Society outside of Gensokyo is ruined, and the cities are abandoned, with the buildings crumbling, and becoming something of legend. "The people of the olden days used to build towers that would scrape the skies, and this displeased the gods who struck them all down." Naturally, these legends would create a new reality in Gensokyo. That doesn't necessarily have to be the truth, but we aren't concerned with that, at the moment.
That amount of urban sprawl would probably house all the gods of Japan, anyway.
And the Hakurei Maiden's probably annoyed. "Why do I have to babysit all these gods all the time? When can I take a break?"
And urban danmaku is best fought outside of the city so the buildings aren't getting in the way all the time.
Update: to add to this. Yokai have abandoned Gensokyo, because if civilization outside of it has fallen, then there's no need for a safe haven anymore. Yokai can exist in strength outside its barriers.
The gods have taken over Gensokyo, and rule it disinterestedly, leaving everything up to the Hakurei maiden.
