Update 24/7/14 – Given the rumours flying around today about Government announcing the possible acceleration of this project, we have made this earlier post “sticky” while we write up a new post on the issue for tomorrow.
This is the first of a couple of posts looking more closely at the Additional Waitemata Harbour Crossing project and how we could do it differently.
Last week there was some renewed debate over the merits of the Additional Waitemata Harbour Crossing (AWHC) project, due to former Local Government Minister Michael Bassett suggesting it should start nearly immediately and made a lot more sense than the City Rail Link. I outlined why that particular argument is complete rubbish previously, but I think it’s worth delving back into exactly why AWHC is an unnecessary, wasteful, counter-productive and completely stupid project. For the purposes of this post, I’m talking about the AWHC project’s roading components as proposed in quite a lot of detail here by NZTA.
Continue reading How the AWHC is a waste of $5.3 billion
For an interesting Friday afternoon read, here‘s an article from Australia which may ring true for New Zealand as well – especially given the possibility that National is considering an absolutely daft idea, creating a second road-only Waitemata Harbour crossing. From The Age:
More than $20 billion a year of national road funding is being spent in a “hideously inefficient” manner, according to a leaked assessment by Australia’s independent infrastructure umpire.
The Infrastructure Australia report, obtained by Fairfax Media, has also delivered a scathing critique of “monopoly” state-run road entities such as VicRoads, claiming a culture of resisting reform has led to a situation in which political leaders are held “captive” to demands for more funding.
Yesterday was a busy day for transport news. Alongside Gerry Brownlee’s strange airport escapade, Labour Transport Spokesman Phil Twyford dropped a bit of a bombshell in relation to the possible acceleration of the Additional Waitemata Habour Crossing (AWHC) project as well as the exclusion of the project’s rail component:
Labour Transport spokesperson Phil Twyford says it has been leaked to him that John Key will rule out a rail option when announcing an accelerated timeframe for Auckland’s $5 billion second harbour crossing next month.
“I understand the Government’s plan is for a roads-only option which would be a giant wasted opportunity to connect rail to the North Shore and link it up with the City Rail Link and the rest of the regional rail network,” says Mr Twyford.
“Aucklanders want their cars but they also realise it is past time to start investing in a modern public transport network. We’ve seen that in recent polls.
“This Government has not initiated a single new public transport infrastructure project in Auckland since it came to office.
“They announced an $800 million transport package for Auckland in the Budget but there wasn’t one public transport project in it. They even rejected officials’ advice to extend the wildly successful Northern Busway.
“If National goes ahead with the second harbour crossing but doesn’t include rail, it would be a major blunder on a par with National’s decision to build the first harbour bridge on the cheap, with clip-ons needed shortly after,” says Phil Twyford.
There’s been no confirmation of the announcement by the government. The Campaign for Better Transport’s media release in response highlights a number of the concerns we’ve had about this project over the past months and years:
The Campaign for Better Transport said today that the Government’s idea of an additional road only Waitemata Harbour Crossing hasn’t been thought through.
“We all know that the Northern Motorway and approaches are notoriously congested at peak times, so local support probably stems from the belief that this congestion will somehow be solved,” said spokesperson Cameron Pitches.
“However, the net effect of a road only crossing will be that in the morning peak, the Auckland CBD will be flooded with thousands of extra single occupant cars looking for a car park. The Central Motorway Junction will also be a bottleneck without more lanes, but there is no room for more.
“And in the evening peak the already congested Northern Motorway will grind to a halt, as six lanes converge into three.”
Mr Pitches says a far better solution would be a rail only crossing that would extend from the City Rail Link to Albany on the North Shore.
“The Northern Busway is enormously popular and is a great example of a system that can carry far more people at peak times than single occupant cars. High capacity rail would be the logical next step.”
Mr Pitches said that a recent report identified that the cost of a rail link connecting the City Rail Link to Albany on the North Shore would be about $2.5bn.
