The world is now irreversibly urban. More than half of humanity already lives in urban areas, and United Nations projections indicate that roughly two thirds of world population growth between now and 2050 will occur in cities, with the vast majority of new urban dwellers concentrated not only in global megacities, but also in small and medium-sized cities across sub-Saharan Africa and Central and Southern Asia (United Nations, 2025). At the same time, significant parts of the urban systems of East-Central Europe, Japan, and the former industrial heartlands of North America are experiencing population decline. The twenty-first-century city is, therefore, in the same moment rapidly growing and quietly shrinking, depending on where one looks within the global urban system and within countries themselves.These twin dynamics of expansion and contraction cannot be adequately understood from any vantage point other than the city itself. First, the city is a space organized around gradients of densities and land values, structured by agglomeration forces and the friction of distance. As such, it is an economic object, whose internal spatial logic generates dynamics that are irreducible to other scales. Second, it is a node in a wider system of cities, connected by flows of people, firms, capital, and knowledge whose structure shapes which cities grow, which stagnate, and which decline. Third, it is a political and institutional arena where collective choices about land use, mobility, and environmental quality are made by actors (municipal governments, planning agencies, and elected officials) with both a democratic mandate and operational authority over the built environment. These properties generate specific economic dynamics that operate very differently across the urban size distribution.At one extreme, megacities and global cities function as hubs in international networks of finance, producer services, talent, and innovation (Sassen, 1991), concentrating connectivity in ways that can simultaneously stimulate and drain the national urban systems in which they are embedded. At the other, intermediate cities and rural towns occupy structurally distinct positions along the urban-rural gradient, with more limited access to agglomeration externalities and asymmetric exposure to the costs of sustainability transitions. How these dynamics play out across the full city system, from globally connected metropolis to intermediate town to rural periphery, and through which governance mechanisms they are shaped, is at the heart of this research agenda. Indeed, it is precisely because the city concentrates people, activities, and infrastructure in space that it is the primary site through which sustainability transitions are both shaped and experienced. Urban form determines commuting distances and thus transport emissions. Land markets govern who can live close to green amenities, jobs, or flood-safe ground. The position of a city in its national hierarchy, and possibly its international exposure, conditions whether the gains from a green industrial transition accrue locally or are captured elsewhere. Cities are, furthermore, the scale at which most sustainability commitments are most directly translated into enforceable spatial decisions, through zoning, transport investment, building codes, and environmental standards. This makes urban governance both a driver and a battleground of the sustainability transition.A thread of distributional concern runs through each of these dimensions and is made explicit in each of the grand challenges we identify. Within cities, the spatial organization of land markets and the location of public investment determine who captures the benefits of urban sustainability and who is displaced by rising land values. Along the urban-rural gradient, the incidence of environmental pricing instruments and planning regulations falls unequally across space and income groups, in ways that are increasingly visible in the political mobilization of peripheral populations. Across city systems, the architecture of urban hierarchies conditions whether the productivity and fiscal gains from sustainability transitions diffuse to intermediate cities and rural regions or concentrate in a small number of globally connected metropolises.Urban economics is therefore also an economics of spatial justice, and this section invites research that makes these distributional stakes analytically explicit.For all these reasons, urban economics, understood as the economics of how cities are internally organized and how they relate to one another within national and international systems, is not peripheral to the sustainability agenda: it is central to it. This Specialty Grand Challenge paper sets out the research priorities for the Urban Economics section of Frontiers in Sustainable Cities. Building on the foundational editorial by Griffith (2021), which established the importance of geography and spatial dependence for this section, we first clarify what makes a space economically urban by framing urban economics around the urban-rural gradient as a conceptual foundation for the section. Building on this, we the articulate three interconnected grand challenges that will guide the section's development: (1) urban structure, land markets, and the distributional stakes of sustainability within cities; (2) the distributional effects of urban sustainability policies along the urban-rural gradient; and (3) city systems, urban hierarchies, and the spatial equity of sustainable growth across national territory. We also articulate the methodological standards, anchored in causal inference, quantitative spatial models, and modern machine learning, that the section will uphold, and make an explicit call for geographic diversity in empirical contributions.Urban economics rests on a deceptively simple observation: proximity matters. When economic agents (workers, firms, households) locate close to one another, the costs of interaction fall and productive externalities emerge. This core insight, formalized in the monocentric city model (Fujita, 1989) and later generalized for polycentric cities, generates a gradient: densities, land values, wages, and access to amenities all vary systematically with distance from economic centers. Consequently, the urban-rural gradient is not a binary classification but a continuum, shaped by the interplay of agglomeration economies and the friction of distance.The practical implication is that the boundary between urban and rural is not fixed. Rather, it is endogenous to the economic forces that the field seeks to understand. Administrative definitions of urban areas, whether based on population thresholds, administrative status, or built-up land (Dijkstra et al., 2021), are necessary for measurement but insufficient as conceptual anchors. What matters economically is position along the gradient, which determines access to thick labor markets and dense networks of buyers, suppliers, and knowledge spillovers on one end; exposure to land-intensive production, longer commutes, and thinner markets on the other. Villages that lie within commuting range of large cities are functionally urban in many respects and intermediate cities that anchor regional labor markets play a structuring role in the organization of national space that may not appear when the study is focused on large metropolitan areas.A related dimension concerns the relational economics of urban-rural linkages. Cities and their hinterlands are bound together by flows of labor, food, capital, and ecological services. The growth of large cities reshapes the economic prospects of rural regions and intermediate towns, sometimes through dynamic agglomeration effects that generate broader regional