Why the Exurbs Are Poised to Take Off in the Coming Years

Why the Exurbs Are Poised to Take Off in the Coming Years

The rise of exurbs—located 50 miles or more away from big cities—will be made possible as technology changes the cost of distance.

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Why the Exurbs Are Poised to Take Off in the Coming Years

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A lot of savvy economists, demographers and poll takers were stunned by the recent presidential election and the voting power of rural and suburban Americans. Threatened by globalization and technology, which have decimated millions of industrial jobs, residents in hard-hit regions made the revival of working-class jobs, especially in manufacturing, a top priority for the incoming administration.

Will it happen? Creating those jobs and improving the economic fortunes of the middle class may depend not only on politics but also on the declining cost of distance. Research by my colleagues at Bain & Co. provides strong evidence that this gathering force of spatial economics is about to shatter some longstanding economic assumptions. It will transform urban patterns in advanced economies by enabling millions of people to move out of cities, and shake up established models of global growth, potentially positioning the U.S. and Europe for a period of sustained expansion.

The cost of moving goods, people and information is declining, with some items already in a steep and rapid descent. The catalyst for change is an array of new platform technologies that have pushed the cost of distance to the tipping point. By 2025, spatial economics will alter the way we live and work—faster and more broadly than many can imagine.

Advances in service robotics, 3-D printing and logistics will allow companies to operate economically at smaller scale, increasing local production and local jobs. That, in turn, will set individuals free from longstanding constraints to live and work in cities and trigger investment in exurban areas. At the same time, automation of many tasks could enable a much greater availability of goods, services, education and health care in communities far from city centers. For many middle-class families, the lure of space at lower cost with many of the amenities of urban life will be irresistible.

Some cities will continue to grow, but migration out of cities will surge, particularly to exurbs 50 miles or more from a city center—giving rise to new micro economies where people live, work and play. By 2025, the U.S. exurban population could outstrip the urban center population. This migration already has begun: Six million Americans moved out of city centers in the past decade, according to U.S. Census Bureau data. Although some center-city population levels have held steady or even risen, their share of the population has been dropping since 1990, while the exurbs’ share has been rising.

Bain analysis shows movement to the U.S. exurbs in the next 10 years could match Americans’ exodus to the suburbs in the 1950s and 1960s, which reached an annual peak of 8% of the population.

To be sure, many top-tier cities will thrive and attract wealthy professionals, young adults who don’t mind crowded quarters, and empty nesters who can afford to live in amenity-rich neighborhoods. Some cities will remain important industry clusters, such as New York and London for financial services, and Silicon Valley and Boston for technology.

But most people don’t need to work in highly specialized talent clusters. Spatial freedom will generally disperse the bulk of talent most companies need more widely than in the past, in part because communications technologies make it easier to operate with far-flung teams.

The declining cost of distance thus has implications for where companies produce and sell and where they locate jobs. Until now, the simplest way to reduce the cost of distance has been to use less distance. Cities are dense hubs that minimize the cost of moving raw materials, labor and finished goods.

A significant decline in the cost of distance would force millions of economic actors around the world to rethink their strategies and investments. Sophisticated logistics and the declining cost of delivery to the last mile are enabling new services and business models. Think about how rapidly the retail industry was upended by online shopping and extend that scenario across the industrial landscape.

The coming transformation, like every period of change, will create dislocation. Some of the underlying assumptions of existing business models may no longer be valid, leaving many companies with assets stranded in the wrong locations or businesses that are obsolete. The risks will be particularly acute for industries with heavy assets in manufacturing or infrastructure industries like telecommunications, which make long-term bets on geography and location for both fixed lines and mobile towers.

Spatial economics will hit advanced economies with full force in the coming decade, but its consequences will reverberate globally, undercutting the export-led growth model that propelled the post-WWII growth of Japan, the Asian Tigers (Hong Kong, Singapore, South Korea and Taiwan), and most recently China. Local production will rebound in advanced economies, reducing or in some cases eliminating the advantage of pools of low-cost labor far removed from domestic markets—a sharp deviation from recent decades in which economic advantage accrued to the lowest-cost producer.

The shift to a post-urban economy will produce new winners and losers. Some rural regions may prosper thanks to spatial economics. But regardless of trade policies, manufacturing will be increasingly automated and require fewer workers—though many remaining jobs will be better paid. Management teams can prepare for change by evaluating the risk of stranded assets, reviewing supply chains, incorporating new technologies into existing workflows, and anticipating the migration of human capital. Businesses that lead the coming transformation will adapt faster and better than those caught off guard.

James Allen is co-leader of the global strategy practice at Bain & Co. and co-author of The Founder’s Mentality.


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