“It is clear that the Government’s proposal and any alternatives have not been through Treasury’s better business case process. There is no urgency with the project either as the yet to be completed Western Ring Route is designed to reduce traffic volumes on the bridge,” said Mr Pitches.
The Goverment is yet to make an official announcement on how a new crossing would be funded, but Mr Pitches suspects it would have to be tolled due to the multi-billion dollar cost of the project.
“The Government also needs to be honest and reveal how much the toll will be for the new crossing, and if the current Harbour Bridge will be tolled as well.”
“It just makes no sense. The Government has just been caught out not doing a comprehensive assessment of alternatives for the Basin Reserve. You would think they would want to avoid making the same mistake twice,” concludes Mr Pitches.
Our most comprehensive criticism of the project is in a recent post here, with a quick summary being that it seems Auckland’s most expensive ever proposed project is likely to make things worse for traffic rather than better, particularly by feeding thousands more cars into a city centre that can’t cope with any more of them.
If it does get announced as speculated would Len Brown be brave enough to say no to it ? Given his previous comments I don’t think so. Let’s hope the announcement – if there even is one – only relates to progressing route protection for the project, which was already announced last year by the Prime Minister.
Gerry Brownlee offered to resign as Transport Minster today after getting caught out skipping security at Christchurch airport.
Prime Minister John Key says he was “really disappointed” after Gerry Brownlee bypassed airport security this morning, but he has been quick to back him.
Mr Brownlee and two of his staff deliberately bypassed airport security at Christchurch airport this morning. He offered his resignation as Transport Minister, but that was swiftly rejected by the PM.
“Running late for a plane this morning, I took a door that is normally used for an exit at Christchurch airport onto the forecourt … and you’re supposed to go through airport security,” Mr Brownlee told reporters this afternoon.
He said he did not give it any thought, but has now apologised unreservedly for the action.
Mr Brownlee only offered his resignation after he was contacted by Aviation Security.
In defending him John Key has said
“He’s offered his resignation and I’ve decided, on balance, not to accept his resignation. In making that decision, I considered the whole matter very seriously.
“But I had to weigh up all of the tremendous things he’s done in the six years he’s served as a minister.
So let’s have a quick poll, do you think the Prime Minister should have accepted his resignation over this? One thing to think about is if he had of, who would have replaced him and for that the most likely candidate would be his predecessor – Steven Joyce.
Note: I think this one could end up a very lopsided poll.
There have been a few suggestions recently that international tourists should be paying more to drive in New Zealand, or have to pass a driving test, or things along those lines. Winston Aldworth, the Travel Editor at the Herald, wrote a column last week suggesting that we should charge a fee for tourists who want to drive on our roads, along the lines of a new scheme in Germany (which was also described in the Herald last week, although the article doesn’t seem to be online).
Would this scheme be fair in New Zealand?
Winston writes: “many tourists on these shores rely on (and clog up) the roads from Cape Reinga to Bluff. It seems fair they should chip in for maintenance and improvements”. It does indeed seem fair, but tourists already do pay for these things. It’s built into the cost of the petrol they use, or the Road User Charges if they hire a diesel vehicle. That money goes straight to the National Land Transport Fund, where it pays for all state highway costs and around half of local road costs (the rest comes from rates). So I don’t think it’s reasonable to suggest that international tourists aren’t paying their way.
Based on data from the Retail Trade Survey and Tourism Satellite Account, it seems that international tourists account for around 5-6% of sales in petrol stations. Clearly, most of the long-distance trips around the country are being done by Kiwis, not overseas visitors. It’s also likely that most of the trips taken by international tourists are on roads which aren’t particularly congested, and not really in need of upgrades. Most of these visitors don’t make it up to Cape Reinga or down to Bluff. International tourist spending is fairly heavily concentrated in just a few parts of the country, including Auckland, Queenstown, Rotorua and so on.
How much would this scheme raise?
Winston suggests that international visitors buy a $50 permit, which lets them drive for up to a year. “The money raised could go into a protected fund, ring-fenced from other spending… [and used] to kickstart funding on our most important roads”.
