Can new roads pay for themselves?

It’s common to hear people say that because roads are paid for by their users (fn 1), we should build more roads. After all, the new roads will fund themselves!

At first glance, this seems convincing. But a closer look reveals that the “new roads pay for themselves” argument is based on a logical fallacy. Basically, the fact that the average road pays for itself does not mean that the next road will also pay for itself. In fact, there’s a large amount of recent evidence from the transport market that the next, or “marginal”, road will cost taxpayers more than it brings in revenue.

Economists understand the importance of marginal analysis when making decisions about what to build and how to charge for it. Businesses typically make pricing and production decisions “on the margin”. In other words, they look around for the next potential customer and ask: “Can I produce one additional unit and sell it to that person for a profit?” If the answer is yes, they produce it; if it’s no, they don’t as it would reduce their overall profits.

So what is the market telling us about demand for new roads? As always, it’s best to go and look at the empirical evidence. Over the last decade or two, there have been a number of efforts to get users to pay for new roads. Australia, the US, New Zealand, and a variety of other places have built toll roads – sometimes privately financed, sometimes publicly financed. In most cases, revenues from users were expected to pay the cost of the roads.

These costly investments have almost all failed. Toll roads have suffered from low traffic and low toll revenue. They have often required expensive taxpayer-funded bailouts. It looks as though people are not willing to pay for the marginal road.

In Australia none of the toll roads built after 2000 have been profitable:

Australia has some of the finest highway tunnels in the world, but for the private investors who trusted traffic usage projections from leading and respected consultancy firms the story has been a tale of insolvency and disappointment. Most of the privately owned toll highway projects constructed in the last 15 years in Australia have fallen into receivership or administration within a short time of opening to traffic when it became clear that toll revenue from actual traffic usage would be well short of covering its contribution to the construction costs.

The failures include the A$1bn Sydney Cross City Tunnel, which has seen traffic volumes less than half of forecasts, and the Brisbane Clem 7 and Airport Link tunnels, where traffic volumes have fallen short of forecasts by over 75%.

traffic avoids clem 7 tunnel

People would prefer to queue in traffic than pay the Clem 7 toll

In the US, an academic paper reviewing toll roads financed by Australia’s Macquarie Bank found that:

The record for these projects is abysmal.

Two of the projects declared bankruptcy. The assets of one, Pocahontas, were written down to zero by its new owner, and two were bought by the government jurisdictions where they were located. Another is in negotiations to be bought by the state of Virginia. None of these projects fulfilled their initial plans to operate successfully as profitable, private companies. Macquarie’s most substantial U.S. project, the Indiana Toll Road project, is near insolvency and attempting to restructure its loans.

In New Zealand, private finance has been slower off the mark, but there have been a couple of experiments with toll roads. In Tauranga, the Route K toll-road has been a financial millstone for the council since its opening in 2003. This year, NZTA agreed to pay off its remaining debt at public expense:

The New Zealand Transport Agency will take $62.5m of the remaining Route K debt from Tauranga City Council, it has today announced.

The council signed off the agreement with NZTA over the ownership of the debt on Route K in a meeting today.

The agency had already agreed to take ownership of the road from July 2015, but at a council meeting this afternoon, councillors discussed the agency also taking on the debt, less $1 million which the council would still owe.

The removal of the debt would see the council’s credit rating upgraded from A+ to AA-.

This is a clear market signal about the financial viability of new roads. It should not be surprising. After a half-century of road-building, Australia, the US, and New Zealand have extensive and mature road networks. There are seldom opportunities to dramatically improve the network by building another road. (Which is not to say that there are no opportunities to do so – it’s just that they’re bloody hard to find!)

In this context, it makes more sense to invest the marginal transport dollar in providing better transport choices. After half a century of underinvestment in public transport and walking and cycling facilities, there’s a lot of latent demand. As a result, every time Auckland has built a new piece of public transport infrastructure this century, demand has outstripped projections. Here, for example, is a graph from a few years ago that shows that Britomart met its 2021 patronage targets more than a decade early.

In other words, people aren’t willing to pay for new roads, but they are queuing up to get on the bus or train. Transport policy should recognise these market signals and invest in choice.

Britomart Projection Numbers Graph

The market has spoken. It wants some more trains.

Footnote 1: This is factually incorrect. Since 2004, the National Land Transport Fund, which consists of fuel taxes, road user charges, and vehicle license fees, has paid 100% of the cost state highways. However, it only pays 50% of the cost of local roads, which account for the majority of vehicle kilometres travelled. The remaining 50% are paid for by local council rates.

