For Auckland Election candidates – Part 1: Transport Trends

As of today it is exactly one year away till the end of voting for the next local body election. That means talk about who will and won’t stand is only going to increase in coming months.

Unlike in central government elections, transport tends to be one of the key issues at the local body level which in many ways is unsurprising because voters see and experience the issues locally and it’s an area that councils actually have a large influence over – unlike topics such education, health, the economy or welfare.

For the next election we expect transport to continue to be one of the key topic and as such want to see candidates better informed about transport and what’s happening regardless of their political views. Our hope is to raise the level of the debate higher than it has been in the past. To do that we want to create a resource that all candidates can use learn more about what’s happening with transport in Auckland and what’s being done overseas. Given the amount of issues to discuss this will be a multi part series.

Transport Trends

The last decade has seen fundamental shifts in how Aucklander’s travel. For many decades Auckland has developed in a way that has made it very difficult to get around without driving. As such metrics like vehicle ownership and how much we use private vehicles showed a near constant increase. The increase was such that transport planners and engineers felt confident in predicting this would continue indefinitely into the future.

Around 15 years ago the way Auckland developed started to change as proximity to the city centre returned to being valued. Changes in our urban form combined with a number of key transport strategic investments as well as cultural changes – particularly from younger generations – are completely upending transport models that predict how Aucklander’s travel.

The distance we travel in vehicles has flat-lined despite a rapidly rising population and on a per capita basis is the same as it was over a decade ago. The chart below shows how this has changed over time compared with the results per capita.

2014 VKT - AKL vs per capita

A good example of just what impact the change in demand is having is seen on the Harbour Bridge. Traffic volumes today are lower than they were a decade ago. This means they’re well short of the growth predictions the NZTA made as part of the last assessment into another harbour crossing. One strong factor in the change in demand has been the Northern Busway which I’ll cover off later in the post.

AHB Annual Volumes to 2014 - 2

The change in demand for driving is something that has been seen all over the world and has thrown out transport models. The example below from the Ministry of Transport shows how we’ve continued to predict growth in travel that hasn’t been realised.


As a result of the changes being seen the MoT have started to think about what might happen in the future. Below is a brief summary of the four high level scenarios they think could expect. As you can see the modelling in three of the four scenarios expect driving to decrease over time.


The changes in driving trends raise question about whether we’re investing in the right projects for the future.

Over the same time that growth in vehicle travel has stalled, travel via public transport has increased dramatically – albeit of a much lower base. In the last decade the number of trips on PT have soared from 50 to 80 million and a large chunk of that growth has come from some of the key investments that the council and government have been making.

2015-08 - Total Annual Patronage - decade

On an average weekday there are now over 200,000 bus trips and around 50,000 rail trips

Patronage growth is occurring at levels well ahead of population growth which also has meant that the number of trips taken per person per year has risen from around 37 in 2005 to over 51 in 2015. This is a significant improvement however it remains well short of many of our comparator cities.

One of the stars of the show over the last decade has been rail patronage which has risen from less than 4 million to around 14.5 million. This growth has been generated as a result of investment in Britomart, double tracking, station upgrades, service improvements and most recently electrification. It is currently growing at over 22% per year and on track to reach the 20 million target set by the government for the City Rail Link in around 2017/18.

2015-08 - Rail Patronage

Another huge success has been the Northern Busway which didn’t exist a decade ago. Figures from Auckland Transport show it now carries at least 3.5 million trips per year with many others benefiting from the investment. Now during the morning peak up to 40% of people crossing the harbour bridge are doing so on a bus which is more than double what it was in the early 2000’s.

One are the growth in public transport use been considerably noticed is in the city centre. Research conducted in 2014 showed that the number of people accessing the city centre in the morning peak had increased considerably however the number doing so by car had remained the same. The two biggest contributors to the growth in PT trips to the CBD have been the work to improve the rail network and the creation of the northern busway.

CBD Transport Change

These results are also similar to the census data from 2013 which shows that the modeshare of cars is slowly declining. The question only asks about trips to work however we would expect the change to be more pronounced if it also compared others such as those travelling for education purposes.




What is clear is that transport trends are changing and it’s already having a profound impact on the way Aucklander’s choose to get around.

In addition to this there are also changes in trends of what people want to see invested in. In numerous surveys and consultations from council and independent organisations including the AA the general public have strongly supported much greater investment occurring in public transport and cycling. One example is the feedback from the council’s recent Long Term Plan consultation where a huge number of people made it clear they wanted more investment in alternative modes.

