This Urbanophile post mentions some interesting facts published in OECD's new report: The Metropolitan Century -
"First, they noted that productivity increases 2-5% when you double the size of a city. This is basically Geoffrey West’s finding, or something close to it. But what they also say is that if the population (weighted by distance) within 300km of a city (~185mi) doubles, productivity grows by 1-2%. So the population of the extended hinterland also plays a role in urban productivity. A city surrounded by a hinterland that is shrivelling up might thus have some modest drag on its economy.
...They estimate that building regulations increase prices by two to eight times in central London and New York. Even in smaller city centres they estimate a 50% increase in prices... They say:
"Land-use regulation that limits new construction benefits home owners at the expense of renters and prospective residents. Home owners tend to benefit in several ways. First, they can enjoy the amenity value of attractive protected neighbourhoods. Second, they benefit from the house price increases that regulation causes. Land-use regulation can also be used to prevent people with lower social status from moving into a neighbourhood (for example by prohibiting multiple dwelling units). In contrast, renters will suffer because they have to pay higher prices. Similarly, prospective residents lose out because they have to pay more to move to the city. It also limits labour force mobility and can have detrimental effects on the entire economy of a country."
As home owners are often the most vocal group of the three, local governments might be tempted to pay particular attention to their wishes and restrict construction strongly. This might have positive effects on the current residents of a city, but will have negative effects on the rest of the country...