The case for free-market urbanism

In the National Review, a conservative American magazine, Reihan Salam takes a look at the confused state of the American debate over intensification. His article, entitled “The Great Suburbia Debate” criticises the position taken by Joel Kotkin, a long-time campaigner for low-density suburban development. He writes:

Though I’m an admirer of Kotkin, and though I can’t speak for every conservative who has made the case for denser development, he gets a number of important things wrong…

For example, Kotkin claims that “some conservatives” (again, no names) have been “lured by their own class prejudice” into turning against market forces. “In reality,” Kotkin writes, “imposing Draconian planning is not even necessary for the growth of density.” Of course, this is exactly the argument that Edward Glaeser makes in The Triumph of the City, a manifesto for the pro-market, pro-density right. “In places that have both liberal planning regimes and economic growth, such as Houston and Dallas,” he observes, “there has been a more rapid increase in multifamily housing than in cities such as Boston, Los Angeles, San Francisco or New York.” Indeed, this is why many conservatives, myself included, have explicitly argued that cities like New York, San Francisco, and Los Angeles should look to the liberal planning regimes of Houston and Dallas as a model. (To be clear, by “liberal” planning regimes, Kotkin means less-restrictive, more market-oriented planning regimes, and so do I.)

The global cities that manage to be both highly productive and affordable, like Tokyo and Toronto, tend to have liberal planning regimes, which allow for rapid growth of housing stock, and in particular of the multifamily housing stock. These regions are characterized by rapid housing development in the suburbs and in the urban core, and their “suburbs” tend to be more urban than low-density suburbs in the U.S. governed by stringent planning regimes that tightly restrict multifamily development. When Glaeser makes the case for density, he does so not by calling for “imposing draconian planning” on cities and towns. Rather, he explicitly calls for the relaxation of land-use regulation.

[...]

Kotkin relies heavily on the work of Wendell Cox, a transportation consultant who seems to believe that denser development is necessarily a product of central planning. In desirable regions, however, less restrictive planning regimes will naturally lead to higher densities, as property owners will naturally seek to maximize the value of their investments. Restrictive land-use regulations tend to limit density, not impose it on unwilling landowners.

Salam’s article is excellent and I recommend reading it in full. I pulled out these excerpts as they highlight a few essential facts that often go missing from the debate over urban policy:

  • Denser development cannot be imposed by fiat – it will happen if and only if there is market demand for it (as there often is in places that are accessible to jobs and amenities). If nobody wants to buy apartments, then no apartments will get built!
  • Urban planners can’t simply require people to build at higher densities – but they can limit density to below what the market wants.
  • The rising demand for higher density development isn’t a market distortion, but evidence that the market is working.
MERCHANT Q

The market’s been at work in New Lynn (see also: Transportblog’s development tracker)

In short, we must interpret rising population densities as the result of many individual decisions rather than the whim of an urban planner. My research shows that population densities are rising rapidly in Auckland and several other large NZ cities, which suggests that we’re voting heavily for density with our feet and our wallets. This is, as Salam suggests, a natural outcome of market forces and should be accepted with equanimity. We should recognise this demand where it exists and make complementary public investments in walking and cycling facilities and public transport.

Lastly, I’d note that people from all across the political spectrum should be able to appreciate cities. As Jane Jacobs observed in The Death and Life of Great American Cities, a good urban neighbourhood demonstrates many of the virtues that conservatives celebrate, such as small business ownership, a close-knit community that watches out for itself, and independent-minded civil society (often battling against big government bureaucracy in the form of overreaching traffic engineers).

Jane Jacobs campaigned against this Pharaonic act of bureaucratic hubris (Source)

Jane Jacobs campaigned against this Pharaonic act of bureaucratic hubris (Source)

As a result, we often see centre-right mayors implementing good urban policies. Big-city mayors such as New York’s Michael Bloomberg, London’s Boris Johnson, and Buenos Aires’ Mauricio Macri have been right at the forefront of the movement for better cities. They’ve realised that better cities are more prosperous, and that it’s possible to improve a city by improving the choices available to people.

Stuart’s 100 #45: What if Renters….

#45: What if Renters had the choice to have Rights and Responsibilities like Commercial Tenants?

Day_45

Home ownership is of course a daily debate in this city of Auckland. In the absence of anything else, the New Zealand Herald will always run a  story to ensure that it is front of mind. Declining rates of home ownership are certainly a significant issue and one worthy of debate. But what isn’t often talked about is the reality of renting. More and more people are doing it, and doing it for longer, maybe for life. And some even by choice. This will be extremely foreign to older generations of New Zealanders. But it is happening.

So isn’t it about time we had a discussion around renting and how that tends to work in this country? Are there ways it could work better?

Commercial tenants for example, have far greater certainty, in terms of longer term fixed leases, with clauses such as rent reviews and rights of renewal built in to the contract from the start. They also tend to have greater flexibility, negotiating the ability to alter and shape the space to how you want it.

For residential tenants, these two things hand-in-hand would go a long way to changing some of the downsides of renting. Greater certainty around living in a space for a period of years, together with the ability to paint the walls or make some changes to the place to have it the way you want it; would lead to a greater sense of security and ‘ownership’ or responsibility for the space that is your rented home.

It is certainly true that there is nothing stopping anyone negotiating these types of terms with their landlord. That is one thing where a tenant is in the position of direct contact with the owner, but quite another matter when the property is managed through a property management company or agent. These businesses tend to have stock standard contracts and conditions and show little desire for negotiation. Where is the public discussion around these things? Blanket rules like no pets for example are quite common. Is that reasonable?

These things should be looked at, as regardless of your views on home ownership or housing affordability, renting is a reality right now for many New Zealanders. In Auckland this isn’t likely to swing around in the opposite direction anytime soon, so lets’ start looking at these things at least.