2015 LTP Final Changes in transport Investment

There are a number of other examples are here.


In future posts I’ll look aspects such as what’s currently being done in transport, what the current plans for the future are and what are some alternative ideas including case studies from overseas.


The Volkswagen saga

One of the biggest news stories this last fortnight has been the Volkswagen emissions cheating scandal. In a “wildly illegal” strategy spanning many years, Volkswagen deliberately ‘cheated’ on emissions tests of its diesel vehicles, with software which could identify when the car was undergoing a test, and activate emissions controls only during those times. 11 million vehicles were affected, across a number of brands (including Audi and Skoda). The fallout has included the CEO resigning, a 30% drop in share price, and huge cost to the company (they’ve set aside €6.5 billion for starters).

The “emissions” at issue were nitrogen oxides, which are local air pollutants, contributing to smog and respiratory diseases. I don’t think they’re considered greenhouse gas emissions (correct me if I’m wrong) – nitrous oxide certainly is, but it’s not emitted by diesels.

Diesel cars have been popular in Europe (more than 50% of the car fleet in some countries) because they create less greenhouse gas emissions than petrol cars. They use 30% less fuel, but diesel has about 10% more energy, so on the whole they’re 20% more efficient. The downside is that they tend to produce more pollution – nitrous oxides, microscopic solid particles and the like. “Clean diesel” cars supposedly have plenty of hardware and software in place to help reduce their polluting.

These pollutants are supposed to be tightly regulated, since they can have such a big impact on air quality in cities. But that’s not much help if manufacturers figure out ways to beat the system.

And whether or not it’s being done deliberately, many cars from other manufacturers don’t meet the standards when they hit the roads either:

Road tests of more than a dozen popular models from several manufacturers showed that the raw nitrogen oxide emissions from the cars were on average seven times European standards, according to a little-noticed October report from the same outfit that flagged the VW problems.

Indeed, experts said it could very well be that the high levels of real-world emissions reflected in the ICCT report show not that firms are cheating, but only that it’s all too easy to design a car that passes governmental lab tests for emissions. Once outside the lab, those cars fail in real-world conditions.

Nick Molden, chief executive of Emissions Analytics, a British firm, said that in recent years, Europe had put in place two new standards for tailpipe emissions, each one stricter than before.

“But there was no improvement in air quality,” Molden said. “That was the alarm bell. These results suddenly explained why every major European city has an air quality problem.”

The problem, he said, is that the governmental certification test in Europe “is so gentle. It’s 20 minutes in a lab.”

It’s hard to replicate real-world conditions in a lab, and it’s no surprise that when manufacturers know how they’re going to be tested, they design cars that are designed with those tests in mind – with less consideration to what happens on the road.

Plus, the gap between theoretical performance and on-road performance is an issue for greenhouse gases as well. I wrote a post last year based on a Ministry of Transport presentation:

Vehicle fleet and population

“Essentially, vehicles have always tended to use more fuel on the road than they do when they’re being tested. But the performance gap has gotten larger [for Japan and a number of European countries]. Car manufacturers are becoming very adept at designing cars to do well in the tests, but not on the road”.

As an aside, NZ has a much higher proportion of diesels in the fleet than the US, but we’re much lower than Europe. 8.3% of our ‘light passenger vehicles’ (i.e. cars) and 68.4% of ‘light commercial vehicles’ (i.e. goods vans and small trucks) are diesels. Looking at the number of diesel vehicles which have entered our fleet in the last few years, I would have guessed that there are probably thousands of VW-made vehicles in New Zealand which are affected, but the head of Volkswagen New Zealand has said ‘hundreds’ and plans to give more info this week, so he will probably provide a more precise figure.

A debate over discount rates

Transport evaluation, and urban policy in general, invariably requires us to make trade-offs between the present and the future. When we invest in the built environment – roads, rails, buildings, etc – we are expending today’s resources on projects that will primarily benefit people in the future. Conversely, decisions we make about resource use today – e.g. how much greenhouse gas to emit – will impose increasing costs on future generations.

Individuals also make decisions that involve trade-offs between the present and the future. For example, most home-buyers take out a mortgage, which allows them to spread the payments over a long period of time in exchange for paying a bit more in interest charges. For the borrower and for the bank, the interest rate paid on the debt reflects the trade-off between repaying the debt today or repaying next year.

Of course, there are also other ways that individuals make trade-offs between the present and the future. They may, for example, spend money on their children’s education, even though the “returns” from doing so are long-term and indirect. Or they may vote for policies that cost them money now but return long-term benefits, such as environmental protection or pre-funding of superannuation.

The trade-offs that governments make between present and future are codified as discount rates, which describe how much of a “discount” we place on future outcomes relative to present outcomes. For example, a discount rate of 10% means that the government would value a benefit of $100 in a year’s time as being equal to a benefit of $90 today.

Transportblog’s previously taken a look at the discount rate issue here, here, and here. But others are also engaged with the issue. Back in August, University of Michigan economics professor Miles Kimball, who had been visiting the Treasury, strongly criticised its approach to discount rates. The key point in his critique is that the Treasury’s discount rates don’t accurately reflect the financial market returns currently available to the government:

There is an extremely strong argument against using an 8% real discount rate in evaluating government projects. I think the argument below can be sharpened to become institutionally relevant.

Basically, an 8% real discount rate makes no sense to use unless the New Zealand government is actually getting an 8% real return on funds that it saves. It is not enough for someone to claim that the New Zealand government theoretically could get an 8% real return on funds it saves when that is not true or is only theoretical because the New Zealand government would never actually do that with funds saved by not doing a project.


Just to be clear, my view is that (a) all projects that are better than putting the money in the Superfund should be done, and (b) if someone claims that a project is worse than putting money in the Superfund, then money should be put in the Superfund instead, and (c) if a project looks better than paying off some of the debt by buying bonds–or, almost equivalently, good enough that borrowing at the bond rate to do it looks like a positive present value–it should also be undertaken UNLESS the government is willing to issue additional bonds to put more money in the Superfund invested in risky assets.

I’ve skimmed over a lot of the substance of Kimball’s argument, which I encourage you to read. (Warning: it’s wonky.) After Kimball’s blog post, former RBNZ economist Michael Reddell wrote a blog post defending the Treasury’s policy. Reddell’s counter-argument is that financial returns to government is the wrong measure of the time value of money:

I was struck reading Kimball’s material that the cost of the government’s equity did not get a mention. There was a strong tendency to treat the government as an autonomous agent (like a household) managing its own wealth, whose low borrowing costs depends only on the innate qualities of the government and its decision-makers. But that is simply wrong. A government’s financial strength – and ability to borrow at or near a conceptual “risk-free” interest rate – rests on the ability and willingness of the government to raise taxes (or cut spending) as required to meet the debt commitments. That ability to tax is implicit equity, and it has a cost (an opportunity cost) that is considerably higher, in most cases, than 2.5 per cent real.  So long as the government will raise taxes as required, the bondholder bears none of the downside if a project goes wrong. But shareholders – citizens – do.  Bearing that risk has a cost, and that cost needs to be taken into account by government decision-makers.

There is a related argument sometimes heard that governments should do infrastructure projects rather than private firms simply because the government’s borrowing costs are typically lower than those of a private firm. But, again, that rests on the power to tax, and the ability to force citizens/residents to pay additional taxes has a cost from their perspective (even if the government never chooses to exercise the option).   As citizens, the possibility that the government will raise taxes (or cut other spending programmes – eg NZS) impinges on our own ability and willingness to take risks, and hence to consume or invest in other areas.   That often won’t be a small cost. The opportunity cost of the government not undertaking a project is not what, say. the NZSF might be able to earn on the funds, but what citizens themselves might prefer to do if that risk-bearing capacity was freed up.

Again, I’ve skimmed over Reddell’s argument, so I’d encourage you to read it in full if you’re interested. He throws in a brief jab at road projects with low BCRs:

We have too little disciplined analysis of the costs and benefits of most government projects, and too little willingness to allow decisions to be guided by the results of the analysis when it is undertaken (did I hear the words “Transmission Gully”?).

I can see some truth in both sides of the debate. Kimball’s got a good point, which is that current government borrowing costs (and financial market returns in general) are at historic lows, which should lead to lower government discount rates. But Reddell’s also correct that it’s appropriate to set discount rates based on wider social decisions about consumption and investment.

One issue that neither of the two grappled with in detail was the question of how risky government investments actually are. Kimball touched on that briefly, arguing – essentially – that the benefits of projects will inevitably rise in the future due to people’s greater willingness to pay for public goods in the future:

A good method of risk adjustment for projects is to think seriously of the real dollar value they will have dependent on the level of real consumption in the economy. One virtue of thinking about the adjustment this way is also that it provides a reminder that the dollar value of the flow of benefits from many projects will tend to increase in the future simply because trend increases in per capita income will raise the willingness to pay for those benefits.

