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City size, variety, and consumer surplus

In the 1990s, in the early years of the information technology revolution, economist Robert Solow famously commented that “you can see the computer age everywhere but in the productivity statistics.” Two decades on, that still rings true. Social life has been profoundly transformed by new technology: It has altered the way we communicate with friends and family, how we entertain ourselves, and even how we date.

how people meet romantic partners chart

When I read Douglas Adams’ Hitchhiker’s Guide to the Galaxy in the early 2000s, the titular device still seemed like a fantastical idea: a handheld device you could use to access information (much of it inaccurate or incomplete) on anything, from anywhere.

Now, we all have smartphones. But productivity growth has stubbornly failed to take off over this period. Does this mean that technological progress has failed to deliver?

Journalist Ezra Klein (Vox) recently reviewed the current debate over technological progress. One perspective he discusses is that the benefits of information and communication technologies (ICTs) have largely accrued to consumers rather than producers:

Measures of productivity are based on the sum total of goods and services the economy produces for sale. But many digital-era products are given away for free, and so never have an opportunity to show themselves in GDP statistics.

Take Google Maps. I have a crap sense of direction, so it’s no exaggeration to say Google Maps has changed my life. I would pay hundreds of dollars a year for the product. In practice, I pay nothing. In terms of its direct contribution to GDP, Google Maps boosts Google’s advertising business by feeding my data back to the company so they can target ads more effectively, and it probably boosts the amount of money I fork over to Verizon for my data plan. But that’s not worth hundreds of dollars to Google, or to the economy as a whole. The result is that GDP data might undercount the value of Google Maps in a way it didn’t undercount the value of, say, Garmin GPS devices.

As Klein goes on to observe, ICTs have transformed our leisure time more than our work time – in large part, by giving us many more choices about where to dine, what television shows to watch, and who to talk to.

Interestingly, what’s true for technology might also be true for cities. The conventional narrative about agglomeration economies – the economic benefits of scale and density – is that their main effect is to lift productivity. But, as Stu and I have discussed in the past, there’s an increasing body of evidence that suggests that agglomeration also has significant benefits for consumers.

In recent years, economists have used micro-data on household consumption patterns to build a much richer picture of the impact of city size and structure on consumption choices. In short, larger cities don’t always offer lower prices – as you’d expect if higher productivity made it cheaper to produce goods and services. But they do offer a much greater variety of goods and services, which in turn translates into higher wellbeing for households.

A 2015 paper by Jessie Handbury and David Weinstein uses barcode data on retail sales in 49 large US cities to analyse prices and product varieties. They find that:

There are approximately four times more types of grocery products available in New York [metro population 21 million] than in Des Moines [population 456,000].

Because people in larger cities tend to buy a wider range of goods, including more expensive products, a naïve comparison of average retail prices would suggest that larger cities are more expensive. But Handbury and Weinstein’s analysis shows that, after accounting for product variety, prices in large cities are no more expensive than smaller cities. If anything, they tend to be lower:

When we use the data to construct a theoretically rigorous price index that corrects for product, purchaser, and retailer heterogeneity and accounts for variety differences across locations, we find that the price level is actually lower in larger cities. Consumers spend less, on average, to get the same amount of consumption utility in larger cities.

Moreover, what’s true in grocery stores is also true in restaurants. In a 2012 paper, Nathan Schiff took a look at the impact of city size and population density on restaurant markets in 726 urban places in the US. His key finding is that:

For the 182 cities in the top quartile by land area of my data (mean population 331,000), a one standard deviation increase in log population is associated with a 57% increase in the count of unique cuisines. A one standard deviation decrease in log land area–which increases population density without changing the size of the population–is associated with a 10% increase in cuisine count, equivalent to increasing the percentage of the population with a college degree by one standard deviation and larger than the effect of increasing the ethnic population associated with each cuisine by one standard deviation.

In other words, cities that are larger or denser offer people more choices about where and what to eat. Density is especially crucial in large cities, as people generally don’t travel long distances to dine. (Incidentally, relatively open migration policies are also an important enabler of restaurant choice in cities, as migrants bring new cuisines with them.)

Distances travelled to jobs and retail in Auckland

What does this mean for urban policy? I think there are two main lessons.

The first is that although agglomeration economies in production are important to long-run economic outcomes, we might be looking for the benefits of cities in the wrong places. They might not always appear in productivity statistics or price indices, but in the consumption choices that cities offer people. Measuring variety – and how people respond to it – is therefore crucial to understanding agglomeration economies.

The second is that conventional urban policy might be based on false premises. Ever since the “dark Satanic mills” of the Industrial Revolution, policymakers have assumed that cities are good for businesses but bad for people. Accordingly, they designed transport systems and planning policies that aimed to disperse the city and to separate people from their workplaces and from each other.

That made sense when cholera was a major cause of death, but it’s increasingly illogical in today’s world. Urban disamenities such as air quality, crime rates, and infectious diseases are all improving, and the evidence increasingly shows that the consumer choices offered by cities (and dense urban places) have benefits for households. In this context, policies that enable urbanisation are likely to have larger benefits than commonly assumed.

What do you think about the role of consumer choice in cities?

Light Rail Preferred to Airport

A big day yesterday with Auckland Transport officially deciding to drop the option of heavy rail to the airport in favour of light rail (LRT) or perhaps even buses as had been foreshadowed in the Herald in the morning but also hinted at for some time from previous information released by AT.

Mangere Light Rail Station

Yesterday afternoon they released the previously confidential paper that was used to justify the decision which has thrown up a few interesting details.

In the end the biggest nail in the coffin for heavy rail has ended up being the cost which is now estimated at $2.6 to $3 billion. Being even more expensive than the CRL and with fewer benefits – after-all the CRL improves the entire rail network – it is always going to be hard sell and in the end AT and the NZTA have said it simply offered “low value for money” with a Benefit Cost Ratio of 0.37-0.64. As a comparison they estimate LRT could have similar or even greater overall benefits – I’ll get to that soon – but come in at less than half the price at an estimated $1.2-1.3 billion giving it a BCR of 1.11-1.72. That figure seems to be an improvement on earlier information such as the video that was released at the beginning of the year.