Stuart Houghton 2014

Why it’s not possible to build our way out of congestion

Wired magazine recently published a good, succinct explanation of induced traffic. It’s worth reading in full as it hits upon an incredibly important, often overlooked fact: it’s not possible to eliminate congestion by building more roads. Here are a few of the more interesting excerpts:

The concept is called induced demand, which is economist-speak for when increasing the supply of something (like roads) makes people want that thing even more. Though some traffic engineers made note of this phenomenon at least as early as the 1960s, it is only in recent years that social scientists have collected enough data to show how this happens pretty much every time we build new roads. These findings imply that the ways we traditionally go about trying to mitigate jams are essentially fruitless, and that we’d all be spending a lot less time in traffic if we could just be a little more rational.

But before we get to the solutions, we have to take a closer look at the problem. In 2009, two economists—Matthew Turner of the University of Toronto and Gilles Duranton of the University of Pennsylvania—decided to compare the amount of new roads and highways built in different U.S. cities between 1980 and 2000, and the total number of miles driven in those cities over the same period.

“We found that there’s this perfect one-to-one relationship,” said Turner.

If a city had increased its road capacity by 10 percent between 1980 and 1990, then the amount of driving in that city went up by 10 percent. If the amount of roads in the same city then went up by 11 percent between 1990 and 2000, the total number of miles driven also went up by 11 percent. It’s like the two figures were moving in perfect lockstep, changing at the same exact rate.

Los Angeles: Sitting in traffic after ignoring supply and demand for over 50 years.

In their excellent paper on the topic, Duranton and Turner describe this as “the fundamental law of road congestion: New roads will create new drivers, resulting in the intensity of traffic staying the same.” Their research also digs into a couple of other related and equally interesting phenomena:

  • Better public transport provision doesn’t actually reduce road congestion – but it does enable more people to move without being affected by congestion
  • Reducing road capacity has no measurable impact on congestion – if less road space is available, people take public transport or active modes instead, or avoid making low-value trips.

Urbanist.co also has some further discussion of Duranton and Turner’s work. The economists go on to suggest economists’ favourite answer to congestion: road pricing. (If you’re interested in reading more about that topic, Stu Donovan and I have written several posts about the economics of road pricing.)

So what can be done about all this? How could we actually reduce traffic congestion? Turner explained that the way we use roads right now is a bit like the Soviet Union’s method of distributing bread. Under the communist government, goods were given equally to all, with a central authority setting the price for each commodity. Because that price was often far less than what people were willing to pay for that good, comrades would rush to purchase it, forming lines around the block.

The U.S. government is also in the business of providing people with a good they really want: roads. And just like the old Soviets, Uncle Sam is giving this commodity away for next to nothing. Is the solution then to privatize all roads? Not unless you’re living in some libertarian fantasyland. What Turner and Duranton (and many others who’d like to see more rational transportation policy) actually advocate is known as congestion pricing.

Incidentally, I like Turner’s “Soviet Union” metaphor a lot – I’ve said on occasion that we’re running our transport system like a Polish shipyard.

Lastly, it’s incredibly important to consider induced traffic when making policy recommendations. As I wrote in my review of Alain Bertaud’s talks in Auckland, keeping commute times down is an important part of maintaining an efficient urban labour market. Some people seem to have taken Bertaud’s recommendation that policymakers focus on keeping average car commutes under 30 minutes (and PT commutes under 45 minutes) as a call for more roads. This is a superficially appealing but deeply wrongheaded idea.

Induced traffic means that building roads to keep commute times down will not work. And it will be expensive. While there is often a good case for specific road improvements to remove key bottlenecks or improve safety – the Victoria Park Tunnel comes to mind – Duranton and Turner’s work shows that a strategy of building lots of roads will not succeed in minimising commute times. An alternative approach is needed.

Is the City Centre Deprived?

*16/10/2014: updated with interactive map*

Radio New Zealand recently ran an article titled “Slum warning over Auckland CBD”, which began:

Auckland’s central city is home to some of the region’s poorest people, living in tiny overcrowded apartments which are threatening to turn some areas into slums.

Census data shows part of the inner city has a deprivation level of 10, which is the same as some of the poorest parts of south Auckland – such as Mangere, Papakura and Otara.

Once you get past the somewhat sensationalist headline and opening, this is actually a relatively informative article, but I think a bit more context is required. My response is possibly a bit too much context, so feel free to skip to the last few paragraphs.

 

What is Deprivation?

According to the University of Otago, who publishes the New Zealand Index of Deprivation, “deprivation has been defined as a state of observable and demonstrable disadvantage relative to the local community or the wider society or nation to which an individual, family or group belongs”. It’s a multi-dimensional and evolving concept, and can be assessed in a number of different ways.

The New Zealand Index of Deprivation uses census data to gauge deprivation at the local (but not individual/ household) level. In the latest index, based on the 2013 census, the following variables are used, in order of decreasing weight in the index:

Dep Index variables

The index uses aggregated data to provide useful information about whether people living in a given area are more or less likely to be deprived. The data is based on what’s available from the census, and is more limited (and less direct) than the range of questions we’d focus on if we were interviewing individuals or households, for example. In fact, the University of Otago has also created a New Zealand Index of Socioeconomic Deprivation for Individuals, which is an interview-based system.

