In the US, it's common for local governments to focus on tax revenue produced by a property, without considering the costs it adds to the city's budget. This is like measuring how far a car can drive without considering how much gas it uses to get there.

Different properties create different long-term cost burdens for the city. One of the biggest contributors to that variance is the amount of infrastructure they require, which correlates with the amount of space they take up.

For just 1 building per acre, you need far more roads/pipes/etc per building than if you build 10 buildings per acre. Lower density doesn't really increase tax revenue per building, so you're essentially taking on a lot more infrastructure liability to support the same revenue.
Spreading development across a lot of land requires more infrastructure, resulting in higher costs per building.
Clustering development on less land reduces per-building costs, because the cost of the infrastructure is spread over more units.
Consider two properties in Asheville: a Walmart and a small downtown building. The Walmart is worth $20M and uses 34 acres, while the downtown building is worth $11M and uses 0.2 acres. At first blush, the Walmart seems better because it generates more tax revenue. But once you look at the denominator, you see that the downtown building generates 100x more tax revenue per acre!
  • $20,000,000 / 34 acres = $588,000 / acre
  • $11,000,000 / 0.2 acres = $55,000,000 / acre

When we build sprawl without accounting for the long-term liabilities, we create unsustainable infrastructure costs that can overwhelm city budgets in the long-run. For example, Detroit's sprawling layout and declining population left it with extensive infrastructure to maintain but insufficient tax revenue, contributing to its 2013 bankruptcy.

This doesn't mean we should never build low density places, but we should be aware of the tradeoffs. We have to to consider the costs and not just revenues, otherwise we will continue to build ourselves into a hole!
Detroit pioneered the sprawl development pattern, which depends on perpetual growth in order to continue working. This development pattern was a major contributor to its financial troubles a few decades later when its infrastructure bills came due.
Cities that emulate traditional development patterns like downtown Charleston earn more revenue in a small area while costing far less in infrastructure expenses.


Thanks to Urban3 for the analysis that inspired this post. Also, Strong Towns has a bunch of great posts on this topic, including: