Which cities have the best chance to prosper in the coming decade? The question is a complex one, and as the economy changes, so, too, will the best-positioned cities.
To identify the cities most likely to boom over the next 10 years, we took the 53 largest metropolitan statistical areas in the country (those with populations exceeding 1 million) and ranked them based on eight metrics indicative of past, present and future vitality. We factored in, equally, the percentage of children in the population, the birth rate, net domestic migration, the percentage of the population aged 25-44 with a bachelor’s degree, income growth, the unemployment rate, and population growth.
The results show two divergent kinds of ascendant cities. One is driven by the tech industry, the in-migration of educated people and sharply rising incomes; the other type is what we describe as “opportunity cities,” which tend to have a diverse range of industries, lower costs and larger numbers of families. We may be one country, but the future is being shaped by two very different urban archetypes.
The Lone Star Model
The most vital parts of urban America can be encapsulated largely in one five-letter word: Texas. All four of Texas’ major metro areas made our top 10. Austin, Houston, Dallas-Ft. Worth and San Antonio are very different places, but they all have enjoyed double-digit job growth from 2010 through 2014, well above the national average of 8.1%. They also all have posted income growth well above the national average.
But the biggest divergence from the pack may be demographics. The Texas cities have become major people magnets, with huge growth in their populations of young, educated millennials and households with children. The clear star of the show is No. 1-ranked Austin, which has become the nation’s superlative economy over the past decade.
Austin leads the pack in terms of population growth, up 13.2% between 2010 and 2014, in large part driven by the strongest rate of net domestic in-migration of the 53 largest metropolitan areas over the same span: 16.4 per 1,000 residents. The educated proportion of its population between 25 and 44 is 43.7%, well ahead of the national average of 33.6%, although somewhat below the traditional “brain center” cities of the Northeast and the West Coast.
The other Texas cities also do well across the board, with strong domestic in-migration, low unemployment and a rising population of young families. The biggest question marks going ahead involve No. 6 Houston, which benefited heavily from the energy boom and now is dealing with the consequences of the oil price collapse. Most economists do not see a total meltdown as occurred in the 1980s, but it would not be a surprise to see Houston fall out of our top 10 until energy prices recover. Economist Patrick Jankowski projects some 9,000 layoffs in the energy sector locally in 2016 but enough growth elsewhere — for example 9,000 new jobs in medical services — to keep employment expanding, although far below the pace of the last few years. The other, less energy-dependent Texas metro areas seem likely to continue their stellar performance.
The Flyover Superstars
There are several dynamic, fast-growing metro areas elsewhere in the country that seem likely to increase their status in the coming years, mostly in the Southeast and the Intermountain West. Like the Texas cities, these areas enjoy lower costs than the Northeast or California, notably for housing, and tend to be pro-business. All are experiencing significant population growth.
No. 2 Salt Lake City and No. 4 Denver have been expanding for years, with significant tech-sector growth. Both are logging population increases, with Denver benefiting from strong domestic in-migration while Salt Lake City has the highest birth rate among major metro areas, 16.9 per 1,000 women from 2010-14, largely due to its fecund Mormon population.
The Southeast has a number of ascendant cities led by No. 5 Raleigh, which, like Austin, has emerged as a tech hot-spot. Some 49% of all Raleigh residents aged 25 to 44 have a four-year degree, higher than any other metro area in the South. The national average is 33.6%.
The Glorious Gated Community
Unlike the rest of our rising cities, the Bay Area’s two major metro areas — No. 3 San Jose and No. 9 San Francisco — do not boast rapid population growth, and have low rates of family formation and births. Yet the area’s technology domination has made it so rich that it blows by most regions in terms of positioning for the future.
The big divergence here is income growth. Since 2010, the two metro areas have enjoyed the strongest expansion in earnings in the nation – 9.2% in the San Jose area between 2010 and 2015 and 7.8% in San Francisco. Silicon Valley and the Bay Area also boast extraordinarily well-educated young workforces. In San Jose 53.5% of workers aged 25 to 44 have a college degree, the third-highest share in the nation, and San Francisco ranks fourth at 52.4%.
So why are people not flocking to these areas? San Jose is net negative for domestic migration over the time we examined while San Francisco made modest gains only after years of net out-migration. Much of the problem lies in high housing prices, which, notes Dartmouth College economist William Fischel, have turned the Bay Area and the Valley into an “exclusionary region” inaccessible to all but the wealthy and highly gifted.
Given the growing importance of the technology industry, it seems likely that this gated region will continue to thrive in the years ahead, albeit with a low level of new family formation, relatively few children and a limited middle class. It’s a model that some cites may wish to duplicate but few will be able to. Perhaps the most promising candidate to join this list is No. 15 Seattle, which also has experienced strong job growth, largely from technology and boasts a large population of college graduates.
The Fading Big Enchiladas
Perhaps the most glaring omissions at the top of our list are America’s three largest metropolitan areas: New York, Los Angeles and Chicago. Of the three, New York does best, but only well enough for 36th place, hardly what one would expect for America’s, and arguably the world’s, premier city.
New York has high costs like San Francisco but a far more bifurcated economy and demographics. Wall Street may be approaching the end of an epic run, but overall incomes in New York have fallen 0.5% since 2010. Employment has expanded a respectable 7.3% over the past five years, roughly the national average, but the metro area has the highest rate of domestic out-migration in the country.
Similar dynamics have lowered future prospects for Los Angeles and Chicago. Ranked 39th, Los Angeles has posted better job growth than New York at 10.2%, but its income losses were also more severe, down 3.8%. As in Gotham, the elites of Southern California in entertainment, real estate and technology may be thriving, but the vast majority are not doing so well, as manufacturing, construction and business services have lagged. Los Angeles’ population — more heavily Latino and African America — is also less well-educated, with only 34.8% of adults 25 to 44 holding bachelor’s degrees, a good 20 points less than their San Francisco-area competitors.
Chicago, ranked 40th, appears to have worse prospects. For all its problems, Los Angeles still dominates entertainment, has the largest port in the country, close Pacific Rim connection and enjoys the finest weather on the continent. Chicago has none of those advantages, although it boasts a very attractive downtown. The region around the magnificent mile is not doing well, with low job and population growth, stagnant incomes and strong out-migration. Urban analyst Pete Saunders describes Chicago’s economy as “one-third San Francisco and two-thirds Detroit.” That seems more true than many Windy City boosters would like to admit.
Future Of The Future
Of course the future is not completely predicable and many things could change in the coming years. In the short run, as mentioned above, the energy boom towns will take a bit of a hit. Energy slowdowns could impact other cities with a concentration in this industry, notably Denver, Salt Lake and even Columbus, near Ohio’s big natural gas and oil reserves.
But other factors suggest that these lower-cost cities will do well into the future. Columbus, Ohio, for example, may see its job growth impacted, but the benefits of strong in-migration will linger, particularly the growing numbers of college-educated millennials who have headed to it and other more affordable Rust Belt metro areas in recent years.
Ultimately we may see the emergence of two distinct urban futures. One will emerge in elite “gated” regions such as San Francisco, San Jose, and, perhaps in the near term, Seattle. These areas will dominate many key tech sectors, and will continue to leverage their well-educated populations. The other will be more along the Texas model, diversified economies driven by lower costs, particularly for housing, diversified economies and increasingly well-educated populations.
Rather than being fundamentally incompatible, this enormous country should have room for both models. America needs its elite centers, but there also have to be cities for middle-class families. Each can claim a piece of the future.