prosperity, sometimes through extractive centralization that hollows out the periphery (Tacoli, 2003).These flows also have a governance dimension: the jurisdictional boundaries of metropolitan governments rarely coincide with the functional economic territory over which urban agglomeration effects operate, creating institutional fragmentation that conditions both the efficiency and the equity of urban-rural interactions.This gradient-based understanding clarifies the scope of urban economics as a discipline. A research question belongs to urban economics when the urban-rural gradient -its determinants, its spatial organization, its distributional consequences -is constitutive of the question itself.How agglomeration shapes productivity, how land use regulations affect housing affordability and residential sorting, how transport infrastructure reshapes access along the gradient, how environmental amenities are priced differently across urban and peri-urban contexts, how cities grow and decline within national and global urban hierarchies; these are questions for which the spatial structure of cities and the relations between cities are not incidental features of the data but the very mechanisms under investigation. Governance changes, such as reforms to zoning law, shifts in fiscal decentralization, extensions of metropolitan authority, and changes in the institutional boundary of urban jurisdictions, are integral to this agenda.The most immediate expression of the urban-rural gradient is the internal structure of the city itself, the way land is priced, density distributed, and accessibility unevenly allocated across neighborhoods. It is at this intra-urban scale that the first grand challenge is situated.The internal spatial organization of cities, how densely they develop, how land uses mix and separate, how accessible different locations are to jobs and services, is the most direct determinant of the sustainability of urban life. Urban form shapes energy consumption in buildings and transport, governs exposure to environmental hazards and amenities, and conditions the economic opportunities available to different households at different locations (Glaeser and Kahn, 2010). Yet, the causal relationships between urban structure and sustainability outcomes remain incompletely understood, in part because, empirically, the endogeneity of location choices and land use patterns poses severe identification challenges.Transit-oriented development (TOD) illustrates both the promise and the complexity. The colocation of high-density residential and commercial development around public transit nodes is among the most widely advocated urban strategies for reducing car dependence and the associated carbon footprint of urban mobility. A growing body of quasi-experimental work has begun to document the effects of transit investments on land values, modal choices, and development patterns in their immediate catchment areas (Gendron-Carrier et al., 2022;Dubé et al., 2025;Mann and Levinson, 2026). Extending this evidence base to cities at earlier stages of transit development, and to lower-income contexts where the substitution margin between private and public modes is very different, constitutes a key methodological frontier. Quasiexperimental designs exploiting staggered transit openings, geographic discontinuities around station catchment areas, or historically determined route alignments that are orthogonal to current demand pressures offer a productive path forward. The governance structure of transit planning, i.e. who controls investment decisions, how metropolitan authorities relate to national governments, and whether financing is centralized or devolved, also shapes the distributive reach of transit-led sustainability, and changes in institutional authority over transit financing constitute a natural quasi-experimental lever for identification.Housing markets are the key transmission mechanism through which urban structure shapes distributional outcomes. Affordability crises in high-demand cities are not simply the result of aggregate supply shortfalls: they reflect both the aggregate misallocation of labor across cities due to housing supply constraints (Hsieh and Moretti, 2019) and the spatial mismatch between housing affordability, employment location, and transport accessibility within metropolitan areas (Kain, 1968). The incidence of climate risk is similarly mediated by housing markets: flood risk, urban heat island exposure, and coastal erosion are increasingly capitalized in property prices (Bernstein et al., 2019), but the distribution of this capitalization across income groups and geographies raises important questions about who bears the long-run cost of climate adaptation in cities.Indeed, the sustainability transition in cities generates a profound tension around environmental justice precisely because green investments are mediated by housing markets. Parks, greenways, urban forests, flood-resilient infrastructure, raise the quality of life in targeted neighborhoods, but they also raise land values, triggering gentrification and potentially displacing the low-income residents they were meant to benefit. This phenomenon, documented under the terms 'green gentrification' or 'environmental gentrification' (Wolch et al., 2014;Rigolon and Németh, 2020), A growing body of work moves beyond reduced-form price effects to examine the mechanisms and actors that drive displacement, including the political economy of pro-growth urban coalitions and real estate interests and the sequencing of greening and gentrification (Rigolon and Collins, 2023). Yet, credible causal evidence that directly traces household displacement, as opposed to land value appreciation, remains scarce.Key open questions include the role of local housing supply regulations in mediating the translation of amenity gains into displacement pressure, and the extent to which institutional context, tenure security, zoning flexibility, municipal fiscal capacity, conditions whether greening triggers displacement or instead benefits incumbent residents. Governance variation across municipalities with different rent control regimes, social housing endowments, or inclusionary zoning requirements thus constitutes a valuable source of identification alongside hedonic price methods and difference-in-differences designs.More broadly, the political economy of land use regulation, including the conditions under which municipalities loosen restrictive zoning to allow densification, mixed-use development, and transit-adjacent housing supply, constitutes one of the most active and policy-relevant frontiers of contemporary urban economics (Gyourko and Molloy, is not a housing it is a sustainability whose to transport and residential access to employment and amenities on the spatial of and the of the private development that how through housing markets, labor markets, and urban exploiting variation across or the staggered of is a for this from the intra-urban to the the distributional stakes of sustainability not at the city they along the full from urban core to rural sustainability policies are rarely energy for and green zoning all costs and benefits that are unevenly across not only within cities, but along the urban-rural gradient, from central through peri-urban to rural areas structurally from the benefits of urban environmental The economic of these distributive effects is one of the most and challenges urban concern is the of environmental pricing carbon on and energy costs to a of the of low-income which are also more to live from employment on private and in housing they not and 2010). the spatial dimension a of complexity. 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Le Gallo (2026) studied this question.