2.8 million visitors arrive in New Zealand each year, and when you take out those who won’t be driving and those who visit several times in the same year, you might be left with around half that number (just a guess). So, 1.4 million visitors times $50 gives $70 million – and I think I’m being generous with the figure, with not taking GST out of it, and not allowing for administration and compliance costs. Even so, it’s a drop in the bucket in terms of transport funding.
The Cook Islands
Winston points out that, for many years, the Cook Islands charged tourists $20 for a driver’s license, although they have recently gotten rid of the system. The situation in the Cooks is a bit different from NZ. They’ve got an economy which is almost entirely dependent on tourism. Their system was a way to get that little bit extra out of the tourists and into state coffers, and encourage tourists to visit the Avarua town centre (the police station is centrally located, and visitors will hopefully spend some money in the shops while they’re at it). It also gives the tourists a nice souvenir, which was a big part of not making them grumpy about the charge. Although, it seems, plenty got grumpy anyway – especially when they had a long wait for the license – and this seems to have been a big reason for dropping the system.
The other interesting thing about the Cook Islands is that it clearly doesn’t raise enough tax revenue to maintain its roads, or its other infrastructure for that matter. It relies on international aid to make up the difference. But every time a New Zealander drives around Rarotonga, they’re being subsidised courtesy of that system.
Now, if we’re really wanting to earn more money from overseas visitors, we can either invest in our tourism offering (and we do), or ramp up our marketing (and we’re doing that too), or we can raise money for the government in a cheap-to-administer scheme like a departure tax or similar. But let’s not stick the poor buggers with some kind of overpriced driving permit.
Several weeks ago I attended the annual New Zealand Association of Economists conference in Auckland. Geoff Cooper, Auckland Council’s Chief Economist, had organised several sessions on urban issues, and as a result there was a lot of excellent discussion of urban issues and Auckland’s housing market. You can see the full conference programme and some papers here.
At the conference, I presented some new research on housing and transport costs in New Zealand’s main urban areas. My working paper, enticingly entitled Location Affordability in New Zealand Cities: An Intra-Urban and Comparative Perspective, can be read in full here (pdf). Before I discuss the results, I’d like to thank my employer, MRCagney, for giving me the time and the data to write the paper, along with several of my colleagues for help with the analysis, and Geoff Cooper for suggesting the topic and providing helpful feedback along the way.
The aim of the paper was to provide broader and more meaningful estimates of location affordability that take into account all costs faced by households. In my view, widely-reported sources such as Massey University’s Home Affordability Report have too narrow a focus, looking only at house prices. However, a range of research has found that transport costs vary between different locations depending upon a range of factors such as urban form, availability of transport, and accessibility to jobs and services. And transport costs are pretty large for many households!
I used two methods to provide a more comprehensive estimate of location affordability in Auckland, Wellington, and Canterbury. First, I used Census 2013 data to estimate household housing, car ownership, and commute spending at a detailed area level within each of the three regions. This allowed me to estimate variations in affordability between areas within individual regions. Second, I used household budget survey data to get a sense of how New Zealand cities stack up against other New World cities.
My main findings were as follows:
- First, rents (a proxy measure for housing costs) tended to fall with distance from the city centre. However, commute costs tended to rise with distance – meaning that outlying areas were less affordable for residents once all costs are included. This was consistent with previous work on location affordability in New Zealand and the United States.
- Second, international comparisons suggest that Auckland and Wellington have relatively high housing costs and that this may be driving some of the affordability findings. While this finding lines up with previous research that’s focused on house prices alone, it’s important to note that the location affordability estimates suggest that a focus on greenfields growth alone may not save households money.
- Third, while I didn’t identify any specific policy recommendations, I’d recommend that (a) policymakers should consider all location-related costs when attempting to address affordability for households and that (b) further research should focus on removing barriers to increasing the supply of dwellings in relatively accessible areas.
And now for some pictures.
