A recent iCreate Sustainability debate (http://www.icreate-sustainability.org/discussion/topic/show/559843) asked "Does Global Urbanization Lead Primarily to Undesirable Consequences?" In the "Yes" column is Environmental Magazine, whose writers "suggest that the world's cities suffer from environmental ills, among them pollution, poverty, fresh water shortages, and disease." So does urbanization increase or decrease levels of sustainability?
To answer this question we will use the ecological footprint, which is the best measure of sustainability. It is well known that cities have lower per-capita ecological footprints than suburban and rural areas. For example, citizens of Manhattan have the lowest ecological footprint in the U.S. (see Stewart Brand's 2009 book "Whole Earth Discipline"). Environmental problems may appear to be caused by urbanization because the environmental impact of humans is concentrated in cities as a result of high population density. If urban residents migrated to rural areas, their aggregate environmental impact would be greater. However, their impact would be less obvious because it would be spread out over a larger area. The concentration of environmental impact in urban areas leads to the misconception that cities are the cause of negative environmental impacts.
One important unanswered question: Does urbanization lead to higher fertility? This question is important because overpopulation is one of the primary reasons we are currently in a state of global ecological overshoot. The 2010 World Bank report "Determinants and Consequences of High Fertility: A Synopsis of the Evidence" states "Fertility is almost always lower in urban as compared to rural areas." (see http://siteresources.worldbank.org/INTPRH/Resources/376374-1278599377733/Determinant62810PRINT.pdf). So the evidence is clear: urbanization slows population growth and decreases the per-capita ecological footprint. Together these reinforcing effects greatly slow the rate of growth of the environmental impact of societies over time.