This chapter discusses urban development and town planning following the Great East Japan Earthquake. Considering the declining population and severe fiscal constraints in the affected areas, urban development with compact cities is an effective model. The main analyses in this study are: (1) a microeconomic analysis of the impact of the compact city policy on the land market, and (2) a study of proposed policies to promote a compact city. Microeconomic analysis reveals that compact city policies contribute to more efficient resource allocation if urban externalities are realized. This also demonstrates that public transportation policies are important for promoting compact cities. Thus, I conclude that compact cities and public transportation policies are strategic complements. Furthermore, it is important for the affected areas to have plans that incorporate disaster prevention and mitigation measures. Therefore, establishing a system that passes on the lessons learned from the earthquake to future generations is important.