The population of urban neighborhoods in many metropolitan areas is growing as quickly or nearly as quickly as that of suburban neighborhoods, reflecting ongoing consumer demand—particularly among younger households—for walkable living environments that are convenient to jobs, transit, and urban amenities, according to new research published by ULI.

The New Geography of Urban Neighborhoods, prepared for ULI’s Terwilliger Center for Housing by RCLCO Real Estate Advisors, finds that for the first time in decades, population growth rates in urban neighborhoods of the nation’s 50 largest metropolitan statistical areas (MSAs), are approaching suburban growth rates. Between 2010 and 2015, the growth rate of urban neighborhoods was 3.4 percent, compared with 3.7 percent for suburban neighborhoods. This is in sharp contrast with 2000 to 2015, when the growth rate for urban neighborhoods was 1 percent, compared with 13 percent for the suburbs.

The report explores how this growth has accompanied the evolution of different types of urban neighborhoods, and how demographic and economic trends have shaped development. Based on variables such as population density, employment density, employment rates, housing types, home values, rent levels, vacancy rates, and new apartment development, the urban neighborhoods are categorized according to six types:

  • Economic center—significant concentrations of employment, often historic urban cores, formerly 9-to-5 locations that are morphing into 18-hour if not 24/7 neighborhoods;
  • Emerging economic center—former single-family or low-density commercial areas that are evolving into new urban cores;
  • Mixed-use district—high-density housing often mixed with upscale retail space;
  • High-end neighborhood—upscale single-family and multifamily housing, typically in historic areas with convenient access to shopping and dining;
  • Stable neighborhood—historically working-class neighborhoods with diverse housing types, though high appeal to new urban households seeking less-expensive housing is causing gentrification;
  • Challenged neighborhood—areas with lower home values and apartment rents and minimal new development, often bordering former industrial and manufacturing districts.

“Our cities are evolving into places that are more diverse and more interesting than ever, with a mix of neighborhoods defined by distinct characteristics that are drawing different residents and workers for different reasons,” says J. Ronald Terwilliger, ULI Terwilliger Center founder and ULI leader, and chairman of Terwilliger Pappas Multifamily Partners.

“There are very few urban areas in which housing is not mixed in or very close to commercial uses. This has significant implications for development going forward—particularly affordable housing—in terms of building cities that are livable and attainable to people in a broad income range.”

The report’s analysis of who lives where suggests potential growth trajectories for the 50 MSAs.

Seattle has the largest percentage of residents (13 percent) living in economic centers, followed closely by Washington, D.C., and San Francisco (both at 10 percent). Jacksonville has the most residents (12 percent) in emerging economic centers, followed by Birmingham, Alabama (11 percent). New York City has the largest percentage (26 percent) living in mixed-use districts, followed by Chicago (23 percent). Seattle has the largest percentage of residents (53 percent) in high-end neighborhoods, followed by Austin (43 percent). San Jose has the largest percentage (82 percent) in stable neighborhoods, followed by San Antonio (71 percent). Hartford, Connecticut, has the most residents (68 percent) in challenged neighborhoods, along with Detroit (67 percent).

“This framework provides a nonjudgmental platform for discussing the unique tapestry of neighborhood types that make up American cities,” says Adam Ducker, managing director at RCLCO. “Recognizing this diversity is key to facilitating productive conversations about the economic, demographic, and societal trends occurring in each neighborhood and the impact these trends are having on real estate.”

Key findings from the report:

  • More than 29 million Americans live in urban neighborhoods. This represents 17 percent of the total population living in just 1 percent of the land area in the 50 largest MSAs.
  • Urban places are now capturing an outsize share of new job growth. Urban places accounted for 30 percent of existing jobs and 36 percent of new job growth between 2005 and 2015. Job growth was particularly strong in economic centers during this time.
  • Upscale urban places are among the most racially and ethnically diverse types of neighborhoods. The population in economic centers and mixed-use districts, two urban neighborhoods with the highest average rents, is nearly evenly split between white and nonwhite populations.
  • Nearly one-third of urban households are headed by millennials. Over 29 percent of households in urban locations are under the age of 35, compared with 18 percent in the suburbs. Millennials are more likely to gravitate to dense, mixed-use places.
  • Rental apartment development is now concentrated in urban locations. Between 2010 and 2017, the rental apartment inventory in urban neighborhoods increased by 32 percent, compared with 16 percent in the suburbs. However, apartment development in urban locations varied sharply, with 50 percent of the development occurring in high-end neighborhoods and economic centers; 42 percent in mixed-use districts and emerging economic centers; and only 8 percent in stable and challenged neighborhoods.
  • Urban places continue to face greater housing affordability issues than do suburban places. Whereas average annual household incomes tend to be lower in urban areas than in the suburbs—$66,000 versus $89,000—the average monthly apartment rent in urban areas is $1,650, far higher than in the suburbs, where it is $1,275.
  • About 50 percent of people who live in urban areas commute by mass transit, walking, biking, or carpooling, compared with 22 percent of those in the suburbs. People living in economic centers and mixed-use districts are the most likely to use such alternatives because these areas are the most likely to be located near public transit.

The New Geography of Urban Neighborhoods builds on Housing in the Evolving American Suburb, a similar analysis of suburban neighborhoods conducted by RCLCO for the Terwilliger Center in 2016. While the urban evolution is unlikely to settle the ongoing “winners versus losers” debate involving suburbs and urban areas, healthy metro areas will “continue to feature a wide range of urban and suburban neighborhoods,” the report says.

RCLCO Neighborhood Atlas