A city street with low-rise connected buildings lining the street and a snowy mountain background, leading to an article titled "The Rise of Mid-Sized American Cities: The Drivers of Perfectly-Sized Growth"
Insights

The Rise of Mid-Sized American Cities: The Drivers of Perfectly-Sized Growth

Last week I had the pleasure of talking with the mayors of Raleigh, NC, and Ogden, UT, about the factors that have propelled their cities to the top of our list of best-performing large cities in this year’s Best-Performing Cities report. With a population of over 275,000 but fewer than 2 million, these two cities provide perfect examples of the rising performance of mid-sized metros that has taken place in recent years. In 2020, six of the top ten large best-performing cities had a population of over 2 million. This year, only one of the top ten is above the 2 million resident threshold.

The rise of the mid-sized cities has been accompanied by an interesting reversal in domestic migration flows. During the 2010s, large mega-metropolises with a population of over 2 million attracted most domestic movers. But since 2016, mega-metropolises have faced a net outflow of domestic migrants as migrant inflow into metropolitan areas with less than 2 million residents has accelerated. Mid-sized cities have seen a particular surge in migrant inflows, attracting the largest share of domestic movers (relative to mega-metropolises and small metros) every year since 2016 (Figure 1).

Figure 1. Total Net Flow of Domestic Migrants, by City Size

Image
A graph which depicts Total Net Flow of Domestic Migrants, by City Size

These domestic migration patterns suggest that a notable portion of the US population has become disenchanted with the American urban core. While the reasons for this disenchantment are manifold—and likely depend on each large metro’s unique conditions—an analysis of commonalities across mid-size cities provides insights into potential drivers of domestic migration patterns.

Labor market conditions and access to affordable housing are both significantly and strongly associated with domestic migration. While the association between population flows and a vigorous labor market is hardly surprising, the strong relationship between migration patterns and housing affordability stands out due to its magnitude and robustness. A simple regression analysis reveals that cities where 1 percent more of households enjoyed access to affordable housing in 2021 consequently attracted 274,000 more domestic migrants in the following three years. Moreover, the positive and significant association of domestic migration with affordable housing holds even in multivariate regression analyses that control for population size and labor market conditions.

Figure 2. Relationship Between Domestic Migration and Affordable Housing

Image
A graph which depicts the Relationship Between Domestic Migration and Affordable Housing

Note: The figure excludes outlier values that are included in the regression analysis. Each dot in the chart represents a single metropolitan area.

Beyond housing, metros with less than 2 million residents also offer access to relatively cheaper utilities, transportation, food, clothing, and other consumer goods. The low prices, coupled with better infrastructure (such as robust access to broadband internet) than that of small metros, provide residents of mid-sized cities with conditions that are the perfect combination for economic and personal success.

From companies’ perspective, mid-sized cities offer lower costs of doing business and access to a vigorous pool of highly skilled workers. Many of the mid-sized cities that have experienced employment and population growth in recent years are in states (such as North Carolina and Utah) that have relatively favorable regulations resulting in low tax costs. In addition, the costs of energy, commercial real estate, and labor in mid-sized cities are considerably lower than those of large metropolises such as San Francisco, New York, or even Austin. Many mid-sized cities also have a large share of a highly educated, young population, making them the perfect location to start a new business or build a new office of an already established corporation.

To illustrate the success of mid-sized cities, consider our top two best-performing large cities in this year’s report: Raleigh, NC, and Ogden-Clearfield, UT. These cities’ success has been largely due to a combination of low business costs, relatively affordable living conditions, and a vigorous labor force. Both Raleigh, NC, and Ogden-Clearfield, UT, offer businesses with combined office, energy, and labor costs that are as low as in a small city. Unlike a small city, however, these metros provide access to a young highly skilled population. While Raleigh stands out due to the educational attainments of its young adult residents (48 percent of whom have a bachelor’s or higher degree), Ogden-Clearfield benefits from a high rate of labor force participation and a large share of young adults. These conditions create the perfect environment for businesses, which in turn generate jobs that benefit the metros’ residents.

In recent years, however, mid-sized metros have faced challenges that could disrupt their continued growth. Housing affordability and overall real estate prices are climbing across the country, and mid-sized cities are no exception. The inflow of domestic and international migrants has also put pressure on the infrastructure in these cities. Still, metropolitan areas such as Raleigh, NC, and Ogden-Clearfield, UT, have attracted investments from high-tech and other affluent businesses encouraged by the cities’ deep
talent pools. This has allowed both metropolitan areas to strengthen the resilience of their populations and sustain growth, as reflected in their success in our ranking.

Currently, mid-sized cities provide the perfect mix of affordability and economic growth that attracts businesses and new residents alike. While challenges exist, the right combination of investments with talent can help cities continue to thrive. As mid-sized metros, such as Raleigh, NC, and Ogden-Clearfield, UT, persevere on their path of growth and expansion, the Best-Performing Cities annual report and ranking provide a comprehensive benchmark that will allow us to continue tracking the relative successes of metropolitan areas across the US.