These maps show two measures of location affordability within Auckland. The left-hand map shows estimated housing costs (i.e. rents) as a share of median household incomes at a detailed area level. Broadly speaking, this map shows that expected housing costs fall between 20% and 30% of household income in most of the city, although some areas are relatively less affordable.
The right-hand map, on the other hand, incorporates expected car ownership and commute costs. Overall location affordability is lower throughout the city. Expected housing and transport costs rise to 40-50% in areas of west and south Auckland, as well as the entire Whangaparoa Peninsula. The most affordable areas for their residents tend to be in Auckland’s inner isthmus suburbs.
(Click to enlarge)
I’ve also combined this data into a graph that presents location affordability by distance from Auckland’s city centre. The bottom (blue) line shows housing costs as a share of median household income, weighted across all area units within each 2-kilometre concentric circle radiating outwards from the city centre. It shows that, on average, households spend a similar share of their overall income on housing costs in both close-in and outlying suburbs.
The top (red) line shows that combined housing, car ownership, and commute costs increase as a share of household incomes with increasing distance from the city centre. On average, households that live further out of Auckland spend more on location-related costs, as lower lower rents are offset by added commute costs.
The results for Wellington and Christchurch were broadly similar – although with a few interesting differences related to their urban form and transport choices. However, as this is the Auckland Transport Blog, I’m going to suggest that you read the paper to see those results. It’s long, but it also presents a lot of new data on housing and transport costs in New Zealand.
This blog has often written about Auckland’s 1950s-era motorway development plan, which transformed the city in fundamental ways. New Zealand painter Robert Ellis was one of the first to grasp the significance and character of that transformation. His Motorway/City series, painted in the 1960s and 1970s, shows roads invading and dividing urban space. (As they proceeded to do in real life.)
The Auckland City Gallery is about to host an exhibition of Ellis’s paintings that will run from 9 August 2014 to 15 March 2015. From the press release:
Opening on Saturday 9 August at Auckland Art Gallery Toi o Tāmaki, Robert Ellis: Turangawaewae | A Place to Stand is the first solo exhibition in a public museum by senior Auckland artist, Robert Ellis in his ‘hometown’. Including many of his most important paintings, the exhibition will present Turangawaewae Maehe 1983, painted in 1983, a gift from the Friends of the Auckland Art Gallery to mark their 60th anniversary this year.
‘Together with Auckland artists Colin McCahon, Milan Mrkusich, Pat Hanly and Gretchen Albrecht, Ellis is nationally regarded for producing ambitious paintings on a large scale,’ says Auckland Art Gallery Senior Curator New Zealand and Pacific Art, Ron Brownson. ‘As a major figure, Ellis’ art addresses many cultural issues. His subjects range over tensions between transport and urbanism, contrast ecology with spirituality and look at the on-going nature of Māori-Pākehā relations.’
Here’s one of the more well-known works from Ellis’s Motorway/City series, which can usually be seen in the City Gallery:
Now, I’m an economist rather than an art historian, but Ellis’s vision of the city seemed to be something new in New Zealand art. New Zealand artists had not tended to focus on cities – think of all the attention Colin McCahon lavished on New Zealand landscapes – and when they did, it was to present vague, idealised scenes. Ellis was different. He showed the city in the process of expanding and mutating, and in the process creating a different New Zealand.
Here’s number 15 from the Motorway/City series. It contrasts New Zealand’s stereotypically bucolic rural space (below) with the encroaching city (above). The latter is dynamic, disordered, vaguely sinister. (What was it that Allan Ginsberg wrote about “Moloch whose love is endless oil and stone”…) And it is ceaselessly growing into the countryside.
In other paintings, Ellis depicts the city not as the invader of a rural landscape but as an invaded space. Motorway/City number 22, for example, appears to show an existing urban fabric, complete with a more or less rectilinear street grid, that has been overwritten by the smooth curves of the motorway. The pre-existing city has rendered incomprehensible in the process – notice how the lines of the motorway draw in your attention instead.