Similarly, Statistics New Zealand ask a wide range of questions in their Household Economic Survey – whether household members have shoes in good condition, or do things like go without good meals, doctor’s visits and so on to save on costs. The survey used to ask “how often in the last twelve months [the interviewee] had stayed in bed longer to save on heating costs – never, occasionally or often”, and I used this variable in my dissertation to look at energy poverty – one of the many dimensions of poverty, which is a related concept to deprivation.

As you can see from these questions, there are a range of things that people can end up going without, which many of us may not really come across in our everyday lives (although we may have been through phases of this, e.g. while studying). These are social issues and not generally the domain of this blog, but I mention them for context and to give an idea of what deprivation indices are really trying to get at.

 

Is the Index of Deprivation well suited to looking at the city centre?

The New Zealand Index of Deprivation is an excellent resource and useful for comparing different areas, assessing the need for health and social services and so on. However, I think the Radio New Zealand article above, and the New Zealand Index of Deprivation itself, probably overstates the degree of deprivation in the city centre, although there are certainly deprived people (and arguably even deprived areas) in the city centre.

To give more detail, the index assigns each of the 2,000-odd geographical “area units” across New Zealand a ranking of 1 to 10, with the same number of area units in each decile, and 10 being the most deprived. One of the “area units” in the city centre, Auckland Central East (east of Queen St), was ranked 10 in the 2013 index, whereas Auckland Central West (west of Queen St) was ranked 9 and Auckland Harbourside (north of Customs St, the Viaduct, the Scene apartments etc) was ranked 6.

I’ve listed the variables that go into the index above. and as you can imagine, there are some indicators that are less relevant to a high-density context, and there are others that are less relevant to areas with a younger population. The University is aware of this, and mention in their FAQ here:

What happens if people choose not to own one or more of a house, a car or a phone?

We are restricted to information available from the census forms, which do not include information about choice for these items. However, the NZDep index includes information from six deprivation variables which are unlikely to be relevant to people who make such choices, such as some people living in inner-city apartments, so the index-value for a small area is unlikely to be substantively affected by the lack of choice information for the other three index variables.

An important aspect of deprivation is the lack of choice in going without certain things – it’s really about people who feel forced to go without “a house, a car or a phone”, or from further up in this post, “wearing shoes with holes because you could not afford replacement” and so on, rather than choosing to do without for lifestyle or other reasons. So the first point I’d note is that people often choose to live in the city centre and not own their apartment, a car etc, while I also acknowledge the university’s comments on the other variables in the index.

Secondly, areas with a high proportion of students also tend to come out badly in the index. Students obviously tend to perform poorly on income measures, and also on unemployment ones – based on customised census data, 10.3% of full time students in NZ are unemployed, vs. 4.5% for the general population (and the unemployment rate, which is different, is 22.0%).

In Dunedin, for example, students are heavily concentrated in the “Otago University” and “North Dunedin” area units, both of which have a deprivation index of 9. I lived in this area for 18 months, and while there are certainly students living in substandard conditions, again there’s an element of choice; going without now to earn higher incomes down the track.

That brings me to another important point, which is that deprivation for individual students is likely to be short-lived, rather than entrenched. Student-oriented areas may be “deprived” and remain so over time, but that’s arguably less of a social issue than areas where you have the same people living there for years and remaining deprived.

As you’d expect, the University of Otago is clued up about this. They make some effort to adjust for the student factor, e.g. through leaving the Student Allowance Benefit out of the benefit variable in the index (“it was considered that the majority of people on this benefit were probably not disadvantaged or socioeconomically deprived in the same way as those on the other means tested benefits”), but generally the index is still a bit less meaningful for areas with a large proportion of students.

Thirdly, the city centre, being dominated by apartments, will come out very well on some measures which aren’t recorded in the index – apartments aren’t usually damp and cold, as so many NZ houses are. On the other hand, many of them could still be seen as substandard, in terms of minimal living space, poor facilities, not much natural light or ventilation and so on.

 

So, is the City Centre Deprived?

Here’s a map of the Index of Deprivation scores for meshblocks across the CBD:

I’ve done some analysis on the city centre using the variables which go into the Index of Deprivation, and my conclusions would be that the city centre is still relatively deprived in many ways – but it’s probably not as bad as it looks in the index, and the deprivation for individuals is less likely to be long-term.

Unemployment rates for city centre residents are high however you slice it, for both students and non-students. I expect that a lot of that has to do with the age structure (youth unemployment is much higher) and ethnic mix (unemployment for Asian ethnic groups is somewhat higher).

The city centre also comes out badly on the “living space” variable, as you might expect given high land costs and generally smaller dwelling sizes. Using a simple measure of overcrowding – more than two people per bedroom – 3.5% of CBD dwellings are overcrowded, vs. 1.2% across New Zealand. The index measure is a bit more in depth, and looks at the number of “spare bedrooms” compared to an occupancy standard; if anything, the CBD probably comes out worse on that measure.

