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Should impact on land value be part of the cost-benefit analysis?

Submissions to the Board of Inquiry hearing of the Kapiti Expressway project have highlighted what seems to be a pretty critical hole in the cost-benefit analysis process: that the impact on land values of transport projects is simply ignored when it comes to assessing whether they stack up or not – that is whether they lead to an economic gain or not. This is pointed out by a Wellington Scoop article which quotes an opponent to the project Dr Christopher Dearden.

Dr Dearden says the following:

“Our objective has been to stop the implementation of a hugely wrong solution to a relatively minor traffic problem for which there has already been an agreed, locally supported and considerably cheaper answer – the Western Link Road. A road which would have added to the country’s assets rather than depleting them…

“We have been caught in a situation which is not of our making. It’s a situation where argument is difficult because the proposed expressway has no economic rationale, no practicality in traffic numbers or need, is not geographically or sustainably justified, and flouts all cultural sensibility. It relies on pure political whim and it’s difficult to mount rational arguments against that.

“We ask you to reject this application, return the Western Link Road to us, and recommend enhancement of the existing State Highway 1. If you do allow this white elephant expressway to go ahead, then … the rest of our lives will be a time of suffering noise, light and pollution damage as well as vibration. So will all the 1400 households which live within 200 metres of the expressway, and there will be enhanced pain from all those factors relentlessly during the next five years while this monster is built. As many have pointed out, all our properties will lose their value and be unsaleable. Ironically, we will make the biggest contribution to the cost of this road that destroys our lives.

I have put the really interesting bit in bold – the likely impact of the project on the value of nearby properties. The great irony of motorway projects is that if it runs through your house then you’re the lucky one as you’ll be bought out – the really bad situation to end up in is if the project runs just over your fence. That way you get no compensation but the value of your property property is likely to decline.

Of course all transport projects have positive and negative impacts, with the positive and negative effects felt by different people in different locations. However I think it’s really problematic that the cost-benefit process ignores a potentially significant impact of transport investment, the impact on land values both in a positive and negative sense, because these impacts may end up being potentially some of the most significant effects of the transport investment. A good cost-benefit analysis should attempt to quantify all likely impacts of an intervention so it just seems weird (or mightily convenient for the motorway builders?) to ignore effects on land values.

11 comments to Should impact on land value be part of the cost-benefit analysis?

  • Not sure that its an issue as the BCR makes a difference these days anyway as the Kapiti expressway has a BCR of 0.2 yet is still going ahead. The only time a BCR makes a difference is if it is a PT project, especially a rail one.

    A better solution might be to force the infrastructure builder to pay compensation relevant to the change in value. Adding to the financial cost of the project would have more impact on decision makers than the economic cost.

  • Matt

    “As many have pointed out, all our properties will lose their value and be unsaleable. Ironically, we will make the biggest contribution to the cost of this road that destroys our lives.” – They do have a point.

    I once owned a house in Te Horo, not in the way of the proposed motorway east of the railway line, but west of the railway line where a group made up of people east of the rail line were trying to get the motorway moved to west of the railway line. I think if they were successful I would have to have been bought out, or nearly bought out and had a motorway within 10 metres of my boundary. I figured my land value would drop and I would, whilst not be financially ruined, but lose a lot of capital value, which probably represented 10 years of my working life. I would have been bitter, and I thought the group on the east side were right f*ckwits, not for opposing the road (which would make sense), but for then trying to dump it on other people (which made no sense).

    In the end I had to sell up and move out because of smoke pollution from d*ckhead neighbours and their outdoor burning which the GWRC and KCDC were completely incompetent in dealing with (and the GWRC failed to take its responsibilities under the resource management act seriously and the KCDC were just f*ckwits all round). At least I didn’t get financially ruined by that experience.

    I still don’t get the opposition to the new supposedly unneeded parallel road in Kapiti who propose their own unneeded parallel road in Kapiti. It always has seemed nonsensical. If they don’t need the road, but propose pretty much the same road then WTF are they on about?