Frankly, I don’t think this is correct. Changes in technology, changes in prices, and changes in preferences mean that infrastructure that’s useful today can easily become a stranded asset tomorrow. Look at Los Angeles: in the 1950s it was rushing to rip up its rail lines, and now it’s rushing to build a new rapid transit network. Or look at San Francisco: several of the elevated expressways it built in the 1960s have been torn down.

In short, things change. Sometimes they change quite radically. When the Ministry of Transport looked at future transport demand last year, they found that they couldn’t settle on a single forecast for future transport demand. Instead, they arrived at four scenarios, three of which entailed a decline in vehicle travel:


In other words, there can be considerable uncertainty in returns from transport investments. While it might not necessarily be appropriate to try to account for this in discount rates, it’s surely an important consideration for project evaluation more generally.

What do you think about discount rates?

Shopping and public transport: Westfield around the world

The conventional wisdom in New Zealand seems to be that people will always drive to go shopping, they won’t take public transport or cycle. It’s even spawned the term #Quaxing, named after your friend and mine, councillor Dick Quax.

I’ll talk about some UK and Australian examples of shopping centres below. In other news, UK and Australia are no longer to considered to be part of the western world.

With the Auckland Unitary Plan working through the hearings process, one of the topics up for debate is “parking minimums” – the idea that new shops, offices, bars etc need to provide a minimum number of carparks, based on their floor area (these rules also apply for dwellings across most of Auckland, based on the number of bedrooms).

Various retailers and shopping centres have argued for parking minimums to remain, including Scentre Group – who operate the Westfield centres across Auckland (and the rest of NZ, and Australia). They own some of the largest shopping centres in Auckland, and control a large number of carparks. They have valid concerns about other people using their parks when visiting other shops or places, and that potential ‘freeloading’ is the reason for them wanting parking minimums.

Incidentally, there are plenty of shopping centres in NZ which do quite well out of this ‘freeloading’. They know that they have the carparks, and shoppers will drive and park there but also visit the shops outside the mall, post some mail, etc. Providing the hub for parking means they’ve got the opportunity to make some sales at the beginning or end of this trip. Westfield Newmarket does this – a $10 purchase gives you two hours free parking there, and you’re free to wander around the rest of Newmarket as well. Back in the day, I’d often do this, and just go and grab something I needed at the supermarket. Many thousands of people would do something similar.

The wider Westfield group has an excellent understanding of cities, and retail centres which are oriented towards public transport. Until recently, they were the biggest owner of retail property in the world (they’ve now restructured and split off the NZ/ Australia centres into Scentre Group). Westfield has plenty of central city malls around the world, in some of the most high profile locations in the world. That includes two centres in the UK (London and Stratford City) which rely heavily on quaxing for their success. To quote:

One of the largest shopping centres in Europe, Westfield London, opened in 2008. Modal targets were for 40 percent of shoppers to visit by car, and 60 percent by public transport, walking and cycling. So far the actual figures have been 22 percent car and 78 percent walking, cycling and public transport.

Westfield London

Westfield London is multi-modal. Image source: Wikipedia

These UK centres are very successful. They each have specialty shop sales of £9,500 per square metre (this figure won’t mean much to most of you, but take my word for it, that’s a lot), and annual sales of around £1,000,000,000 (it’s pretty obvious that’s a lot). Public transport links allow these malls to achieve a level of sales that would quite simply not be possible in New Zealand, with our more car-dependent society and retail sector.

Car-based shoppers are still important for Westfield London and Stratford City. However, these malls have around 40% fewer carparks per square metre of retail space than equivalent centres in New Zealand (3 carparks per 100 sqm, whereas we’d have 5 per 100). And yet they have sales which are substantially higher than any centre in New Zealand – at least double the sales per square metre of a typical NZ centre, even before allowing for the cheaper price of goods in the UK.

Closer to home, Westfield Sydney is one of the global flagship centres for the Westfield brand, with a prime position in the Sydney CBD. It’s top of Westfield’s Australian portfolio in every respect, except total sales, where it comes second to Westfield Bondi Junction. And yet this mall, which is about seven or eight times the size of Auckland’s (current) Downtown Shopping Centre, has just 172 carparks. That’s not a typo, although of course there’ll be more in other buildings in the area. Westfield are certainly not wedded to having masses of parking; it depends on the location.

The examples above are in bigger cities than Auckland, and in central locations with excellent public transport provision. But Auckland shouldn’t short-change itself. Public transport patronage is booming, and the New Network will give much better access to much of the city in the next few years. Once the City Rail Link is complete, shopping centres like Sylvia Park, or Westfield Newmarket, or the proposed Downtown Shopping Centre, could target much higher sales than their current level, and with fewer parks. Getting to the shops on a bike, bus or train will become increasingly common in Auckland.