Light-Heavy rail to Aiport Routes and stats

The biggest issue with the LRT option though is it assumes that LRT will already be in place along Dominion Rd and that this is therefore just an extension. The issue with that is so far there is no agreement from the NZTA or the government that the Dominion Rd route will be supported – although the ATAP report last week seems to confirm something more than just more buses will be needed. But even if the cost of LRT along Dominion Rd (estimated at $1 billion) was included in, it still comes in cheaper than heavy rail and would have even higher benefits. The LRT option also benefits from providing new connections on the isthmus to the South West so represents a greater expansion of the rapid transit network. A comparison between the accessibility of the two is below.

Light-Heavy Rail - Light 45min Accessibility to Airport

Light-Heavy Rail - Heavy 45min Accessibility to Airport

The estimated costs and benefits discounted to 2015 $ are shown below.

Light-Heavy rail to Aiport BCR

On the costs, one expensive part of heavy rail is the need to also upgrade the Onehunga line and deal with the level crossings. AT say they considered three options for this, a long New Lynn style trench, realignment via Mt Smart and elevated rail with costs ranging from $458-578 million. Later it appears a low cost option of closing two of the level crossings and barriers which would cost $155 million and that was used in the Indicative Business Case but AT are also concerned not grade separating the crossings would cause traffic issues.

Within the airport they also eventually came up with a more direct route shown in blue but that requires bored tunnels ~20-25m deep and adds to the costs listed above and is what pushes the cost to $3 billion. There are other issues too such as with the terminal station under the airport, AT would have to pay for it when the Airport wanted to upgrade the terminal which is likely to be sooner than when AT have LRT scheduled and that would add $100 million to ATs already tight budget requirements.

Light-Heavy rail to Aiport - airport alignment options

The paper also addresses many of the issues that have been raised on here and in other places in the past.

Travel Times

One such issue is the travel time and people have in the past questioned suggestions that LRT could be the same or even faster than heavy rail. They say travel times were worked out using several models taking into account issues such as LRT speed down Dominion Rd, the acceleration/deceleration possible, station dwell times, specific track lengths, curves and gradients along with how fast vehicles could travel over them. They say that because of the heavy rail geometries required there is only a few locations where HR can hit top speed.

All of that resulted in the range of times shown below from both Aotea and Britomart with LRT coming out on top from Aotea which is centre of the CBD.

Light-Heavy rail to Aiport Travel Times

One particular area where LRT is much faster is in and around Onehunga, presumably the section over the harbour where the line has to be elevated above Neilson St then again over the East-West mega road before dropping under the motorway bridge as shown below.

Mangere Inlet Rail Crossing

The big concern for me with travel times is that it comes down to how well they’re implemented and so far AT haven’t proven themselves good at at that. This is evidenced by how poor AT have seemingly been so far at addressing our slow trains.

Capacity

Another issue that has been raised before is the capacity of LRT. What needs to be remembered is that even before this idea came along, AT aren’t planning on dinky little streetcars running around the suburbs but are large, long and potentially quite fast. As AT have said in the past they could be up to 66m long carrying over 400 passengers each which is on par with our current electric trains.

Light-Heavy rail to Aiport capacity

So over a two-hour morning peak with services every five minutes LRT could be moving up to 10,000 people an hour in each direction which is about the same number of people who currently arrive at Britomart each morning and nothing to sneeze at. They say the model estimates that with LRT around 3,500-7,500 people would cross the Manakau Harbour each morning with around 5,300-6,900 using the section from Onehunga to Dominion Rd. The biggest concern would be that if it was too popular it might restrict capacity on Dominion Rd but in many ways that would be a nice problem to have.

Opportunity Costs

One interesting aspect of the paper is a discussion on the opportunity cost of Heavy Rail. While it doesn’t happen in reality, they say the hypothetical situation of taking the money saved by using LRT would be enough to also build a light rail link from the Airport all the way to Botany – whereby it could link with the proposed AMETI busway. I don’t think that this route is a high priority to sink another $1b+ into just yet compared to other PT routes such as the NW-busway but it is interesting to ponder long term as part of a wider LRT network.

Light-Heavy rail to Aiport link to east

Here are the recommendations the board were provided which I assume they accepted. Given the capacity that has been suggested is needed and that we know there are already issues with bus capacity in the city I can’t see a bus option stacking up other than for some short term improvements.

  1. That Management discount heavy rail to the airport from any further option development due to its poor value for money proposition;
  2. Instructs Management to:
    • a) Develop a bus based high capacity mode to the same level of detail as the LRT option to allow a value for money comparison with the LRT option and submit this to ATAP for consideration;
    • b) Refine the LRT option further to address the high risk issues as articulated in this paper;
    • c) Report back to the Board on the findings of the bus based high capacity mode and LRT comparison.
    • d) Progress with route protection for bus / light rail, not heavy rail;
    • e) Align the SMART and CAP business cases to enable the consideration of an integrated public transport system between the city centre and the airport
    • f) Progress the business case development of the RTN route between Botany, Manukau and the airport and align this with NZTA’s business case development for SH20B.

The decision between light and heavy rail will never please everyone but personally I’d rather a light rail connection that actually happened than a heavy rail one that never did. A bit of a case of don’t let perfect be the enemy of good but in this case it’s not clear that heavy rail is perfect. I also don’t think it’s realistic to think that it’s just a political change away from the decision changing like some have suggested. I personally can’t see other political parties agreeing to fund something with such a poor business case given the alternative option that now exists. We’ve been critical of road projects that have poor economic cases so it’s only fair that we do the same with PT projects (although do wish these road projects were subject to greater levels of scrutiny – looking at you East-West).

