Forum for Innovation

As Americans move their homes in search of jobs and stronger local economies, we may see this process threaten to make once large cities too big to sustain. Even as megacities – cities with populations greater than 10 million people – are on the rise, new opportunities for cities can sometimes mean shrinking. 

The U.S. Census Bureau reports that more than three in five people living in the United States reside in urban areas (about 194 million people). This number is increasing. U.S. cities saw on average a 1% increase in their populations between 2010 and 2011. Urbanization – that is, the movement of residences from rural areas to cities – is increasing around the world. Yet, while some cities are managing growth, others are faced with a need to reduce their size and consolidate their residents. 

Rust Belt cities have seen significant declines. Detroit’s inner city, for example, has seen a 25% drop in its population over the last decade. This has steadily reduced the population density, with residents scattered amongst increasingly empty neighborhoods. More than 20% of the lots in Detroit are vacant – so many that the city’s mayor is pursuing a program to tear down 10,000 empty residences. Detroit is working to consolidate residents nearer the city center, making it more efficient to provide utilities and public services. It also makes it easier for the city’s businesses to succeed and grow. 

The priority for shrinking cities is to weigh their unique needs and challenges and identify the best tactics for boosting business growth and attracting new residents. Structured reduction and targeted growth initiatives can re-position a city to make the most of what residents remain and to attract new residents and opportunities.   

Why are Some Cities Shrinking and Others Growing?

People move for many reasons, the two biggest being to find a better job and decrease their cost of living and taxes. Some cities and states are doing a better job than others in developing innovative ideas and partnerships to encourage growth. This can have a big impact on whether a city grows or declines. 

Manufacturing suffered during the economic downturn, which has cascading impacts throughout several business sectors. What is more, American manufacturing has become highly efficient and automated in recent decades, requiring fewer (though more highly skilled) workers. This helps decrease costs for manufacturers, but it also reduces employment for low-skilled workers in areas where manufacturing once dominated the job market. In the U.S. Census, 10 of the 12 cities listed as having the largest population declines are in areas where manufacturing and/or the jobs it provides decreased as well. Yet, even as manufacturing has decreased in some areas, there has been growth in other cities competing for new businesses, workers and economic activity. 

Size isn’t everything. NCF’s Enterprising States 2012 report found that at the end of 2011, six states enjoyed job growth greater than 8%, including: North Dakota, Wyoming, Alaska, Utah, Texas, and Montana. With the exception of Dallas and Houston, these states are not home to booming metropolises like New York City or Los Angeles. Yet, small and medium-sized towns and cities are generating increasing amounts of business and commerce, offering jobs that capitalize on local strengths and attracting residents with a cost of living far lower than larger cities. 

What is more, with advances in telecommunications and other technology, businesses can operate in virtually any location, not just in big, dense urban areas. This helps level the playing field between cities and states, allowing all areas to compete for jobs and human capital on the basis of coordinated policies and partnerships that create fertile grounds for growing businesses. This creates jobs, increases tax revenue, attracts other business interest and pushes the city into an upward economic cycle. Cities are winning (and losing) residents and businesses based on the perceived benefits offered from infrastructure, pro-business policies, a pool of skilled human capital, a lower cost of living, and a range of other factors.

Changing Trends in Suburban Living

Some inner city populations may be declining, but that does not mean these shrinking cities are going to disappear. Consider Detroit. The significant decline in residents in the inner city is not matched in the surrounding suburbs. For Detroit’s metropolitan area (including the suburbs), the population only fell 4% from 1970 to 2010 – far less than the 25% decline in the inner city. The city’s suburbs actually added residents at a 27% rate (about 761,000 people) for the same time period. Indeed, even as the inner city has become less densely populated, the city’s physical size has grown more than 50% since 1970. 

This kind of suburban growth is not occurring in all cities. The latest Census data shows many cities are growing faster than their suburbs for the first time since the 1920s, when residents began leaving polluted and densely populated cities for safer, more private suburbs. While many cities have become more livable, the movement towards urban living may be a short-term trend. 

A senior demographer at the Carsey Institute told the Wall Street Journal the movement toward cities is a vestige of the housing market crash and economic downturn. Consumers may be hesitant to buy a house with America’s economic future uncertain; others may not be able to receive a mortgage, given tough lending standards. Further, rent prices were low following the recession, providing an incentive for urban residents to stay put and for those outside to move to the inner city. This trend may change in coming months and years as the housing market recovers, rent prices continue to rise, and residents return to the suburbs. 

America’s cities are in as they strive to leverage their strengths and attract the new businesses and workers that can put their area on a path to greater economic growth. Each city and state faces challenges. How they adapt to the new economy and competition for jobs will determine whether they lead American growth in the 21^st century or see residents pack their bags for a city with more potential.