The case against publicly owned golf courses, part 3

Over the last couple weeks, I’ve been taking a look at the economics of publicly owned golf courses. Unfortunately, I still haven’t managed to work in a reference to one of my favourite Big Lebowski quotes, so I’ll just have to drop it in here without preamble. In the words of the Dude: “Obviously, you’re not a golfer.”

Last week, I took a quick look at the costs and benefits of publicly owned golf courses, arguing that we would be considerably better off if we freed up the land for public parks and new neighbourhoods. After looking at the potential value of the land for housing or business use, which far exceeds the value for golfers, I asked: “Why isn’t the opportunity cost of using lots of land for golf being recognised the prices charged by golf courses?

To start answering this question, we have to look at how golf course land is valued for rates and other purposes. As I argued when looking at the economics of applying rates to all government-owned land, rates can serve as a “market signal” that encourages productive use of land. Owners of valuable land can expect to pay higher rates, and hence know that they need to get enough revenue from the land to cover them. Conversely, distortions in the rating system can encourage wasteful and unproductive uses of a scarce resource.

So with this in mind, I used Auckland Council’s GIS Viewer to compare the rates being charged on Chamberlain Park and surrounding properties. As the following screencapture shows, there are two overlapping rating units on Chamberlain Park, one for the course and one for the clubrooms:

Chamberlain Park rates assessment

The following table summarises data on the two rates assessments. In total, the golf course pays about $97,000 in rates. At first glance, this seems like a lot, but it’s actually pretty paltry considering the spatial expanse (expense?) of the golf course.

Rates assessment Golf Course Clubrooms Total
Land area 32.3 ha
2014 Land Value $12,000,000 $9,100,000 $21,100,000
2014 Improvement Value $1,500,000 $1,900,000 $3,400,000
2014 Capital Value (LV+IV) $13,500,000 $11,000,000 $24,500,000
2015/16 total rates $26,876 $69,956 $96,833
Average land value ($/m2) $65

The land under the golf course is valued at $21.1 million – or around $65 per square metre. This is a comically low valuation. It’s probably been decades since land in Mount Albert was actually that cheap. (I wish it was possible to find buy land that cheaply on the isthmus. I’d buy acres!)

For a comparison, I’ve also looked at the land valuations for five randomly selected residential properties in the immediate vicinity of the golf course. That data, summarised in the table below, indicates that residential land in the area is valued at around $1,100 per square metre – or 16 times higher than Chamberlain Park’s valuation. (As property prices have risen since valuations were conducted, this is likely to understate current prices.)

Rates assessment A B C D E Total
Land area (m2) 658 687 708 637 854 3544
2014 Land Value $770,000 $630,000 $700,000 $720,000 $1,000,000 $3,820,000
Average land value ($/m2) $1,170 $917 $989 $1,130 $1,171 $1,078

Here’s a chart showing the comparison:

Chamberlain Park land valuation chart

The practical consequence of this is that Chamberlain Park only pays a fraction of the rates that it should pay. If the land were valued fairly, the golf course would have to pay around 16 times as much in rates – around $1.6 million. As the golf course only pays $97,000 in rates at present, this amounts to a massive public subsidy.

In fact, the rates subsidy granted to Chamberlain Park is roughly equivalent to the annual value of greens fees, which I estimated at around $1.65 million. (Most greens fees go towards the cost of running the golf course.) People golfing at Chamberlain Park are only paying a fraction of the cost of providing the course, leaving other rate-payers to cover the foregone rates income from the land.

As the average residential rates bill was around $2636 in 2014, and around $214 higher in 2015, this means that roughly 530 Auckland households must pay rates to cover the subsidy for Chamberlain Park (i.e. $1.5m foregone rates from Chamberlain Park / $2850 rates per household = ~530 households).

In short, quite a lot of people are being taxed to pay for this golf course-shaped hole in our ratings system. And because the ratings system under-values the land under Chamberlain Park, the golf course is operating without any clear market signals that it needs to use that land differently.

Now, as I discussed in part 1 of this series, there are legitimate reasons for Council to provide public parks, even if it means foregoing some dwellings or some rates income, as they are open to all visitors and thus provide broader social benefits. So I don’t think that this argument applies to (say) Albert Park or Maungakiekie.

