Creating a world, if you do it right, is time-consuming work, but can be extremely rewarding. On the other hand, urban fantasy has a lot going for it–despite being a bit disorienting for some readers when they encounter it for the first time.
In some ways, it’s easier. You can take descriptive short-cuts. If you mention a silver mini-van, your readers are going to visualize it without needing extensive details. Characters can drop by the fridge for a drink, or the hospital emergency room for a crisis. When you’re using a setting in another world, you’re going to have to provide considerably more detail about the vehicle used–what’s powering it, how many wheels, covered or not–or the food storage facilities or the emergency medical services available. The more inventive you are with your world (and being inventive is, as far as I’m concerned, a good thing), the more you may need to describe.
Your readers are (presumably) familiar with real-world culture, so you don’t need to find a way to convey the reaction to or meaning of many events or revelations: graduating from secondary school leads, depending on socioeconomic circumstances, to a given set of paths; an engagement announcement can be assumed to be happy news and the result of a free choice (at least, in modern Western society); that someone has killed someone else, barring a military or law enforcement context, can be taken as a bad thing even if it was in defence. In a world you’ve created, you’d have to explain what now lies ahead for the graduate of whatever educational institution, you might need to clarify whether an engagement is voluntary or arranged and how the parties feel, and one’s first kill could be symbolic of, say, adulthood.
On the flip side, urban fantasy can be tricky simply because your readers are intimately familiar with the setting. Mistakes are very likely to be noticed. In other-world fantasy you can tweak the setting to match the story; in urban fantasy, the setting is what it is, and there’s a limit to the potential tweakability.
Many of the same questions that we have to face in real life need answers. Where does your character live? Where does the money come from to pay the rent, if any? What about food, clothing, health expenses? Canada, where I live, is somewhat easier on that last one, as long as your character has a provincial Health card, and even without one a true emergency can’t be refused basic help at a hospital, but that doesn’t cover prescription meds or many other things. Speaking of ID, in this increasingly paranoid age, do all significant characters legally exist, and if not, how do they work around that?
Unless a substantial part of the story takes place at or around the character’s workplace, or during a finite period while s/he is on vacation, having said character working 40 hours a week can be a problem. Speculative fiction of any kind is about transgressing boundaries and exploring possibilities, but face it, it’s also about escaping for a while from real-world stresses. No one reads fantasy in hopes of details about someone’s 9-to-5 office job. We all know how hard it is to balance a full-time job with a life outside of that. You’re probably going to have to stretch your ingenuity to come up with a living situation that won’t eclipse the story. Part-time jobs if there are other factors to help cover expenses, freelance or work-at-home jobs which are usually not going to lead to a life of luxury… you can only have so many characters come from a wealthy family background or win a lottery. Of course, magic may be a factor as well, but living entirely off fairy gold usually stretches plausibility.
Despite these difficulties and more, there’s a kind of power in urban fantasy that other-world fantasy lacks.
You can create situations that your readers can relate to readily from their own experiences or those of people they know, even if your details may vary and include the impossible. Then you can create a resolution, or a victory, or offer a different perspective. Of course people can relate to situations in an other-world setting, since some experiences are so common–finding yourself unemployed or rejected or ill, falling in love or reaching a goal or enjoying a moment of beauty–but the experiences are, I believe, a step further removed. Sometimes that’s a good thing, or at least of minimal importance. Sometimes the whole point is to explore the possibilities of a completely different world, and that can lead to amazing results. Sometimes, though, that’s not the case.
There’s also the strong contrast of the everyday mundane ordinary world around us with something impossible, which can help bring into focus the wonderful aspects of the world that are actually quite real.
Personally, since what I write is emphatically about people and their experiences, I find that urban fantasy works better. I’ve tried creating worlds with the essential dynamics I need, but they’ve mostly failed so far to have the intensity that the same characters and concept can have when set in the real world.
I believe that’s an intrinsic aspect of other-world settings. Once your reader has accepted that the story is taking place in another world, they’ve suspended much of their disbelief. The presence of magic or of supernatural beings is easier to accept as simply part of that reality and can never have the kind of high contrast that they gain against a real-world backdrop. In a real-world setting your readers know the stakes if your character has a financial crisis; in an other-world setting, the reader is aware that they don’t know every aspect of the society and there might be other factors to the situation.
Both are viable and valid; the tricky part is sometimes just to decide which is better for what you want to say.