Optimal Urban Growth with Environment Effects. A Valuation Exercise

This study provides an alternative empirical approach to identify optimal urban growth when accounting for its associated environmental effects. Rather than focusing on the energy and pollution consequences of urban form often discussed in the literature, this paper analyses the problem of the so called sustainable city from the perspective of the environmental amenities perceived by housing consumers. Departing from the existing trade-off between the environmental benefits derived from living at lower densities and the environmental costs of transforming rural landscapes to urban uses, and using stated preferences techniques, the exercise analyses the effects of current urban growth trends in the Metropolitan Region of Barcelona (MRB). Thus, it is analysed whether more compact or more disperse urban growth would be welfare-improving in this particular setting. The results are obtained from a market simulation exercise that uses both contingent ranking and contingent valuation data. Both types of discrete response format yield positive willingness to pay estimators for a diminishment of density levels within cities in the MRB, even if this implies cities to grow at the cost of losing some of their surrounding landscapes. According to these results, a more compact city scenario would be welfare-decreasing from the perspective of the estimated demand of urban environmental goods. These results suggest that planning systems that lead to rather high density levels and higher land prices would not be justified on environmental grounds, because they would overcorrect the externalities caused by the loss of undeveloped landscapes.