This paper presents an alternative approach for analyzing the relationship between land use and traffic congestion by employing the Macroscopic Fundamental Diagram (MFD). The MFD is an empirically observed relationship between traffic flow and traffic density at the level of an urban region, including hypercongestion, where flow decreases as density increases. This approach is consistent with the physics of traffic and allows the parsimonious modeling of intra-day traffic dynamics and their connection with city size, land use and network characteristics. The MFD can accurately measure the inefficiency of land and network resource allocation due to hypercongestion, in contrast with existing models of congestion. The findings reinforce the 'compact city' hypothesis, by favoring a larger mixed-use core area with greater zone width, block density and number of lanes, compared to the peripheral area. They also suggest a new set of policies, including the optimization of perimeter controls and the fraction of land for transport, which constitute robust second-best optimal strategies that can further reduce congestion externalities. (C) 2013 Elsevier Inc. All rights reserved.