Eh? Practically everyone in Rome (the city) lived in insulae. Essentially the upper middle class on down. And the empire was pretty urbanised, particularly in Italy; out of about 14 million people in Italy in Diocletian’s time about a million lives in Rome. There were other large cities, too, with insulae; indeed contemporary commentary sometimes notes that the insulae in other cities were larger than in Rome (presumably because the height limits that were imposed for safety reasons usually only applied to Rome itself).
Honestly I'm from Italy, living in France and I do see many Roman's ruin, that do not correspond with such description at all, so the history I know does not state that, I do not really know where it came from...
European "modern-city like" development arrive far after the Romans...
I think you're being affected by survivorship bias here. As the insulae clustered in urban environments, they were much more likely to be replaced than rural buildings since the value of the land they're on is so much higher.
And depending on what you mean, "modern-city like" development is a concept that re-arrived in the early renaissance having disappeared after the fall of Rome. Rome itself had a population of over a million during the heydays of the empire, and some interpretations of that number have it as a million citizens, as the empire didn't really care to keep track of non-citizens except in the vaguest of terms.
For modern-city like I intend the renaissance movement where new town born en-masse and poor's flee the poor countryside to the rich city. At Roman time city was not really rich: they host some rich but most of it's population was poor, only commerce give a bit of wealth in cities.
Roman's was more traders and peasants with everything gravitating around the army than "citizens". Probably a modern-city comparison can be for the USA the "west" vs the "est", where in the west surely there was cities, witch in reality are "villages" for our modern lingo and people live more on trade and peasant's activities than else while the "east" was already a urban-centric civilization. I hope that's clarify a bit my view.
About urban replacement: honestly in the past "replacement" was far different than today, they build piled rock buildings, replacement happen after a war or in case of big incomes using the same rock and adding some. That does not really change the cities, that change was more addictive and slow rebuilding...
