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The costs and benefits of density in cities

A city

There's plenty of talk about the benefits of compact cities, but where's the evidence? A new paper by Gabriel M Ahlfeldt and Elisabetta Pietrostefani suggests that dense city forms carry a range of benefits, from higher productivity to lower carbon footprint

Most countries pursue policies that implicitly or explicitly promote ‘compact urban form’, reflecting the concern that unregulated economic markets will fail to deliver allocations of uses and infrastructure that are efficient and equitable.

The key question is whether the dominating ‘compact city’ policy paradigm can be substantiated by evidence. This question is difficult to answer because density effects materialise in a broad range of outcomes, such as accessibility (to jobs and amenities), productivity, innovation, rent, environmental outcomes, efficiency of public service delivery, health, safety, social equity, transport and self-reported well-being. Until recently, there was no accessible summary of positive and negative density effects. But in a new paper published in the Journal of Urban Economics we fill this gap by providing a synthesis on the state of knowledge on the economic effects of density.

Our evidence base contains 347 estimates (from 180 studies) that quantify the effect of density. We then enrich this evidence with original estimates where the evidence base is thin or inconsistent. For some outcomes, such as the density effect on preserved green space, our estimates are without precedent. Our study shows that dense cities have many benefits: higher productivity, shorter commutes, cheaper provision of public services, better green space and a lower carbon footprint.

“Dense cities have a range of benefits. however, these advantages come at a cost”

But these advantages come at a cost. With space at a premium, housing is more expensive and there are increased levels of inequality. High-skilled workers benefit from higher wages, but low-skilled workers, renters and first-time buyers struggle with housing costs,. Our study reveals that more densely built cities also lead to traffic jams and pollution.

The analysis also gives insights into geographic heterogeneity in density effects. For example, doubling density in a developed country is associated with a 2.8 per cent rise in wages. In non-high-income nations the effect is about twice as large, implying large economic returns to moving into cities.

Mode choice is less likely to change with density for non-high-income countries, whereas the gains from density in terms of domestic energy use appear to be larger. Compared with other developed countries, density in the US is associated with larger skill wage gaps and higher, rather than lower, crime rates.  

Despite sizeable economic returns to density, there are limits to economically efficient and feasible urbanisation. Our results show that policy-induced densification may lead to positive net effects in most high-income countries. 

Gabriel M Ahlfeldt is associate professor of urban economics and land development, and Elisabetta Pietrostefani is a PhD candidate in regional and urban planning at the London School of Economics

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