A new white paper just released by the Penn Institute for Urban Research, or Penn IUR, finds that after decades of urban decline, U.S. cities are growing again thanks in large part to their transition from an industrial-based economy to a knowledge-based economy. This shift has allowed cities to “reinvent” themselves as magnets for human capital and centers of innovation.

Susan Wachter, co-director of Penn IUR and professor of real estate and finance at the Wharton School, co-authored the report, entitled “City and Suburb—Has There Been a Regime Change?” along with Arthur Acolin, a PhD candidate at the University of Southern California Price School of Public Policy and Richard Voith, Penn IUR scholar and president and principal of Econsult Solutions. The authors describe a “rebalancing” of American urbanism that corresponds to renewed production and consumption functions of the urban core after decades of decentralization and de-concentration.

“Over the last two decades a regime shift has been taking place in the historical centrifugal pattern of urban population and employment trends in American cities,” write the authors. “While suburbs are still growing, the ‘inevitable’ decline of American cities appears not to be inevitable at all but rather to be a particular historical moment…. Suburban growth is returning to a more sustainable rate of growth that is not predicated on continued city decline. Trends over the last 20 years show continued growth in suburbs but at a slower rate, while the population decline of central cities has slowed or even reversed.”

The authors cite forces internal and external to cities that are responsible for this shift.

External forces that play a role include increasing development costs in suburban locations, increasing automobile travel costs and reduced funding for new road capacity. The strongest drivers of this trend, however, are internal to cities: the development of new communication technologies; the importance of physical proximity in enabling faster exchange of information, spreading of ideas, and developing new knowledge; and consumption amenities sought-after by high-skilled workers, leading to a renewed interest of firms and residents in locating centrally.

As city populations continue to grow, the authors note, population diversity in cities is increasing and creating a virtuous cycle. Diversity, in turn, attracts more people to cities, including a large cohort of young adults and retiring baby boomers.

Read the full Penn IUR white paper: “City and Suburb—Has There Been a Regime Change?”