But golf courses are very different, as they can only be used by a small number of people at a time. Golf courses are businesses serving paying customers, just like supermarkets and hairdressers and hotels, and they should be expected to pay their own way. We wouldn’t arbitrarily slash rates sixteenfold for the Mount Albert Pak-N-Save, so why do we do that for the golf course just up the road?

Energy in New Zealand 2015

Each year, the MBIE publishes a report called Energy in New Zealand.* Energy is a crucial input in all parts of our lives, powering our transport and our cities. MBIE’s report starts with an infographic showing various energy facts and figures:

EiNZ infographic

To pick up on one fact in this infographic, solar PV (photovoltaic, i.e. solar panels) generation in New Zealand is now equivalent to the demand for all the households in the Kaikoura District. This might be impressive, if not for the fact that Kaikoura only has around 1,500 households, about 1% of the nationwide total (and a much smaller share of our total electricity demand, which also includes demand from business, industry etc).


As we’ve covered many times, New Zealand is great at making electricity – and one of the top countries for renewable electricity generation. This is driven by our strong hydro resources, with geothermal and wind playing growing roles.

EiNZ electricity CORRECTED

GWh = gigawatt-hours, a unit of energy. The graph in the report was labelled wrongly – I’ve fixed this up with the Excel data.

2014 was a good year for renewable generation – which varies from year to year depending on rainfall and wind – and almost 80% of all electricity came from renewable sources, the best result since 1996. These results were inevitably trumpeted by the Minister, who has actually done very little to influence those figures. Such is politics, but the government should be doing more to encourage renewables.

The other interesting trend from this graph is that total generation has been very flat for almost a decade. That’s partly because we’re using power more efficiently, and partly due to economic factors – industrial users (e.g. the smelter in Tiwai Point) and businesses are big power users, so changes in their activity can make a big difference to demand.

Electricity prices have also continued to rise, as I’m sure we’ve all noticed – up 3.8% for the year to March 2015, despite flat demand and very little inflation in the wider economy. However, these prices are still pretty reasonable to what people pay across the OECD – there’s a lot of variation between countries, but we’re just slightly above the OECD average on a ‘purchasing power parity’ basis.


There’s actually not much written on transport in the Energy in New Zealand report. However, consumption of oil products like petrol and diesel is mostly due to transport demand, so let’s take a look at that.

EiNZ oil gas

Petrol demand is still down on where it was in the mid-2000s, while diesel demand (mainly from commercial vehicles – trucks, vans and so on) has risen. As a quick factoid, the report estimates that buses use 4% of NZ’s transport diesel, and trains use 3% – those stats are for 2013, and will presumably drop now that Auckland’s passenger trains have been electrified.

The graph below shows ‘real’ (i.e. adjusted for inflation) prices for petrol and diesel over the last 40 years, showing that prices have fallen somewhat in the last year, and are lower than they were during the early 1980s.

EiNZ petrol diesel prices

There’s another graph in the report which shows that NZ has fairly cheap petrol prices by OECD standards – only Australia, the US, Canada, Luxembourg and Switzerland are cheaper. We’ve got cheap diesel, too, but that’s largely because diesel vehicles pay Road User Charges rather than being taxed at the pump.

“Energy Intensity”

Some quick thoughts on “energy intensity”, since it’s a topic close to Patrick’s heart. This is a measure of the energy used to create each unit of gross domestic product (GDP) – essentially, how much energy is needed to create a dollar’s worth of economic value.

According to the MBIE, “the overall energy intensity of the economy has improved in real terms by an average rate of 1.1% per annum” between 1990 and 2014, and now sits at 2.7 megajoules per dollar. This is ‘real’ improvement, i.e. adjusted for inflation.

This sounds good, but as the MBIE continues, “the most significant factor in this… has been the rapid growth of the commercial sector (low energy intensity) relative to the industrial sector (high energy intensity)”. That is, much of the improvement is just because our economy now looks different to 25 years ago, with less industry and more services.

EiNZ intensity

Some people have pointed out that by switching to more “commercial”, service-based industries and importing manufactured goods instead, we’re simply outsourcing our energy use (or greenhouse gas emissions) to other countries. That’s true, but not a question with an easy answer. We can talk about ‘decoupling’ our economy from expensive and environmentally damaging energy use, but we haven’t actually gotten very far on it yet.

Where we can get a lot more efficient with our energy use is in transport. We can encourage public and active transport, and more efficient cars, and eventually electric vehicles. We shouldn’t do this just for the sake of it, and it’s not about the energy itself. Saving energy is a means to an end – reducing greenhouse gas emissions, or saving costs (e.g. of importing or producing the energy). So the thing to do is find cost-effective ways of achieving these goals.

