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The prevailing pattern of urban growth, particularly in the United States, is in the form of sprawling, auto-oriented, low-density development, mostly in the suburbs and outer edges of metropolitan regions. Beginning in the 1990s, proponents of smart growth sought to change this pattern of development by seeking ways to concentrate urban growth at higher densities and closer to the traditional urban core.

By definition, “smart growth” refers to those policies and planning strategies that build communities in a compact way, and with a variety of housing and transportation choices near employment, schools, shopping, and other amenities. Typically, the focus of smart growth is on managing urban development at a regional scale in ways that offer a better balance between where housing, amenities, and jobs are located within a metropolitan area. Thus far, the focus of smart growth policies has been the United States, although recently, an alliance of various organizations in the United Kingdom agreed on a set of principles promoting smart growth policies adapted to conditions in that country.

As an urban planning model, smart growth has a number of key goals. These include the following:

  • Developing mixed-use, dense, and walkable communities
  • Reinvesting in existing infrastructure in older communities
  • Promoting transit-oriented development that encourages the use of public transportation and reduces reliance on the automobile
  • Developing a range of housing choices and styles
  • Preserving open space, farmland, and environmentally sensitive areas
  • Enhancing a community's sense of place

Those who promote smart growth goals include environmentalists, urban planners, and some politicians and policy makers, as well as advocates of public transit and central-city living.

Smart growth communities are sometimes labeled new urbanist. Smart growth and New Urbanism are described synonymously, but they are in fact distinct. Smart growth originated out a concern for the environment and is very policy driven and policy focused. New urbanism, on the other hand, is more design-oriented, originating from the fields of architecture, urban design, and physical planning.

New urbanists focus on changing the physical shape and orientation of communities to include sidewalks for walkability, a variety of housing styles, mixed-use development, and opportunities for the incorporation of public transit. The goals of smart growth and new urbanism are very similar but their approaches are quite different. New urbanists focus on community-scale planning and design options to create neotraditional-style developments. Smart growth advocates focus on introducing policies at a regional scale to guide compact development toward more central locations.

In this regard, strategies used in the promotion of smart growth include offering incentives such as density bonuses, grants, and funds for infrastructure provision in ways that encourage the market to intensify urban development in certain locations. Incentives are at the heart of smart growth policies. The following is an example of what considering the transfer of development rights (TDR) program means.

TDR programs are fairly recent market-based tools in the smart growth toolkit. These programs establish a transfer system where, a property owner sells his or her development rights, typically to a developer, who then uses these rights to build in a different location. The land from which the development rights are sold remains preserved from development with an easement. The location where the developer is allowed to build is referred to as the “receiving area.” The developer can build typically at high densities in these designated areas. The supply and demand for TDRs will depend on the profitability of development and the demand for higher density in designated receiving areas.

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