What is needed though is to simply get on with things. We can’t afford to wait another 15+ years for this to be built, we need to be getting on with it. Compared to some of the motorway projects which now get accelerated rapidly, major PT projects like this seem to languish in the back of the planning departments for years, if not decades. This needs to change if Auckland is to become a much more liveable city.

End of June AT Board Meeting

Today is the latest Auckland Transport Board meeting and it appears to be a big one with a lot of items to cover. I’ve gone through the documents to highlight the parts I’ve found interesting.

Closed Session

The closed session in particular has a number of interesting topics on the agenda, these are some of them up for approval/decision

  • Matakana Link Road – this is the road that is planned from roughly the end of the Puhoi to Warkworth Motorway across to Matakana Rd so all those using the motorway to get to their holiday homes at Christmas don’t have to travel through the Hill St intersection. I’ve heard suggestions the NZTA and AT are looking to have this built at the same time as the motorway even though it hasn’t been budgeted for and that they might try to include it as part of the motorway PPP. The link road is shown below in green and extends past Matakana Rd to a Quarry I believe they want to source material for the motorway from.

Matakana Link Rd location

  • North Western Rapid Transport Corridor – Otherwise known as the Northwest Busway, AT currently have a tender out for an Indicative Business Case for this which includes confirming the preferred mode and alignment.
  • AMETI – While most items are listed as being confidential due to commercial sensitivity, this one oddly states: “To prevent disclosure or use of official information for improper gain or improper advantage
  • Rail Operations Procurement – AT extended Transdev’s contract to run trains in Auckland a year or so ago, presumably this is about extending it again or restarting the process to put it out to tender
  • South Western Multi Modal Airport Rapid Transit (SMART) – We’ve heard before that the Airport company has said that a decision was needed fairly soon on whether heavy or light rail was preferred option for rail to the airport so they can finalise their development plans. I assume AT are making that decision. (Edit: appears I was right. AT have for me they’ll get send me a copy of the report this afternoon)

  • CRL Procurement

And for noting

  • Deep Dive – Enforcement – I assume this includes information about both road and PT enforcement.

Business Report

Rapid Transit – Perhaps as a response to the issue of the AWHC we raised a month ago, AT say

AT and NZ Transport Agency are working together to ensure a future Additional Waitematā Harbour Crossing (AWHC) is delivered as a multimodal transport solution providing more options for moving people and freight across the harbour while supporting growth and resilience. Both organisations are currently investigating which modes of rapid transit will best service the growing needs of the city along with future roading requirements. This information will feed into the AWHC project and ensure the protected route enables and is fully integrated with a future public transport network.

Parnell Station – AT say planning work is still in progress “to complete the station ready for initial timetabled operations by second quarter 2017 in line with wider passenger rail timetable improvements.” Last I remember timetable improvements were planned for around Feb so this suggests they may have been pushed back too. If so this would be disappointing, particularly in the south where the new bus network will be implemented without the rail network being improved to support it.

Street Lighting – You may recall that last year AT started replacing around 44,000 high pressure sodium streets lights across the region with LEDs that over a 20 year period were expected to have net savings of about $32 million. They say so far around 10,000 have been installed which is about 9% of all street lights in Auckland. Positively they say both the technical performance is improving and cost of the lights is reducing so more will be able to be done within the funding allocated.

Bus Lanes – On bus lanes AT have this comment which perhaps suggests they weren’t going to have enough money to roll out the Gt North Rd bus lane which is meant to go in when Waterview opens “We are working with NZ Transport Agency on options to manage the funding of Great North Road Bus lane to alleviate a potential compromise of next year’s work programme“.

New Network Central - Bus Lanes

Red Light running – Back in May, AT announced that in conjunction with the police they were doing a blitz on four intersections on the North Shore for red light running. They say around 400 warnings/infringements were issued over the two-week period.

Integrated Fares – go live 31 July but we are yet to have prices or details of it confirmed which I assume will be a focus in July. The other day I mentioned that Monthly Passes were changing. After that post went up the details went up on AT’s website. From Friday, instead of three different monthly pass options there will only be one covering the entire region which will normally be $200, but for July AT are running it at an “introductory price” of $140 for July. If you make a lot of trips or normally have a fairly long PT commute and don’t normally use a monthly pass it might be worth picking one up and as a tip, once one has been bought and activated you can buy and load up another one. I already use the $200 monthly pass so this should save me around $120 which is nice.

Station Gating – We already knew AT were looking at gating a number of train stations but it appears they could be doing it fairly soon, saying “Electronic gating designs are underway for Manurewa, Papatoetoe, Middlemore, Glen Innes, Henderson and Papakura Stations; electronic gates have been ordered“.

Draft Statement of Intent

Another item at the board meeting is AT’s draft statement of intent for the 2016/17 financial year. The SOI is refreshed is a three-year work plan but is refreshed annually and so combined with other council/AT documents shouldn’t present too much of a surprise. What is interesting is seeing some of the changes that have been made following feedback from the Council. Some of the interesting changes/issues raised seem to be:

  • The council has asked AT to improve train travel times – we know some work has been done on this but we are still waiting for the next timetable change to actually see any improvement.
  • AT have a history of trying to downgrade their PT patronage targets and obviously they tried to again but the council have said they have no intention change them without a very good case for doing so. This means that AT are going to need to put a lot more effort in to ensuring that patronage grows over the next few years so it will be vitally important they get changes like the new network rolled out as soon as possible.
  • The PT patronage target is for all PT so the council have requested a rail specific target be added which AT have done and which gives a hint of where they think patronage will be in the next three years. Rail patronage is at 16.6 million to the end of May and the future targets are 2016/17: 19.5 million, 2017/18: 20.7 million, 2018/19: 21.6 million. That suggests they expect another significant jump in ridership over the next year before tapering off before the CRL is built which is what I would expect to see.
  • AT wanted to focus their cycling targets on the counts from around the city centre to reflect where most of the current cycle spending will impact however the council have said they want to keep the monitoring at a regional level

Not changing the targets does have some benefits for AT though, especially when it comes to PT farebox recovery. As of the end of April they remain ahead of the target set for 2018/19 of greater than 50%.