I’m often struck by how quickly artists and writers grasp emerging truths, especially when compared with technical experts of various stripes. Robert Ellis’s art was an especially prescient view of New Zealand cities – painted at a time when New Zealand had barely begun to think of itself as an urban country and when the promise of the motorway was still novel enough to be seductive. I highly recommend going to see the upcoming exhibition.
In the first week or two of the Onehunga Line’s switch to electric trains there were major issues with the trains keeping to timetable, apparently due to overly conservative speed restrictions being put in the trains as part of their safety systems. It seems like the Onehunga Line’s bugs are sorting themselves out in more recent times, but a further article yesterday highlighted that it might be a long time before we see the trains providing their promised speed boost:
Auckland’s new $400 million electric trains will run as slow as their diesel counterparts for at least another year, Auckland Transport says.
Auckland Transport spokesman Mark Hannan said the electric trains would reach their full potential after all 39 diesel passenger trains were removed from the network.
“We can’t really get the proper benefit from them until the full rollout when everything is electric, which will be the middle of next year,” Hannan said.
Also, new timetables will need to be introduced and software controlling the trains’ speed, called European Train Control Systems (ETCS), will need to be reprogrammed to improve transit times, he said.
The ETCS is a protection system to assist train drivers and ensure advised speeds and signal rules are adhered to and to prevent collisions. If drivers operate trains outside a designated speed range the system intervenes to limit speed.
The restrictions created by running mixed electric and diesel fleets is understandable, as otherwise the electrics would soon catch up to any diesel train ahead of them and throw out timetable consistency. The issue with ECTS is more worrying though, as this should have been sorted out a long time ago to ensure the promised 10 minute faster journey times between Britomart and Swason/Papakura are delivered.
Adding to this worry, the train drivers’ union RMTU doesn’t seem to think the electric trains will be able to deliver the promised speed increase without a major upgrade to the signalling system:
But the Rail and Maritime Transport Union (RMTU) said the 57 new electric trains would not be able to speed up until a costly upgrade of the ETCS software.
RMTU general secretary Wayne Butson said Auckland Transport had bought the cheapest, entry-level ETCS software.
The only way to increase speeds would be to upgrade to more expensive versions, which could handle trains running closer to each other, he said.
“I’m told that Auckland would operate a lot better if it purchased two or three versions higher,” Butson said.
Train drivers were frustrated they could not operate the trains to timetable, he said.
“We believe that it was a foreseeable issue.”
I’m not sure just how true this is as the same signalling systems is used in a number of countries including on some high speed lines while the stand two levels up is still under development so it’s not like we could have brought that. Also leading me to be cautious about Wayne Butsons comments is that the signalling system wasn’t brought by Auckland Transport but by Kiwirail (who own and run it) and the contracts for the system were signed before AT even existed.
If true that the signalling system is causing extra delays though then this is a screw-up of unbelievable proportions. We did not spend $1.1 billion on rail electrification and new trains to find that we can’t run them faster than the old ones because someone got cheap and nasty with the system. I sure hope the responsible parties sort the issue out to ensure the 10 minute time savings can be delivered as promised – otherwise a lot of heads will need to roll.
In stunning news yesterday the Board of Inquiry hearing the case for the Basin Bridge bowled out the NZTA by declined consent for the project. This is what it would have looked like had it been approved:
All up the bridge would have been 265m long and carved a slice out of Wellington’s urban fabric at a time when other cities around the world are starting to pull these kinds of structures down – and finding it doesn’t cause traffic chaos.
The independent Board of Inquiry delegated to hear and decide the Basin Bridge Proposal of National Significance has released its draft report and decision.
The Board by majority decision (3 to 1), has cancelled the New Zealand Transport Agency’s Notice of Requirement and declined its resource consent applications for the construction, operation and maintenance of State Highway 1 in Wellington City between Paterson Street and Buckle Street/Taranaki Street.
