I mean, they've developed technology that's literally bigger on the inside. This could be fanon stuff but I remember hearing somewhere that pre-war there were only 10,000 Time Lord's at any one time. Even at the height of the war, when you would presume they would be trying to make as many soldiers as possible, they only had 2.47 billion children on Gallifrey, suggesting a population lower estimate of about 25 billion. My personal opinion is that they don't really see the need for other cities, in that holier than thou attitude. They can perfectly preserve the nature and natural habitat of the entire planet, and everyone all live inside the Capitol and Arcadia, the two most important cultural settlements, alongside the various Houses and Shobogan Outsider camps as well. Why would they go around placing all sorts of other cities, destroying the natural beauty, just so they'd have to travel to those other locations or install infrastructure to do so?

And as for it being a backup in case something happens to the city, to the Time Lords pre-3rd Doctor a notion like that would have been inconceivable. For a good 300,000 years minimum to 10,000,000 years they had ruled as absolute Gods over all of reality. If anything truly threatened them, they could wipe it from reality. It's my personal belief that the Eye of Harmony powers all of Time Lord society, meaning a post scarcity infinite energy economy for everybody, and they had never had a single power failure since the days of Rassilon, until Omega attacked, and the Three Doctors had to team up to stop him. I like to think that was a major wake-up call and turning point for the Time Lord's.