The council was committed to freeing up the rules to make it more attractive for developers, such as building a four or five-storey apartment block, he said.
"In terms of Tauranga's growth, we need to go up as well as out...we have definitely made a commitment to increase the level of intensification."
Compact city was one of four projects underway to meet medium and long-term development capacity in the Western Bay.
The work was being carried out under the auspices of the Western Bay's SmartGrowth growth management strategy.
The CBD and City Living zones were the first phase of the compact city. It would be followed by an investigation into the opportunities for intensification elsewhere in Tauranga.
A SmartGrowth report said compact city aimed to deliver greater housing choices and a more vibrant city centre. "Strong opportunities exist to leverage off the proposed public sector investment in the Civic Heart project."
Mayor Stuart Crosby said they had come a long way since the council dropped intensification plans for Greerton and Arataki after meeting strong public opposition.
He said the intensification of the City Living Zone had been strangled by putting too many planning rules around the changes.
"We want to make the regulatory regime more user friendly and commercially viable. We need to show a commitment, we can't go on bowling down greenfields."
Mr Crosby said it would take 10 to 20 years for Tauranga to change from its standard city form to a compact form. A compact city was much more than suburban infill and the council needed to make sure that infrastructure like transport and parks were in place first.
"The civic heart and waterfront were all linked to a future compact city."
He said the council had to learn from past mistakes and take the public with it by emphasising that intensification did not mean towers and Coronation St type buildings.
Mr Crosby envisaged a range of housing styles from small standard dwellings to mid-rise apartments, townhouses, duplexes and downtown student accommodation.
Bob Thorne of the Thorne Group welcomed moves to relax the rules but said Tauranga had not really got to the stage of intensive living. He had looked at the numbers of doing a development in the City Living Zone but was unable to make it work. "The risk was too big."
Apartments in a proposed multi-storied development were still being sold off the plans after a couple of years, he said.
"The ones that are selling are in the Mount, not the downtown...it's not an easy fix."
Classic Group director Matt Lagerberg supported what the council was doing but also questioned how it would play out in the marketplace once the rules were changed.
What were people going to do if it was cheaper to buy a house in an area like The Lakes that was only a 15-minute commute to town. "It will come down to a price point."
Intensive residential developments would become more attractive to buyers once there was more vibrancy in the downtown from new office buildings, a university campus or a civic heart. But how long would that take, he asked.
Apartment living was different at Mount Maunganui because there was a different lifestyle. "It works there."
