Usage of its or their with the group entity

First of all, these sentences are all grammatically well formed. "Urban population" is a collective noun, and therefore can be either singular or plural. Using it as a singular noun will emphasize the characteristics of the group as a whole. Using it as a plural noun will emphasize the characteristics of the individuals in the group.

Given the context, which is the daily lives of people living in cities, I would say that Nos. 1 and 3 make the most sense. In other words, each member of the urban population has an individual daily life. Of course, in an abstract sense, all the things that happen to everyone in the urban population in the course of the day form a collective daily life, so I would be reluctant to say that Nos. 2 and 4 are wrong, because they are not.

Consider, however, that if you say that the urban population is shrinking, it would most likely be understood to mean that there are fewer people living in the city than ever before. On the other hand, if you say that the urban population are shrinking, someone could take it to mean that people living in the city are not as tall as they once were.

You are neglecting to consider humanity's base instinct to anthropomorphize inanimate objects.

Nowadays, the urban population is facing many hurdles in its daily life.

When you use its you are consciously or unconsciously distancing yourself from the subject in that sentence.

Nowadays, the urban population is facing many hurdles in their daily lives.

The their attempts an association at a 'collective whole' (possibly embracing it) which may or may not include yourself but certainly one you recognize.