The draft report and decision is available on the EPA website here: http://www.epa.govt.nz/Resource-management/Basin_Bridge/Pages/Basin_Bridge.aspx
A total of 215 submissions were received, and evidence was heard from 69 witnesses and representations by a further 74 submitters.
The applicant and other parties now have 20 days to make comments on minor or technical aspects of the report.
The Board will provide its final decision to the EPA by 30 August 2014.
This is quite a setback for both the NZTA and the government as the project is a key part of the Roads of National Significance (RoNS) programme and the Board of Inquiry (BoI) process was specifically set up to try and streamline the consent process for large projects. One of the key changes the government made in creating the BoI process was that appeals against can be made to the High Court on points of law only, and any decision cannot be overturned by the Minister. The outcome of this is that it’s meant agencies have had to do much more work upfront as there’s no second chance if they get it wrong. This led to the process taking longer to ensure all I’s were dotted and all T’s crossed and that extra length of time along with the risk of getting it wrong is one of the reasons Auckland Transport went with the traditional consenting method for the CRL.
But the NZTA clearly got this one wrong and have paid the price by not getting consent. This has effectively sent them back to square one and a flyover option is now off the table.
The report on the BoI’s findings runs to almost 600 pages so naturally I haven’t had time to go through it all yet however I here are some points I picked up on about their decision which starts from page 444 (page 453 of the PDF).
- That while the project would improve the cities transport system that it would do so at the expense of heritage, landscape, visual amenity, open space and overall amenity.
- They are uncertain how the plan would have actually accommodated for Bus Rapid Transit as proposed in the Spine Study.
- That the quantum of transport benefits were substantially less than what the NZTA originally said in lodging the NoR as they included transport benefits from other projects.
- That while North/South buses would be sped up, that the modelling doesn’t show any impact effect of this on modal change.
- That while there are some improvements for cyclists it’s mostly in the form of shared paths which will introduce potential conflicts between pedestrians and cyclists.
- That the dominance of the bridge would cause severe adverse affects on the local area and the mitigation measures proposed would do little to reduce that. They also found the new building proposed for the Basin Reserve would exacerbate this.
Perhaps some of the most damming criticism is in relation to the consideration of alternatives. The board say that despite there having been 73 different options considered since 2001 that the methodology wasn’t transparent and replicable. They say that weightings were applied to some criteria at different stages of the process but that it wasn’t clear how criteria were weighted and the reason for any weighting. They say that in their view it was incumbent on the NZTA to ensure it adequately considered alternative options, particularly those with potentially reduced adverse effects. This simply was not done. Of course you may remember that the issue around alternatives was one of the critical issues highlighted in the independent review the BoI arranged.
I think the issue of the inadequacy of the assessment of alternatives is particularly important as that has been a key criticism of the Puhoi to Warkworth route, a decision on which is due back shortly.
Interestingly not all of the commissioners on the panel believed that the consent should be declined. Commissioner David McMahon voted to the project saying that in his mind the benefits outweighed the impacts of the project will have. His reasoning for doing so are also in the report.
The big question now is what next. The NZTA has to go back to the drawing board to find or progress some alternative options but how will the government react. As of the time of writing this post I still hadn’t seen any response from the government despite this putting a huge dent in the RoNS programme.
Overall this is a fantastic result for Wellington and congratulations to all those like Save the Basin who put huge amounts effort in to fighting this project.
The National Party have announced that if they’re re-elected they’ll form a taskforce to tackle loopy rules and regulations.
Local Government Minister Paula Bennett today announced the establishment of a new Taskforce to rid New Zealand of loopy rules and regulations.
“The Rules Reduction Taskforce in partnership with local government will work closely with the public to weed out pedantic and unnecessary rules that frustrate property owners and councils alike.
“We’ve seen rules and regulations brought in over decades that were well intentioned but end up being confusing, onerous and costly while failing to deliver any real benefit for the property owner or the wider public,” says Mrs Bennett.