On the “support” variable, there are also quite a lot of single parent families in the city centre. So, there are some warning signs here – I’d hope there is a good support structure in place for these families.

So, there is deprivation in the city centre, and it needs to be acknowledged. I don’t think it calls for a hysterical response, but there are social issues which should be recognised and addressed. It’s important that the CBD has good social services in place – and I think it generally does – and that these continue to improve as the CBD’s population continues to grow.

Factors influencing PT use

A comprehensive US study looks at different factors determining modal choice – in particular looking at what makes particular people more likely to use public transport than others. The key findings are shown below:

transit-choicesNone of the findings are particularly surprising at this level, although it is interesting to note that the basics of getting PT right – fast, reliable and affordable service – are seen as more important than flashy add-ons.

Digging into the report’s executive summary highlights a few more interesting results. Firstly, in relation to whether travel trends are changing for cultural/generational reasons or simple economic circumstances:

A central topic of this report is the behavior and attitudes of the Millennial generation as compared to older Americans. Whether the apparent change in travel preferences among Millennials is the result of a true generational change in attitudes— rather than a product of economic or social circumstances—is a topic of fierce debate. We see behavioral evidence to suggest that such a shift is indeed taking place: Parents of school-age children, who are under 30 are, it appears, more likely than parents of school-age children over 30 to use public transit, even when controlling for income.

There are also some potentially counter-intuitive outcomes when looking at the role of upbringing:

We also look at the role of upbringing in mode choice. Investigating the childhood circumstances and travel patterns of Millennials (defined in the report as people under 30) and Baby Boomers (over 60) leads us to a paradox: The Millennial generation seems to be defying its sheltered, suburban upbringing by delaying the acquisition of a driver’s license and choosing transit. Meanwhile, Baby
Boomers, who grew up using transit and were encouraged to do so, are defying their upbringing by avoiding transit now.

Maybe everyone’s just being rebellious?

An area where it seems that the US might differ from New Zealand, Auckland in particular, is the relationship between transit use and income. In the US, it seems like the richer you get, the more likely you are to drive:

transit-use-by-income

Transit Use by Income legendI haven’t seen a similar graph for Auckland, but when you look at areas with higher PT use they don’t exactly stand out as being the poor parts of the city – quite the opposite in fact:

pt-use-by-origin

Many American cities are only just starting to embark on the process of ‘recentralisation’ that Auckland has gone through over the past decade or two (Ponsonby was one of the poorest parts of the city once, Freemans Bay was once a slum). I wonder whether over time they might also see more complex and surprising relationships between PT use and income over time. I also wonder what the causes and implications for Auckland’s poor are from not being higher users of public transport. I suspect the basics of travel time, reliability and cost are significant, especially for those working multiple jobs or that involves travel outside of the peak.

It would be great to see a similar study done in New Zealand, so we can compare with the US patterns and reasons for different transport choices but more than anything this report highlights that if we want more people using PT we need to focus on improving the quality of services.

Where does the New Zealand economy happen?

Vox recently published a list of “surprising maps” that documented counterintuitive or little-known facts about the world. Number 15 on the list was this map, which shows that 50% of US GDP is produced in a mere 23 urban areas:

US economic activity split in half

This map shows the economic importance of cities, which are tremendously productive precisely because they concentrate a lot of skills, ideas, and capital in a small area. But surely things are different in New Zealand due to our much more agriculturally-based economy?

I was curious about this, so I got some data from Statistics New Zealand to see how economic activity is distributed in NZ. First, I got the Regional GDP statistics for 2013, which break down the economy at a regional council area. Second, because some regional councils are much bigger than the cities they contain – think Canterbury versus Christchurch – I used 2013 Census data on employment at a detailed geographic level to proportionately allocate out regional GDP based on the share of regional employment in a particular area (see footnote 1). Finally, I grouped the data up by main urban area – essentially, city boundaries plus satellite towns like Pukekohe and Rolleston.

The results are shown in this map. The majority of New Zealand’s economy is located in its three main cities – Auckland, Wellington, and Christchurch. There is more economic activity happening within these three orange blotches than outside of it:

City share of NZ GDP map v2

All together, 56% of New Zealand’s GDP is produced in a mere 0.9% of its total land area. While rural and urban economies are interdependent – they sell goods and services to each other – this data highlights the degree to which New Zealand’s economy is now an urban economy. This won’t change any time soon – if we are to generate new sources of wealth in the future, it will happen in the cities.

I also took a look at the GDP produced in New Zealand’s smaller cities. Overall, the 15 largest urban areas in New Zealand are home to over three-quarters of our national economy. The full results are shown in the following table:

City share of NZ GDP table v1

One other interesting fact drawn from this table is that Auckland’s economy outweighs, by a large margin, the non-urban economy (“Rest of NZ”).

Footnote 1: This is a fairly simple approach to allocating out regional GDP that ignores the effects of:

  • Differences in industrial structure between cities and adjacent rural areas – cities tend to be home to higher-productivity industries such as professional services and manufacturing
  • Within-industry differences in productivity that depend upon location – after controlling for firm characteristics, businesses located in denser areas tend to be more productive than similar firms in other areas.