* Follow the link for the report itself, as well as Excel tables if you want to see more of the stats in the report.

Notes from Sydney: The Centre City

The Sydney city centre is fantastic. It’s vibrant, varied, exciting:


And, like all successful cities, full of people. So how do they all get there? Of course some are there already, the City of Sydney has some 200,00 residents, but many journey in each day from the suburbs.

The streets are full of traffic, most are not like the part of Pitt St shown above, where pedestrians have priority:


The Bridge is full of traffic:

And there’s a couple of road only tunnels that were added next to the bridge, the Eastern Distributor, the Anzac Bridge, and many other roads in, so in just one of the AM peak hours 25,000 people drive into, or through, the Centre City on a weekday morning.

But that’s nothing. It’s only 14% of the total, just over twice the number that walk or cycle [source]:

Travel into Sydney City Centre

80% arrive on Public Transport. Over 100,000 in that one hour on trains [2011/12]. Because they can.


They would have to, it would be spatially impossible to have such a vibrant city centre if any more than a small number accessed it by private car. There would no space for anything but roads and parking if they tried. No space for the city itself, nor for quiet places away from the hustle:


So while Sydney streets feel very busy with cars, and they certainly have priority to almost all of them, they aren’t actually as central to the the functioning of the city as they appear. There’s just is no way Sydney would be the successful, dynamic, and beautiful city it is without the investment in every other means of getting people to and through the city. Especially high capacity, spatially efficient, underground rail. And nor would the streets be able to function at all if more were forced to drive because of the absence of quality alternatives.


And more is coming too. Next month a second much bigger Light Rail project begins to add to the current one, and a new Metro line with new harbour tunnels is also underway. Driving numbers will likely stay steady into the future, but the city will only grow through the other systems. City streets are vital for delivery and emergency vehicles, but really successful city cities don’t clog them up with private cars to bring in the most essential urban component; people. That’s just not how cities work; even though that may be the impression given by the sight of bumper to bumper traffic on city streets.

And successful cities always appear congested; the footpaths are busy, the stations are crowded, and the traffic is full. Because they are alive and attractive for employment, commerce, entertainment, habitation; in short; urban life. This is the ‘seductive congestion’ of successful urban economies. To focus on reducing traffic congestion without sufficient investment in alternatives for people movement is to misunderstand what a city is and how they work. Sydney is not perfect, but it has a thriving and vibrant, properly urban centre built on properly urban movement infrastructure.

All else there stands on the quality of this investment.






Development update: September 2015

I didn’t manage to get a “development update” post out last month, but I’ve now finished doing a pretty major update to the RCG Development Tracker page. Among other things, there’s been a new tranche of Special Housing Areas, a bit more info on things happening around Westgate, and I’ve updated a lot of apartment projects around the city (which ones have begun construction, expected completion dates, etc). Plus there’s been the usual array of new projects being announced.

The Tracker does actually cover the whole country, but taking a “Greater Auckland” perspective, there are currently 4,605 apartments or terraces under construction, with another 1,541 completed since 2012, and 2,694 currently selling off the plans but not yet being built.

On the Special Housing Areas front, since I don’t think we’ve mentioned it before, the council will now be focusing on getting brownfields SHAs approved in the remaining 13 months of the Housing Accord. In the first two years of the Accord, there’s been a massive amount of greenfields (i.e. urban fringe/ sprawl) land granted SHA status, which we’ve been quite critical of. It’s good to see that the focus, and hopefully the resources, will now be shifted to making development easier within the existing city. That’s the goal of the Auckland Plan, after all.

Also in positive SHA news, a recent Herald article announced who the developers would be at two Special Housing Areas which had already been announced. Ockham Residential will be developing the site at Avondale Racecourse, and Avanda Ltd will be tackling a large site on the edge of the New Lynn town centre, including the Monier brickworks factory.

In both cases, it now seems that the sites are going to get more homes built than previously thought. For Avondale, Ockham are planning 52 dwellings, up from the “at least 15” mentioned when the site was initially identified as an SHA. For New Lynn, the master plan aims to create 1,800 homes, up from 600.

Building Consents

July was a good month for consents, with growth across the board. The problem with looking at “moving annual” figures, which is what I usually focus on, is that each month you’re only changing one figure out of twelve – so changes in the trend can take a while to show up. That said, it seems like Auckland is starting to build more homes of all kinds – consent numbers are up for detached houses, apartments and other housing types.

In the last year (the year to July, at least, which is the latest data available), there were 8,567 dwellings consented in Auckland.