 

Is there anything else you’ve seen in the reports you’ve found interesting?

Road pricing #1 – Political poppycockatoos

Well, well, well. What a week.

For those who are interested in Brexit, I am currently writing a short paper on the topic that I hope to make available via the Blog.

Right now, however, I want to cover political issues closer to home. Specifically, the release of the ATAP report. What is ATAP? Well, it’s simply a collaboration between Auckland Council, Auckland Transport, and Central Government that is designed to align plans for transport in Auckland. Not a bad idea.

ATAP recently released a report that has breathed fresh life into the road pricing debate. As many of you will know, TransportBlog has over the years expressed qualified support for the idea of road pricing. While we think it’s important to carefully consider 1) distributional impacts; 2) revenue neutrality; and 3) complementary transport investments (of all modes), these issues should not be allowed to scuttle discussion and research into road pricing. The potential benefits of road pricing are simply too large to ignore, IMO.

Not everyone, however, seems happy with ATAP’s recommendation that road pricing be investigated in the Auckland context. In this post I’m going to review statements made by three political parties in response to the ATAP report. In future posts, we hope to cover some of theory behind road pricing in more detail, and consider their implications for road pricing in Auckland.

1. The Government – Simon Bridges

In the past few years I’ve been somewhat critical of the Minister, as evidenced by posts on Bridges’ bridges and subsidies for electric lemons. We’ve also criticized the ineffective mega-motorway projects this Government has promoted, such as the East-West Link and Auckland Waitemata Harbour Crossing.

On the other hand, I’ve really been impressed with Bridges’ comments on road pricing, which have been refreshingly candid, informed, and balanced. Here’s a selection of what Bridges has had to say about the ATAP report in general, and road pricing in particular (source):

In the short term, more roading and public transport may … be necessary,” Mr Bridges told the Herald. “But that alone isn’t enough. We can’t keep building new lanes on highways.

We will need a combination of demand-side interventions if we are going to deal with congestion over the next couple of decades.

When pressed on his Government’s tepid support for road pricing in the past, Bridges made the following comment:

Asked why the change of heart, Mr Bridges said: “It is the evidence. What’s been shown quite clearly here is that a combination of technology, including pricing, can dramatically lessen congestion on the network.”

In the same interview, Bridges noted that (1) road pricing was intended to manage demand, not raise revenue (even if the revenue could be used to accelerate some specific projects) and (2) road pricing would only be introduced over a period of 10 years, if further research found it to be effective. In these comments, Bridges demonstrated:

  1. An awareness that supply-side transport interventions will not, on their own, be a cost-effective way to manage the growth in travel demands Auckland is experiencing;
  2. A willingness to engage with complex issues, and to change his position if doing so is justified by evidence. This is something that is often hard for politicians to do, and I think is something to celebrate when such changes are based on new evidence coming to light;
  3. An acceptance that if road pricing is implemented, then it should be to manage demand – not raise revenue. This is an approach the Blog has supported for many years.; and
  4. An understanding that several years of research and discussion are necessary before road pricing can be implemented.

In short, I thought Bridges’ comments were candid, informed, and balanced. Bravo. The two issues he doesn’t appear to discuss in detail was (1) distributional impacts, although further research would seek to clarify the nature of these impacts and (2) the need for complementary transport investments to manage anticipated demands from road pricing. While there’s still room for improvement, it’s heartening to seem Bridges take a somewhat bold position on an important issue.

2. The Labour Party – Phil Twyford

Now for a different perspective. In response to the ATAP report, Labour Party MP Phil Twyford commented as follows (source):

The Government wants to tax Aucklanders thousands of dollars a year just to use the motorway network … the average Aucklander … would pay new congestion charges of between $185 and $2461 per year.

National has allowed the gridlock on Auckland roads to get steadily worse over the past eight years, leaving Aucklanders to sweat it out daily in traffic jams … Now they want to whack commuters with a massive tax for the privilege of using a road network that they’ve already paid for with their petrol taxes and road user charges.

I feel Twyford is being overly dramatic, and would like to clarify a few relevant issues from my perspective:

  • The last Labour Government also looked into road pricing; you can still find the reports here. While it ultimately didn’t go anywhere, ATAP is simply a continuation of a debate that started under Labour. In the intervening decade, technology has of course improved considerably.
  • In a revenue neutral situation, the revenue from road pricing would be used to reduce taxes elsewhere. Or increase welfare payments to low income households. Until we know the precise details of the scheme, we won’t know who wins/loses, or to what degree, so any statements to this effect are simply premature.
  • As the ATAP report shows, government spending on transport in Auckland has increased to approximately 2.5% of GDP. This is high by historical standards, and more than most OECD countries. In a nutshell? Both Labour and National have spent buttloads on transport in recent decades; the supply side has received plenty of attention.
  • Transport projects take time to design and construct. Most of the highway projects being completed now were planned under the last Labour Government, even if they have been accelerated under National. Thus, you cannot blame all of today’s problems on National; the transport system reflects decisions made over decades.
  • The road network is never “paid for”, at least not in the way that Twyford implies. Operating costs, the opportunity cost of land, capital improvements, and externalities, such as congestion, noise, and air pollution, are all examples of costs associated with roads that are incurred continuously over time.

On the other hand, it is true that this Government has spent billions on relatively ineffective road projects, such as Puhoi-Wellsford, SH18-SH1 connection, the East-West Link, and Kirkbridge Rd grade separation. These projects do little for congestion compared to their costs, and is something that Twyford is justified in criticising.

