Urban densification to support climate adaptation: Balancing costs and agglomeration benefits in the Netherlands

Where should we build new housing under growing climate hazards? This paper develops a framework that balances the economic benefits of density against the geographically varying costs of climate adaptation. We apply it to the Netherlands, where demand for new housing is high, but much of the land lies in floodplains or subsidence-prone areas. Agglomeration benefits are proxied by land values, while adaptation costs are derived from engineering estimates of flood protection and soil subsidence. Combining these data allows us to map spatial trade-offs and identify where development remains welfare-enhancing. Our findings show that dense cities continue to generate strong net welfare gains, even in places with high costs, while low-density settlements generate a welfare loss for new housing. We identify density thresholds above which housing development becomes feasible. Many medium-sized Dutch cities already exceed these thresholds, making densification more beneficial than peripheral expansion. Climate adaptation thus strengthens—rather than weakens—the case for urban densification.