    I don’t have as much problem with the road as it is proposed, even with the lower BCR, as I think the real benefit will be to the Waikanae (and to lesser extent) Paraparaumu town centres which will be bypassed, and hence be nicer places. It probably does need a 2nd river crossing too.

    The real crazy bit is Transmission Gully to the south and motorwayising north of Waikanae (except the Otaki Bypass which is probably the most useful bit of the whole crazy Wellington to Levin scheme.) The 2nd least crazy bit would be a Pukerua Bay bypass, which isn’t even on the table.

    Less crazy again would be the GWRC proposal to extend the electrified rail system to Otaki. And completely less crazy would be to up the frequency of the trains. There’s a 31 minute gap in service in the morning peak. Miss the 7.34am Waiakane train and there’s nothing til 8.05am.

  • pete

    30 years ago my mum looked to buy a house off Blockhouse Bar road in Waterview, the agent correctly informed her that this house was in the zone that the government had marked for future motorway construction and it could be compulsory acquired any time now, or a motorway built right next too it! The price was low to match that expectation, but as she was looking for a long term house she decided to buy elsewhere. I assume all real estate agents still inform people of such things, and prices are lower to match? If not someone needs to do some refunding!

    Interestingly that house is now directly over the tunnel and will still stand, and probably be quieter due to reduced traffic on Blockhouse Bay Road. She bought elsewhere but moved after a few years due to overly noisy neighbours

  • Patrick Reynolds

    This a consequence of the idea that transport projects only serve movement needs and only have movement outcomes, yet ironically in the case of the RoNS there are a great deal of grand but vague claims made about how they will improve the nation’s economic performance. Square that circle if you can. Somehow the slightly increased efficiency of a small number of vehicles on this route will be so economically powerful to not only overcome all the externalities that this spending will cause but also somehow enable NZ to vault up the wealth ladder. This is just not credible.

    For me the most important sentence quoted above is this one:

    “We have been caught in a situation which is not of our making. It’s a situation where argument is difficult because the proposed expressway has no economic rationale, no practicality in traffic numbers or need, is not geographically or sustainably justified, and flouts all cultural sensibility. It relies on pure political whim and it’s difficult to mount rational arguments against that.”

    Because the rest will be dismissed as locals whinging. This is the real point, how can you fight a chimera? The RoNS are founded on a big fat lie; they are an enormous gamble of huge sums of money with no or little evidence that they will achieve a thing beyond the enrichment of those directly involved in their design, construction, and financing.

  • Oscar

    The net effect would probably be close to zero though. Prices would decrease next to new expressway but traffic on local roads would drop so prices would rise.

    Suburbs/locations with improved access would increase in price. Demand in other places (central) would drop and decrease in price.

    Overall demand shouldn’t be changed much by a infrastructure project. Demand (and price) may increase in one place but it will decrease somewhere else.

  • Alan

    No reason to stop at motorway projects. Surely the same rationale would apply when on road car parking is lost for bus lanes, bike lanes etc etc?

    • conan

      Can you explain how? Given the roadway is already built what external effect is this having on the surrounding area?

      • Alan

        Sure. The argument in the main post was “Values of houses adjacent to motorways will fall”. Similarly, houses which lose adjacent on-street parking due to new cycle lanes and bus lanes will also suffer from a decrease in value (obviously, availability of parking is a factor people consider when buying houses). If we’re considering it for motorways, we should consider it for all projects.

        • Patrick Reynolds

          Yes of course land value impacts should always be considered for all projects but your assumption that parking is positive and cycling and PT amenity is not, or is negative, is startling. Sure you are not just making a generalisation of your own view?

          • Alan

            If it’s contentious as to whether it’s positive or negative, surely that’s even more reason to include it in a study? (Though, for cycling it’s highly doubtful it’s a positive influence on house prices, considering the modal share is as low as it is.)

        • Niko Elsen

          Well yes low modal cycling share for now maybe… but actually as this found “The majority of studies indicate that the presence of a bike path/trail either increases property values and ease of sale” http://www.ce.udel.edu/dct/publications_files/Rpt.%20188%20Bike%20Paths.pdf

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