Twyford also had this to say:

Without a massive improvement to the public transport system as a viable alternative to driving on the motorways at peak hours, it would be utterly unfair to charge people thousands of dollars extra a year …

The first thing I want note is that it’s not immediately clear road pricing requires complementary public transport investment. The experience in London and Stockholm, for example, was that road pricing caused a ~20% reduction in vehicle travel but only a small shift to PT. In London’s case buses were the big beneficiary of less congested roads, as you can imagine. Personally, I’d expect road pricing would justify some selective investments in PT, but this shift should not be overplayed. The second thing to note is that the statement is duplicitous. Why? Well, the ATAP report considers how road pricing impacts on the demand for PT, and identifies where PT infrastructure and services may need to be improved. Put simply, the ATAP report does not present road pricing as a standalone solution, but instead considers it as part of a wider transport plan. As it should be.

Some of the issues with Twyford’s argument are highlighted in this Radio New Zealand interview, in which he moderates some of his positions under pressure by the interviewer. Twyford makes an excellent point with respect to the North-western Busway: It does seem to be a clear situation where road pricing might create the need for a project to be accelerated.

One other issue worth considering: In a recent press release, Twyford advocated for removing Auckland’s urban growth boundary and shifting costs on developers (NB: evidence suggests costs will ultimately be paid for by occupants, but that’s besides the point). ATAP shows that even with additional infrastructure investment, Auckland would still experience ongoing congestion. The latter might even worsen without an urban growth boundary. So while getting rid of regulations is well and good, it won’t mean congestion disappears. To put it another way, changing the way we fund transport infrastructure from rates to development taxes doesn’t mean that demand management is not beneficial.

Ultimately, I think Twyford needs to take a longer-term perspective on the issue of road pricing. Rather than trying to assail the Government to shut the conversation down, Twyford should be supporting the need for a 5-10 year investigation that gives serious attention to distributional impacts and complementary transport investments. I really don’t see any reason to get emotional before the details of possible schemes are worked through.

3. The Green Party – Julie-Anne Genter

In this interview Genter advances the Green Party’s position on ATAP’s road pricing proposal and also argues for more investment in public transport before road pricing can be implemented. As noted above, I suspect this issue tends to be over-played, simply because the benefits of road pricing don’t necessarily require huge mode shift, as Stockholm and London demonstrate. There’s also several other reasons to push back on the notion that road pricing is not a priority until public transport is improved.

The first reason is that investment in public transport won’t reduce congestion for those who continue to travel by car. In a city that is growing as fast as Auckland, even massive investment in public transport won’t maintain vehicle demands at present levels. By extension, even with significant public transport investment, there will be many, many vehicle trips that will continue to suffer from congestion. Commercial vehicles being a prime example: Why leave these vehicles sitting in congestion, when they are prepared to pay for faster and more reliable travel? One of the key benefits of road pricing is that it enables commercial vehicles to do their thang. And that generally benefits all of us.

The second issue is that, as noted above, ATAP does consider complementary transport investments to support road pricing. There is probably sufficient time between now and when road pricing is implemented to complete the CRL, extend electrified rail services to Pukekohe, progress extension of the Northern and AMETI busways, and construct key elements of the North-west busway. It may even be possible to implement LRT on Dominion Rd within 10 years. Auckland will within 10 years have a much better bus network with higher frequencies and capacity. Now, I appreciate completing all these projects would require a change in Government priorities, and that it’s important to highlight this need, but such things are kind of what the ATAP process is all about. Of course, if and when PT investments are rolled out, we may find that we can delay implementing road pricing, which is all well and good – but the opportunity to avoid road pricing through PT investment shouldn’t stop us (a priori) from discussing how we might implement road pricing.

Basically, I’m suggesting that the Greens should express conditional support for the idea of road pricing, subject to more detail on the nature and timing of its implementation. I don’t think saying “it’s not a priority we should do other things first” is a sufficiently strong reason to object to the recommendations of the ATAP report, at least at this stage.

Wrapping up

All in all I am happy to see the road pricing debate reinvigorated. I’m particularly impressed with comments from Simon Bridges, which are candid, informed, and balanced. Twyford and Genter are justified in highlighting that (1) implementing road pricing will likely require some complementary transport investments and (2) this will likely require the Government place a greater emphasis on public transport than the have in the past.

On the other hand, the positions adopted by both Labour and the Greens come across as overly negative. While I can appreciate this is the general nature of political opposition in New Zealand, I feel that they might want to step back from the political coal face on this particular issue. Road pricing is not a discussion that needs to be rushed, nor should it be shut down. It seems to me that the more reasonable position is to express conditional support, with some specific caveats on where the ATAP research should head.

As something that will take several years to develop, we have the chance to discuss the nitty gritty of road pricing means in the Auckland context without committing to anything. Why fall into hard and fast negative positions before then?

Auckland Conversations: The Future of Housing in Auckland

More homes at Hobsonville

If you’ve been near Hobsonville Point recently you’ll have seen it’s going off and is currently a hive of building activity.

Hobsonville Point - new homes advertising

There was some very positive news this week about that would now be developed with twice as many homes as originally intended, especially some of the reasons as to why this has happened, which I’ve emphasised below.

 

The scale of one of Auckland’s newest big housing developments has now doubled, with Hobsonville Point dwelling dwelling numbers now rising from 2500 to 5000.

Demand for residences at the housing estate in Auckland’s northwest has been so strong that the numbers planned to be built there have been up-scaled.

Chris Aiken, Hobsonville Land Company chief executive, said instead of 2500 dwellings, around 5000 residences would now be built.

More land on the Waitemata Harbour had become available, the area had been prepared for greater density and demand was so strong that it was not only appropriate but also possible to vastly upscale numbers, Aiken indicated.

“Building 2500 [dwellings] was first planned about 10 years ago and there was a view of the market – Waitakere City Council and the Government said ‘we will allow for more density’ and they put in place ferry services, roads and employment zones and the market was there. The market came screaming along five years ago,” he said.

“The doubling is driven by market demand for smaller product and the capability of the master planning and infrastructure to deal with it. It was a visionary, enabling master plan,” Aiken said.

Decisions about rising numbers had been taken over a number of years, due to a combination of factors, he explained.