It’s certainly possible to account for these well-documented effects. In my day job, I develop methods to take a much more detailed look at New Zealand’s economic geography. (But I prefer to get paid for that rather than doing it for free on a Sunday morning!) Not accounting for differences in industry structure and agglomeration economies means that I have probably underestimated the share of New Zealand’s economy produced in cities.

The Great Auckland Transit Revival: Theory and Practice

Einstein

2011 saw the release of a study led by Ian Wallis Associates into Auckland’s public transport performance. It is a sober and restrained report that simply sets out to describe the performance of Auckland’s PT systems on comparative terms with a range of not dissimilar cities around the region. A very useful exercise, because while no two cities are identical, all cities face similar tradeoffs and pressures and much can be learned by studying the successes and failures of other places. The whole document is here.

The cities selected for the study are all in anglophone nations around the Pacific from Australia, the US, Canada, and New Zealand, with Auckland right in the middle in terms of size. And as summarised by Mathew Dearnaley in the Herald at the time, it showed Auckland to be the dunce of the class by pretty much every metric. Although the article is called Auckland in last place for public transport use it’s clear that the headline it would have reflected the report’s findings more accurately if the paper had simply said; Auckland in last place for public transport. Because it showed that the low uptake of public transport in Auckland cannot be separated from the low quality, slow, infrequent, and expensive services available.

Here’s the uptake overview:

Comparator cities

So it’s clear that population alone is no determinant of PT uptake. If it isn’t the size of the city what is it? Various people have their pet theories, some like to claim various unfixable emotional factors are at work, like our apparently ‘car-loving’ culture, though is it credible that we have a more intense passion for cars than Americans or Australians? The homes of Bathurst and the Indy 500? Others claim that the geography of this quite long and harbour constrained city somehow suits road building and driving over bus, train, and ferry use. A quixotic claim especially when compared to the flat and sprawling cities of the American West which much more easily allow space for both wide roads and endless dispersal in every direction. Another popular claim is that Auckland isn’t dense enough to support much Transit use. Yet it is considerably denser than all but the biggest cities on the list.

So what does the study say is the reason for Auckland’s outlying performance?

It considers service quantity [PT kms per capita], quality [including speed, reliability, comfort, safety, etc] and cost both for the passenger and society, and easy of use [payment systems]. Along with other issues such as mode interoperability, and land-use/transit integration. And all at considerable depth. The report found that Auckland’s PT services are poor, often with the very worst performance by all of these factors and this is the main driver of our low uptake.

And happily some of the things that stand out in the report are well on the way to being addressed. Here, for example is what it says about fares:

Fares and ticketting Benchmark Study

The HOP card is no doubt a huge improvement and has enabled some fare cost improvement. And we can expect more to be done in this area soon, we are told, especially for off peak fares. Additionally the integration of fares is still to come [zone charging].

Here’s what it says about service quantity and quality:

Service qual. Benchmark Study

Oh dear.

Yet there is one thing that the report returns to on a number of occasions that perhaps best captures what’s wrong with Auckland, and offers a fast track to improvement. And, even at this early stage, gives us a way of checking the theory against results in the real world:

Rapid Transit benchmark study

Right, so perhaps the biggest problem with Auckland’s PT system is simply the lack of enough true Rapid Transit routes and services. To qualify as true Rapid Transit it is generally accepted that along with the definition above, a separate right of way, the services must also offer a ‘turn up and go’ frequency, at least at the busiest sections of the lines. And that this is generally considered to mean a service at least every ten minutes, but ideally even more frequent than that.

In Auckland we only have the Rail Network and the Northern Busway that qualify as using separate right of ways, and the busway for only 41% of its route. At least the frequencies on the Busway are often very high, where as on the Rail Network they only make it to ten minute frequencies for the busiest few hours of the day. So to say that Auckland has any real high quality Rapid Transit services even now is a bit of a stretch. However these services have been improving in the three years since the report was released, and will continue to do so in the near future with the roll out of the new trains and higher frequencies on the Rail Network, and more Bus lanes on the North Shore routes especially at the city end of their runs.

Here is a map with a fairly generous description of our current or at least improving Rapid Transit Network:

CFN 2015

Even though it is only three years since the report was released, and there is much more to come, there have been improvements, so we can ask; how have the public responded to the improvements to date?

Below are the latest Ridership numbers from Auckland Transport, for August 2014:

August 2014 Ridership

SOI: Statement Of Intent, AT’s expectations or hopes. NEX: Northern Express.

So the chart above, showing our most ‘Rapid’ services, Rail and the NEX, are clearly attracting more and more users out of all proportion with the rest, and way above Auckland Transport’s expectations or hopes as expressed by the SOI, is a pretty good indication that both the report authors were right, Auckland is crying out for more Rapid Transit services and routes, and, at least in this case, Einstein was wrong: Practice does indeed seem to be baring out the Theory.

And from here we can clearly expect this rise in uptake to continue, if not actually increase, as the few Rapid Transit routes we have now are going to continue to get service improvements. And 19% increases, if sustained, amount to a doubling in only four years! Rail ridership was around 10 million a year ago, so it could be approaching 20 mil by mid 2017, if this rate of growth is sustained.

