The Demise of Real Neighborhoods Is a Story of Finance — The New Atlantis

Essay

Spring 2026

The Demise of Real Neighborhoods Is a Story of Finance

America’s neighborhoods were once beautiful, unique, dense, and scaled for a communal life on foot. But obscure federal rules piling up over a century have made it nearly impossible for banks to finance new ones.

Joseph Lawler

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Much of life in 2020s America takes place nowhere in particular.

We are used to thinking about American life as divided between city and country. But actually, only a sliver of the population lives in real urban neighborhoods — neighborhoods that are dense enough to have multiple restaurants, shops, parks, and points of interest you can walk to, and have enough character to attract visitors and inspire civic pride. Yet at the same time, only about one in five people live in rural areas, amid the varied and often beautiful American countryside.

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The Demise of Real Neighborhoods Is a Story of Finance

Instead, the majority reside in the suburbs or exurbs, places that are not physically noteworthy in one way or another but are rather some form of urban sprawl, with neither the amenities of a real town nor the access to nature of country living. Many American “neighborhoods” are not neighborhoods in a traditional sense. They are mainly places to commute in and out of.

As for the towns, most households are tied to them insofar as they are subject to their taxes and eligible to send their children to their schools — but not much more than that. Typically, people choose a town because it is within a reasonable drive of a job, and they could qualify for a mortgage on a house there.

The house itself may resemble the American ideal, with a yard and a white picket fence. But the broader subdevelopment looks like many elsewhere, whether New England, the Sun Belt, or the Pacific Northwest, and the members of the household will spend a lot of time driving to get anywhere. For their needs and entertainment, they will go to shopping centers with chain stores and restaurants similar to those all around the country.

Most Americans now live in “nowheresville,” as urban critic James Howard Kunstler has called this kind of nondescript place. But this wasn’t always the case. America’s built environment has evolved away from neighborhoods over the course of decades.

How did this happen?

Downtown Detroit, circa 1910<br>Library of Congress

Much of the public attention in explaining the rise of Nowheresville has focused on local land-use laws. In recent years, the movement known as New Urbanism has successfully elevated the criticism that it is too hard to build developments recognizable as neighborhoods because of zoning and building codes that essentially preclude any dense mix of residential, retail, and government buildings.

In 2022, a meme went viral featuring an image of a main street from the show Bob’s Burgers with the caption: “This kind of smart, walkable, mixed-use urbanism is illegal to build in many American cities.”

And it’s true — many towns would effectively ban, for instance, having apartments above a burger place by putting strict limits on residential units in the central business district. Or they might make this kind of apartment building infeasible by requiring it to have a certain amount of off-street parking, or a certain number of units set aside for low-income renters. It would likely be prohibited for the storefronts to come right up to the sidewalk, or for the bay windows to jut out.

Yet, as significant as those laws are, they are only half the story. The other half of the story — which has received much less public attention — is that the financial system makes it very hard to build traditional mixed-use neighborhoods. Rules promulgated by federal agencies and government-run corporations put mixed-use development at a disadvantage. So, too, do finance industry practices that have developed over decades in response to government regulations.

At the same time that it disadvantages traditional neighborhoods, the whole set of rules — the scaffolding of the financial system — makes it easy to fund the alternatives, the single-use projects, whether the strip mall, the hotel off the highway, or, above all, the single-family housing tract.

“If you change the financing structure to highly benefit single-use products, well, that’s what gets built. It’s enough to tip it over, just like that,” said Ward Davis in a video interview. Davis is founding partner of High Street Real Estate & Development, an Arkansas real estate company focused on traditional-style development.

Few realize the profound effects of financial rules on the built environment. That includes many in the industry — planners, bankers, developers, builders, and...