“The land was always capable of carrying that higher number. Five years ago, it was scaled up [from 2500] to 3000 when it became clear people would buy terraced housing. When we introduced affordable housing, it went to 3500 planned. It made sense to build more. And then with the advent of apartment typologies, that pushed it closer to 4000.”

It’s not the first and definitely won’t be the last but Hobsonville Point is a great example that many Aucklanders are quite happy to buy different types of homes, especially if they’re built and designed well. The old myth that “everyone wants a stand alone house and big section” is once again shown to be completely false.

Another big source of housing is new land that was planned to become a marine industry and then a film studio but for which neither eventuated.

However, an extra 1000 dwellings were added to the plans when a further 20ha became available due to a bureaucratic back-peddling.

After being lobbied heavily by the marine industry, a large slice of 20ha was ear-marked for those services, which failed to arrive. That land is now re-zoned for housing, which further contributed to the increasing dwelling numbers, Aiken said.

“Land which Auckland Council ear-marked for the boating industry – now we can built on it,” Aiken said.

Across most of the site, more apartments and terraced-housing would replace original plans for stand-alone housing.

This land is shown below along with the high level plan for how it will be developed.

Hobsonville Point ACPL Plan

With more houses going in, Auckland Transport are going to need to do a lot better with providing alternative options for transport in and out of the area. The ferry to the city is a good start but only runs a couple of times at the peaks on a weekday so is completely useless for anyone not working very specific hours. As an alternative, as currently planned in the new network, the main bus route through the area will link up Hobsonville Point with Westgate and Constellation Dr Busway station at which people could transfer for a bus to the city but the route is only planned to run every half hour. Further either direction is likely to have locations where the bus is subject to congestion until other projects built, such as the Northwest busway.

 

 

Construction Crunch

I’ve been saying for a while now that the construction sector is under pressure – there are too many people wanting things built, and not enough builders to do the work.

That’s a simplistic view, as construction companies can put in overtime, hire more people from overseas, or look for more efficient ways to build. But we’re certainly at a point where builders are very busy, and where we can’t speed up the rate of building much faster without it causing major cost increases.

Construction Crunch

Props to my coworker Sarah for making this cool image.

These sentiments were echoed by Nick Smith the other day:

Housing Minister Nick Smith… said the building industry had now used up all its spare capacity and faced serious constraints with skilled labour, materials and equipment.

“In terms of the supply of tilt slabs for apartment buildings, the sector is so overwhelmed with orders that they have to go outside Auckland to get product delivered for as long out as February next year,” he said.

“The stories I’m getting from builders are that once we could get a concrete truck at 24 hours notice, now we have to order it two or three weeks in advance.”

He said Auckland Council was also struggling to get staff to process consents and inspect new buildings.

Let’s start with a graph showing the amount of work builders do each year. It’s in “volume” terms, which means that it’s adjusted for price changes. So the graph is really saying that in the last year, builders across New Zealand managed to carry out a larger “volume” of work than they ever had before, although only slightly more than in the 2004-2007 period.

Construction Activity in New Zealand

Note another interesting feature of the NZ construction industry – there are huge swings in the amount of work undertaken in ‘good years’ (economy going well, everyone happy, la di da di da) versus ‘bad years’ (recession, development dries up, mass layoffs, firms go bust). Although there’s strong industry support for government taking a role to smooth out this pattern – i.e. investing in new state houses, schools, roads etc when the economy is weak – we have a pretty poor track record with this in New Zealand.

Here’s graph number 2 – this one showing ‘total paid hours’ in the construction industry. Data source is the Quarterly Employment Survey, which asks a sample of firms around the country how many hours their employees worked each quarter.

Total Paid Hours in the Construction Industry

This one is even more stark, showing the industry now putting in a lot more hours than it did in the 2007 peak. Other sources show a similar picture – the Household Labour Force Survey estimates that there were 195,000 people working in construction in the 2007 peak, which fell as low as 165,000 during the recession, and has now risen to 230,000.

Lastly, a graph on “real” construction prices. This graph is indexed for inflation, so if the lines are horizontal it means that prices are flat in real terms. If the lines are sloping upwards, it means construction prices are going up faster than general inflation.

Construction Prices

Interestingly, ‘non-residential buildings’ are still hovering at around 1,000, i.e. they’ve grown at about the same rate as general inflation over the last 25 years or so. ‘Civil construction’ started to get more expensive in the early 2000s, and has kept on trucking slowly upwards since then.

But the real action has been in ‘residential buildings’, which seem to have bursts of rapid inflation, followed by staying flat for a while (or even reducing after the GFC). Prices have been rising strongly in the last few years – 4.6%, 5.0% and 4.5% in the last three years, whereas general inflation has only gone up 1.5%, 0.3% and 0.4%. So if you’re thinking about adding a new rumpus room… maybe think about holding off for a couple of years.

The main issue seems to be a shortage of workers, more than a shortage of materials (although that will be biting too). It’s particularly unfortunate that construction fell away so much in 2008-2011 – it’s left the industry poorly prepared to cope with the current boom. Taking another step up, even just from 230,000 workers to 250,000 say, will be tricky.

Central and East New Network Outcome

On Monday, the Auckland Transport Board are expected to rubber stamp the outcome of the final and biggest of the major consultations for the new bus network, Central and East Auckland. The consultation was held at the end of last year and AT say they received over 3,700 pieces of feedback for the Central network and almost 1,200 pieces of feedback for the East Auckland network. For the Central network 60% of people were in support or not opposed to the proposed changes while in East Auckland that number was 64%.

As a result of the feedback AT say they they have made changes to 29 out of the 52 routes in the central area while in the east 10 out of the 15 routes had changes to them and timetable changes for 8 of them. That’s a lot of changes and not all of them appear to be good, in fact some effectively break the principles behind the new network which I think will undermine the success of it. The biggest concern is in the central area where there now appears to be much weaker cross town services thanks to most of them rerouted, downgraded, truncated or removed entirely. In the end it feels much more like an extension of the status quo than the revolutionary connected network we were promised.

