老师住在城市 is also acceptable without including 里. Both sentences have the close meanings.
I put this and was marked wrong. I agree that this should be accepted, but for my own betterment can you explain the different between with and without the “里”？
01.01.2021 It's marked as correct. 新年快乐 btw.
老 (lǎo) = old/experienced/always
师 (shī) = teacher/master/expert
老师 (lǎoshī) = teacher
城 (chéng) = city walls/city/town
市 (shì) = market/city
城市 (chéngshì) = city/town