make Cusco the quirky, interesting city it is - are being pushed out so far they find it difficult to get back in. In the end, the women dressed in traditional garb posing in those photos are not much better off today than they were 40 years ago. The result, you can no longer get your picture taken with a full size llama next to Le Cathedral; the authorities have stopped that. Its a long haul for the llama. In a stroke of downsizing genius, now you can get your picture anywhere in San Blas with a baby alpaca. They are easier to carry.