Next I’ll step through the central and east networks separately. Perhaps it’s just the way the image looks in the board paper but one immediate observation of both central and east is the maps feel more cluttered and harder to read compared to those used in the consultation. This seems to be in part due to some of the changes that were made.

Central Network

Some of the major changes include:

  • The outer Link has been retained – although on a modified route between Mt Eden and Newmarket.
  • As a result of the Outer Link, the Crosstown 6 route along St Lukes/Balmoral Rd/Greenlane West has been had it’s frequency downgraded and at it’s eastern end, it no longer connects to the Orakei Train Station meaning there is no longer a frequent all day service service there.
  • The Crosstown 5 route which also served Orakei as well as proving a connection between Ponsonby, Kingsland, Valley Rd, Mt Eden and Remuera and Mission Bay town centres has been removed. Both this and the Crosstown 6 are suggested to be in part the result of people from Orakei not wanting to transfer to get to the city centre.
  • There are a number of new peak only services to the city centre
  • The frequent service along Tamaki Dr and a new route through the eastern suburbs will be branded the Blue Link

There are many other many other changes but it is hard to list them all here.

Here’s the final network

New Network Central - Final

As a comparison, here’s the network that was consulted on

Central Proposed New Bus Network

To clarify which roads have at least one frequent service to the city all day, AT have the map below. They also say

The final New Network will mean that the arterial routes listed below will continue to have all-day frequent service to and from the City Centre, with enhanced capacity and levels of service (including in most cases 15 minute or better frequencies in the evenings and on Saturdays, Sundays and public holidays), to support the increasing level of economic and social activity in the city centre outside normal business hours. Most of these routes will also operate every 30 or 60 minutes between midnight and 3.00 am on Saturday and Sunday evenings to replace the Nite Rider services. Routes anticipated to utilise double-decker buses within the next 2 – 3 years are underlined:

  • Jervois Rd (Outer Link)
  • Ponsonby Rd (Inner Link)
  • Great North Rd as far as New Lynn
  • New North Rd
  • Sandringham Rd
  • Dominion Rd
  • Mt Eden Rd
  • Manukau Rd
  • Ellerslie Panmure Highway and Ti Rakau Drive
  • Remuera Rd
  • Parnell Rd (Inner and Outer Links)
  • Tamaki Drive

 

New Network Central - Final - frequents to city

 

East Network

As mentioned earlier, there have been a number of changes in the east, the two big ones are:

  • They’ve swapped the frequent service that will go all the way to the city from being the service from Howick (route 55) to the service from Botany (route 53). It will be interesting to see how the latter route performs in the future given that it could make services on the busway AT want to build less reliable.
  • The route down Te Irirangi Dr (35) has been upgraded to a frequent.

Here’s the final network

New Network East - Final

As a comparison, here’s the network that was consulted on

East Auckland Proposed New Bus Network

Infrastructure

As part of the new network networks AT will need to roll out around 100-150 new bus shelters across both central and east. That’s not all that much more than just the South Auckland network which I guess is in part due to many of the main routes on the Isthmus not needing to be changed.

There is also talk of bus priority being added over the next 2-3 financial years. Where bus lanes are or are expected are shown below. AT Also say this which is promising.

bus lanes will be added on Pakuranga Rd and a start will be made on the South-eastern Busway between Panmure, Pakuranga and Botany

 

New Network Central - Bus Lanes

 

I know there has been pressure from a number of sources to roll the network out sooner and positively the document says they plan to roll out the networks in two separate stages in the second half of 2017 which is promising as previously they had been saying early 2018.

I hope that AT are able to revisit some of the poor decisions they’ve made around the new network in a couple of years’ time, perhaps when the CRL opens and that they don’t just assume this is complete and doesn’t need changing.

May-16 Patronage

The public transport results for May are now available and once again there are some very impressive results on the Rapid Transit network with busway and rail network combined up 25% compared to May last year – although an extra business day in the month helped too. Ferries have also continued a good run with the only disappointment continuing to be buses (other than those on the busway) which were only up 0.1% and would’ve been down were it not for the extra day.

2016-05 - Patronage Table

During May Auckland Transport finally increased the peak frequency on the Western Line and early indications are promising. It will be good to see how things go over the coming months. Also important is AT say that punctuality remains high which is good as one of the fears I’d heard was that the additional services would make the network less reliable.

It turns out that May now holds the record for the highest single month for rail after eclipsing even the March result thanks to the impact of Easter. March is shown with the orange bars. That’s seen the 12 month rolling result now surpasses 16.5 million.

2016-05 - Rail monthly Patronage

While the new trains and service improvements have undoubtedly played a key role in the improvements, so too have punctuality and reliability. We now start to regularly see more than 95% of trains arriving at their destination within 5 minutes of their scheduled time which is up dramatically from about 74% about a year ago. From memory, prior to electrification we peaked at just over 90% – but then the current timetable has been padded out in part to deal with the terribly slow dwell times we currently have.

That stellar rise in rail usage has also seen another milestone eclipsed. Now 20% of all public transport trips are by train which is up from just 5% when Britomart opened and with the speed that usage of trains is increasing, that figure could hit 25% before the City Rail Link even opens. The busway currently accounts for around 5% of all trips. To me that’s important as it highlights that rapid transit is doing an increasing share of the heavy lifting – and we’d expect that given the investment.

As I’ve liked to highlight in recent months, the farebox recovery results continue to improve. These results are always an extra month behind with the latest results being to the end of April, so on the rail network we might see a bit of a reversal once the impact of the extra western line services is felt. Still it’s worth celebrating that farebox recovery has passed the NZTA’s 2018 target of 50% and is the highest it’s been in more than a decade. It really shows just how important it has been to have electrification to simultaneously drive up patronage and reduce operational costs.