But this also means we can clearly expect any well planned investment in extensions to the Rail Network [eg CRL] or additional busways [eg North Western] to also be rewarded with over the odds increases in use. Aucklanders love quality, and give them high quality PT and they will use it.

Furthermore, given that these numbers are in response to only partial improvements even extending on-street bus lanes for regular bus services looks highly likely to be meet with accelerated ridership growth. I think it is pretty clear that Auckland Transport, NZTA, MoT, and Auckland Council can be confident that any substantive quality, frequency, and right-of-way improvement to PT in Auckland will be rewarded with uptake.

Given that Auckland’s PT use is advancing ahead of population growth [unlike the driving stats] I believe we have already improved that poor number up top to 47 trips per person per year. So there’s still plenty of room for growth even to catch up with the next city on the list. So perhaps it’s time to formally update that report too?

Imagine just how well a full city wide network of Rapid Transit would be used? Clearly Auckland is ready for it:

CFN 2030 South-Grafton

 

 

Is the future working from home?

There are a number of common claims that those who oppose investment in public transport and in particular the City Rail Link use to try and justify their ideological position. Claims like that it will cost a lot more than predicted, that not as many people will use it as predicted, that autonomous cars will magically solve the problem. All can be addressed but for this post I’m just going to look at one though, that technological changes will lots of people working from home. It’s something that’s long been dreamed about by many and obvious has some huge advantages for transport in that it removes the commute all together.

There have always been some people who work from home and some who due to the nature of their work will simply have to travel to a workplace however the target group for working from home is huge numbers of people who work in offices in places like the CBD or suburban office parks.

The great thing is that with the technology we have today it’s now even easier than ever for people to work not just from home. The computers in many people’s homes are often just as much or even more powerful that those provided by employers, documents can be easily shared, audio/visual communication is easy and the list goes on. So what’s happening with working from home trends?

This is one area where the census Travel to Work data is very useful. It’s not so great at looking at overall mode share for those that travel as it doesn’t take into account others who use our transport networks at the same time like students, those travelling for non-work purposes or even those already working however it is useful for comparing how many people work from home. The graph below shows the total number who worked from home in the census’ from 1981. I’ve also added data for Auckland which is available since 1996.

Census - Worked at Home 1

The pre 1996 figures come from the Stats NZ Yearbooks so I’m not sure if they counted working from home differently or if other factors are at play.

While more people than ever are working from home, how does that compare with the total number of people travelling to work on the census days. You will also notice I’ve included 1976 for which I could find the percentage but not the actually number of people.

Census - Worked at Home Percentage 1

 

So nationwide as a percentage less people are working from home now than in they did 1996 despite it being easier than ever to do so. Why is that happening?

Well in many ways businesses that rely on innovation to improve their productivity benefit from having people work in proximity to each other in the same way that the city as a whole does. This is because people exchange ideas and communicate much more freely when they are in the same office and that can help bring to life new ideas for solving problems. Even some of the biggest tech companies in the world who could arguably most easily have a distributed workforce recognise this and why so much money is put in to having people work in one location. IT’s even got to the point that last year Yahoo CEO Marissa Mayer stated she wants staff in the office rather than at home due to the benefits it provides.

To become the absolute best place to work, communication and collaboration will be important, so we need to be working side-by-side. That is why it is critical that we are all present in our offices. Some of the best decisions and insights come from hallway and cafeteria discussions, meeting new people, and impromptu team meetings. Speed and quality are often sacrificed when we work from home. We need to be one Yahoo!, and that starts with physically being together.

For me there are also other reasons not to work at home, particularly if you work in an area that has a lot of other amenity e.g. retail and hospitality. The dramatic improvement in the CBD over the last decade or so is a good example of one of these places.

Of course this isn’t to say that we should always have to work from an office every single day. It sometimes depends on the task being performed and having flexibility to work around other activities or family is important but overall the percentage of people that work from home isn’t likely to substantially increase.

Orakei Bay Village – To P&R or not to P&R?

Some of you who have been living in Auckland over the last decade might recall the long-running saga that is the Orakei Bay Village.

When the project was first mooted around a decade ago, it was met with furious local opposition. Thankfully the proposal has now progressed to a “point” where new houses may actually be delivered. Stage 1 is illustrated below (sourced from here); as you can see it’s a reasonably pleasant spot to develop some houses, shops, and some new recreational facilities.

Orakei_Hero_with_no_labels

Not only is the development situated on the edge of Hobson Bay, it is also accessible to Orakei Station in the Eastern Line, which is barely 8 minutes by train to Britomart, something the developers are keen to point out. The merits of the development itself, however, are not the topic of this post.

Instead, in this post I want to explore the merits of providing park and ride at Orakei Station. Some of you may also know that Orakei Station currently provides about 178 park and ride spaces. In the above photo you can see the park and ride spaces shown in the bottom right hand corner. Their presence in close proximity to medium to high density housing looked to me to be somewhat anomalous.

In this previous post I explored some of the merits of P&R and discussed the conditions where P&R might work well. Since that post was written AT has released a draft parking discussion document, which provides more specific criteria to guide future investment in park and ride. The key section is illustrated below (p. 44).

