The incentive is already set, city limits are already set, eventually they will fill up and then people will be motivated to build up a bit.
Sure, fundamentally nothing is sustainable because eventually the useful energy gradients where life can thrive will run out as the universe expands into a cold dark empty vacuum.
But before that let's try to spend the already fixed tax income a bit more efficiently. Compact cities can be more efficient than the endless sea of cul-de-sacs and occasional golf/sports fields.
That said, I have no real horse in this race. If the people of those particular cities want to live like that, let them live like that. Self-determination is important. If they feel that they don't want better mass transit and less sitting-in-traffic, no worries.