2016-05 - Farebox

I was concerned at the results last month that HOP use was a little stagnant. I spoke a little too soon as May has recorded the highest result yet. In the business report, AT say that HOP use has risen and on 23 May it passed 85% for the first time. With all of the SuperGold card holders now having swapped or hopefully in the process of swapping to HOP, that result is likely to go higher still. As AT point out, the results are similar to Brisbane and South Australia who have had similar systems for much longer

South Queensland Go Card has 86% trip penetration after 10 years and the Adelaide Metro Card 87% after 4 years.

2016-05 - HOP Uptake

While talking about HOP, the business paper also says this. As yet I’ve had no indication of what this new monthly pass is.

Development of a product transition plan will result in the new monthly pass being marketed in June 2016 for 1 July 2016 launch. A discounted introduction price will be available during July.

Hopefully we’ll find out soon.

Apartments, proximity, and living space

Housing is a normal good. That is, it’s something that people tend to want more of as their incomes increase.

“More” doesn’t necessarily mean “larger”. People do tend to prefer larger homes as they get wealthier, but that’s not the only thing that matters. They may be willing to compromise on space in exchange for a higher-quality living space – bring on the granite countertops! – or a home in a better location. A “better location” could in turn mean anything from proximity to jobs (resulting in efficient use of valuable time), proximity to shops or cultural amenities, location in a good school zone, or access to parks or beaches.

One interesting phenomenon is that people seem to be willing to travel further to work than to consumption amenities (ranging from retail to concerts). In their fantastic book Cities and the Urban Land Premium, Dutch economist Henri de Groot and several co-authors provide some data that shows that people are, on average, willing to travel considerably further to work than to consume. They show that this results in a higher urban land premium for accessible inner-city areas, as vibrant downtown areas have the most varied and interesting consumption opportunities.

Furthermore, you’d expect this premium to rise as incomes rise, as people with more disposable income will have an increasing preference for close proximity to consumption and cultural amenities.

Is the same thing likely to be true in Auckland? Nobody’s done a survey, but we’ve got some data on the distance that people actually travel to access jobs and retail.

In a paper two years ago, I analysed Census data on commuting distances in order to understand what Auckland households spend on housing and transport. I went back and re-analysed that data to get an estimate of the distribution of commuting distances in Auckland. This data suggests that 50% of Aucklanders commute less than 9km, while less than 2% are super-commuters travelling longer than 50km.

As a point of comparison, I used data on retail spending patterns compiled by economist Susan Fairgray in a 2013 report on the Auckland retail sector. Based on electronic card spending data, Fairgray estimates that 50% of Auckland retail spending is done within 5km of people’s homes. (See Table 3 on page 58 of her report.)

Here’s the chart. As in the Netherlands, distances travelled to consume drop off more rapidly than distances travelled to produce.

Distances travelled to jobs and retail in Auckland

There are several implications for how we build cities. The first is that we should expect retail, personal services, and recreation to be widely distributed throughout the city. Large tracts of houses without good access to shops and recreation are not likely to be awesome in the future. There are various ways to cater to these needs, ranging from mixed-use zoning that allows retail and housing to colocate to distributing small retail centres throughout suburbs (a la Auckland’s tramway suburbs).

The second thing is that we should think more carefully about how preferences for centrality are changing. The consumption amenities that cities offer play an increasing role in their success or failure. Some important consumer amenities tend to be located centrally. For example, nightlife and entertainment districts are almost always located near the city centre – think of Ponsonby or K Road in Auckland. Likewise, museums and public art galleries are usually located downtown – e.g. Te Papa in Wellington or the Auckland Art Gallery – to maximise the number of people that can access them.

Auckland Art Gallery

Auckland Art Gallery

As demand for consumer amenities will tend to increase with rising incomes, we’d expect demand to live close to them to increase in the future. Meeting this demand in a growing city will, in turn, mean building more apartments.

But wait! If people also want more living area as they get wealthier, doesn’t that mean that they’ll reject apartment living? Won’t apartments simply be too small to meet their needs, even after taking location into account?

Interesting question.

It is the case that new apartments tend to be smaller than new standalone houses in New Zealand. Over the last five years, the average standalone house consented in Auckland was about twice as large as the average apartment consented in Auckland.

However, there’s no universal law that says that apartments have to be small. Policy can play a big role in keeping apartment sizes down, or enabling them to be more spacious. As LSE economist Paul Cheshire observes, planning policies (and other things like tax policies) can have the unintended consequence of discouraging adequately-sized housing:

If you really want to plan to protect and provide better access to green space and open countryside without artificially constraining land supply and forcing up house prices, then Green Fingers (or Green Wedges) would seem to be the best solution. That is what more egalitarian Scandinavians have. Copenhagen has its Green Fingers – really brown urbanisation along the radial routes out of the city with protected countryside each side. Denmark has not just got cheaper housing: according to the Dallas Fed’s data, the real house price has increased by a factor of 1.6 in Denmark compared to 3.4 in the UK since 1975 but new houses in Denmark are a lot bigger: 80% bigger in fact.

As Cheshire’s example of Copenhagen shows, it’s possible to build dwellings that meet people’s needs for living space and preserve usable open space around cities. You just need to be willing to build intensively where you do build – and integrate it with rapid transit.

copenhagen finger plan

Source: Living Rail

For a less anecdotal look at the issue, I used Eurostat data to measure the relationship between dwelling size and dwelling type in 29 European countries. Here’s a scatterplot showing the relationship between the share of dwellings that are detached houses (X axis) and average dwelling size (Y axis). Observe how there is almost no relationship whatsoever. If anything, there’s a slight negative relationship – countries with more standalone houses may have slightly smaller dwellings, on average. (There’s probably an income effect in there that I haven’t controlled for – richer countries tend to be more urbanised, which will tend to mean more apartments, and also have larger dwellings.)

Eurostat detached houses and average dwelling size chart

But basically, there doesn’t seem to be an inescapable trade-off between dwelling type and size. Apartments can be small… but they can also be large. And cities that are willing to let people more apartments get built will, in addition to being more affordable, give people more opportunities to realise their demands for both space and proximity.

What do you think of this data?