Capture

Below I’ve undertaken a brief evaluation of Orakei Point’s suitability for park and ride compared to the most pertinent policy points outlined in AT’s parking discussion document:

  • Wider PT accessibility. This location will be well-served by all-day bus connections. The all-day network released with AT’s Regional Public Transport Plan shows how both Orakei and the adjacent Meadowbank station will be accessible from local bus services. Indeed, to access Orakei you have to drive past these bus stops. For this reason, providing park and ride at Orakei is likely to undermine local bus services.
  • Local congestion around the station. Traffic congestion was frequently put forward by local residents as a reason to decline the proposed plan change for Orakei Point. Their opposition suggests the local area does experience traffic congestion, which is of course likely to be exacerbated by the provision of park and ride.
  • Congestion upstream of the station. While there is congestion upstream of the station, the city centre is so close that the resulting congestion relief provided by a park and ride at Orakei would appear to be fairly small, at least compared to other potential park and ride locations located further away from the city centre (where land is also cheaper).
  • Land use controls of the area surrounding the station. The recent plan change means that this location is now suitable for high-density development, as evident from the above image. This suggests that park and ride might not be the highest and best use of this land.
  • Public transport fare zones. Orakei is only one stage to Britomart. This in turn means that providing park and ride in this location may encourage people drive to the train at Orakei as a way of avoiding paying a higher fare for travelling from further out. In this way, park and ride at Orakei might undermine revenue (although of course the zone structure may change in the future).

When evaluated against AT’s five main park and ride investment criteria, Orakei Point does not appear to be a suitable location for park and ride. Perhaps the only criteria where there is doubt relates to the potential congestion relief benefits of the P&R. We can, however, do some quick calculations to quantify whether this argument has any merit.

Auckland Council’s GIS viewer suggests land at Orakei Point is valued at approximately $900 per sqm. If we use this land value and assume 30 sqm per car-park, then we get $25,000 per car-park. Let’s round that up to $30k per car-park to allow for some capital depreciation/operating costs. Using this figure within a standard discounted cash-flow model (i.e. 8% discount rate; 30 year lifetime) then we can calculate that a benefit stream of approximately $2,500 per car-park p.a. is required to yield a benefit cost ratio of 1, i.e. to reach economic break-even point.

Now we need to asses the congestion reduction that might follow from providing park and ride in this location.

If we assume vehicles using the Orakei park and ride would otherwise travel to the city centre (i.e. somewhere in the vicinity of Britomart) via Kepa Road and Orakei Drive, then each avoided vehicle trip will save about 5km of driving, or 10km per return trip. If we then annualise this distance by assuming 220 days p.a., then we find that each vehicle diverted to using the park and ride as opposed to driving to the city centre would save about 2,200 vehicle km p.a.

This previous post, however, presented evidence on some of the diversion effects of park and ride. Research in the Netherlands found that only 25% of park and ride users would otherwise drive for their entire journey in the in the absence of park and ride. Instead, many park and ride users were “diverted” from alternative options, such that park and rides caused a net increase in driving in many locations. Post-opening surveys of the Northern Express also found large diversion rates, with only 50% of park and ride users responding that they previously drove to the city centre.

This diversion effect can be incorporated into our calculations by factoring down the vehicle kilometre savings down, by say 50%. This suggests that 1,100 vehicle kilometres p.a. are removed from the road network for every park and ride space provided. If we divide the annual cost ($2,500) by the annual benefit (1,100km), then we find that the cost of removing this travel from the road network is $2.26 per vehicle kilometre. This means that each kilometre removed from the road network by providing park and ride at Orakei has to generate $2.26 in congestion reduction benefits to make the investment worthwhile.

Personally, this seems like an implausibly high congestion reduction benefit to attribute to removing vehicle travel from the road network.

To put it in context, the average journey to work trip by car in Auckland is approximately 10km. Using this per kilometre rate, removing the average journey to work trip by car would generate approximately $23 in congestion savings. And even this relatively high congestion reduction benefit would result in a benefit-cost ratio of only 1.0, i.e. an extremely marginal investment from NZTA’s perspective.

Of course, there may be other benefits from providing park and ride. However, there’s also additional costs.

Remember that some of the people diverted to using the P&R would have otherwise used park and ride elsewhere and/or used a connecting bus. Providing park and ride at Orakei therefore might be expected to increase the congestion generated by these journeys compared to an alternative scenario in which park and ride was not provided at Orakei Point.

Finally, there’s also the longer term land use displacement effect. This reflects how choosing to provide park and ride in this location would tend to reduce the intensity of residential development that could be accommodated at the site. Some of the residents displaced by providing park and ride will likely choose to live further out from the city, in locations where they are even more likely to drive.

In conclusion, based on this back of the envelope assessment Orakei Point does not seem to be a suitable location for park and ride.

That’s not to say, however, that park and ride in other locations might not be worthwhile. Indeed, if we consider our simple benefit-cost analysis then investment in park and ride would seem to make the most sense where: 1) land values are low; 2) vehicle trip distances and long; and 3) it does not compete with non-car access modes.