Since 2014, Japan has implemented a policy for forming a compact urban structure at a national level through an urban planning technique called a location normalization plan. A residence-induced zone included in the location normalization plan is considered as the essence of forming a compact urban structure and can be characterized as a policy that compactifies cities for a long period not only by inducing residence functions into the inside of the zones but also by applying regulations to the outside of the zones. This study examined the status of the dichotomous compact city policy applied in reality by analyzing various cases in Japan that established location normalization plans, and its implications. The conditions commonly observed in the induced zone in model cities indicated that the validity of residence-induced zones—how and where residence-induced zones had to be designated—was prioritized in many cases. Some cities, however, designated independent zones that maintained a certain level of residential functions outside the induced zones. Utilizing independent zones in non-induced zones can be assessed not as an act of simply dividing cities by a dichotomous way but as an attempt to reflect the situations and characteristics of individual cities.