The Taskforce will be up and running in October. As well as central and local government experts, it will include specialists from the building and trades sector.
“Anyone doing building work knows just how frustrating and costly the bureaucracy can get. We want to hear from property owners, builders, tradespeople and businesses on rules and regulations that are crying out for sensible change.
“There will be a website where people can send us examples of loopy rules and the Taskforce will hear submissions from the public on areas ripe for change.
“We have rules dictating all sorts of weird and wonderful things from signage over cake stalls to where your shower curtains need to be positioned.
“In another example, a property owner trying to replace a 130 year old fence discovered some of it was on a scenic reserve and they faced having to buy or lease the land.
“While there’s always a degree of rationale behind these rules, the Taskforce will be charged with identifying what should stay and what should go so people can get on with the job of building, renovating or event planning without have to wade through a morass of unnecessary rules,” says Mrs Bennett.
Fantastic, how about they start with some that will have the most impact. That would mean starting with
- Minimum Parking Requirements
- Minimum Lot Sizes
- Minimum Dwelling Sizes
- Minimum Bedroom sizes
- Minimum Setbacks
- Restrictive Height Limits
- Blanket heritage protection for everything old
- Minimum Rear Yard Sizes
- Minimum numbers and size of tress per site
Of course during the debate on the Unitary Plan National Party MPs and aligned councillors fought hard to not only keep these loopy rules and regulations but in many cases to make t hem worse.
As we all know, when the price of something goes up, we buy less of it. For some products, we’ll change our behaviour significantly (holidays or books, perhaps). For other products, we just grit our teeth, hand over the credit card, and don’t manage to cut down our consumption much. Petrol and cigarettes are the classic examples of this: what economists call “inelastic goods”.
The elasticity of petrol in New Zealand is estimated at around -0.15, which means that when the price goes up by 10%, we’ll only buy 1.5% less. That’s pretty inelastic! It’s often thought that New Zealand is much less responsive to petrol price changes than other countries, probably because we have such poor public transport, and are a spread out country. However, this may not be the case for all situations. Firstly, the petrol price rises over the last decade were almost unprecedented, and we may reach the point where petrol eats into our budgets so much that we simply have to cut down. Secondly, there have been some interesting changes in the last decade, including the introduction of petrol discount vouchers at supermarkets.
Petrol prices, 2004-2014. Ouch.
Supermarket petrol discount vouchers have been a fact of life for almost eight years, and they’re still widely used. Surveys by Canstar Blue show that almost 80% of Kiwis visit particular petrol stations based on their price promotions – although the surveys don’t say how often people use the vouchers.
So, people do seem quite willing to change their petrol buying habits based on these vouchers. That’s not a costless process – you might have to drive a bit further to get to the petrol station which accepts your voucher, which costs you time and a little bit of money. You also have to hang on to the vouchers, figure out which one is which, enter the code, wait a little longer at the till and so on. The thing is, though, for a voucher offering 4 cents off a litre, the discount on the pump price is only 1.8%. For 6 cents off, the discount is 2.7%. That’s pretty tiny, and most retail stores wouldn’t even bother advertising discounts this small. And yet, when applied to supposedly inelastic petrol, it can be pretty effective.
At the other end of the scale, Z Energy have very openly taken a different approach – they’ve steered away from heavy price discounting, and pitched themselves as offering better service instead. They’re targeting the customers who are happy to pay a few cents a litre if they get a better experience. No doubt that’s a sensible move, if the other big companies are positioning themselves in the price competition space.
So, what does this all tell us about consumer behaviour? Looking at elasticity figures across an entire country can be a little misleading. Within any customer group, there’ll be those who are more price sensitive and those who are less. The “holy grail” for any business is to figure out which is which, and charge the less “price sensitive” people more! Discount vouchers are one way of doing this, as the people who are most likely to bother with them are those who are the most sensitive to price. There’s probably a fascinating study hiding here – and we might find that Kiwi consumers are more complex than the old figures suggest.
Initially written for RCG’s News In Brief, original version here