Auckland Dwelling Consents

We’re still not building enough homes, though. With three people per household in Auckland, we’re building enough homes for 25,000 people a year – but our population is growing by at least 40,000 people a year. This is not something that can be solved overnight, and we need to keep growing supply to provide adequate housing for the city.

Christchurch, in Cashel St I Wait

We haven’t talked much about Christchurch recently, but it’s an important part of this fair nation and we should all be keeping an eye on what’s happening there. Four and a half years on from the February 2011 earthquake, the Christchurch rebuild still has many years to run. The video below, posted by Cera last month, shows progress on some sites (including some of the government’s “anchor projects”) while much of the CBD is still vacant.

This video shows the progress at various anchor project sites such as the Innovation and Retail Precincts as at the end of July. There is significant development happening on the Avon River Precinct, the Innovation Precinct, and the Retail Precinct with several more anchor projects moving along. This footage also shows the huge changes on the Margaret Mahy Family Playground site, which is well under construction now and will be opening in December.

The “Retail Precinct” is actually a major office precinct as well, and is made up of several large developments by the private landowners. That includes Antony Gough’s The Terrace, which began construction in 2013 – the first of the big projects to do so – but then stalled until July this year. It’s now back in action. In the mean time, some other big projects nearby – the BNZ Centre, aka Cashel Square, and the ANZ Centre – are also under construction.

Then there’s the Bus Interchange which opened a few months ago, the Justice Precinct which is well underway, and a range of other things which you can explore in the Development Tracker map (or Cera’s Progress Map). However, there are still many sites which don’t seem to be making progress, and developments which were announced to great fanfare but have now stalled – this includes a Cathedral Square site which was to have been known as ASB House, but ASB has now pulled out.

The city continues to evolve and grow, and it’s good news to see things moving forward in the private-led Retail Precinct and the public sector ‘anchor projects’. On the other hand, it’s tough to look at the Cathedral Square area, and the Cathedral itself which you can see right into via a missing wall, and not be able to find many visible signs of rebuilding. As for the Cathedral, church leaders and the government have agreed to appoint a consultant who will review the situation, and a final decision on its future could be made by the end of the year.

Briefing Papers 3: “Bubble trouble”

AUT’s Briefing Papers initiative has kindly allowed us to syndicate their recent series on housing. The third paper is by University of Auckland economist Ryan Greenaway-McGrevy:

As of May 2015, the average house price in the greater Auckland region was $828,502. In May 2012, it was only $562,454. That is nearly a 50% increase over only three years. Can anything justify this incredible growth in prices, or is it all a bubble?

Peter C.B. Phillips and I address this question in a recent article to appear in New Zealand Economic Papers: Hot Property in New Zealand: Empirical Evidence of Housing Bubbles in the Metropolitan Centres. One of our key conclusions is that there is an ongoing bubble in the Auckland real estate market.


In Hot Property, we try to restore some objectivity to the difficult task of determining whether or not there is a bubble in New Zealand’s real estate markets. But what exactly is an asset bubble, and how can we spot one? A bubble describes a situation in which an asset price is substantially inflated relative to the asset’s fundamental value, which is the present value of expected income from the asset. But while we can easily observe asset prices, it is harder to observe expected fundamentals. Many arguments over the existence of asset bubbles boil down to whether or not high asset prices can be justified by expected incomes. These arguments sometimes persist long after the prices have come crashing down. For example, see this exchange between Eugene Fama and Ivo Welch from 2002 on the famous NASDAQ bubble: Fama is one of the most frequently-cited financial economists, and is known for the efficient markets hypothesis. Arguments over the existence of bubbles lead to a large experimental literature that has established the existence of asset bubbles in the laboratory setting (see, for example, Smith, Suchanek and Williams, 1988). Outside of the lab, however, it is remains difficult to spot a bubble by focusing only on asset prices, because we never really know what market participants’ expectations are.

It may be more productive to focus on the growth rate in prices, rather than the price level, when trying to spot a bubble. Bubbles occur because sufficient numbers of market participants purchase an asset in anticipation of future price increases. This can generate a self-fulfilling prophecy, in which asset prices spiral upwards simply because market participants think that prices will increase. As more and more buyers enter the market in anticipation of future returns, prices increase, and they increase at an accelerating rate. As I will discuss below in more detail, it is harder to justify this accelerating price growth in terms of changes in expected future income from the asset. We therefore look for accelerating price growth when trying to spot an asset bubble. This general approach to bubble detection was first proposed in the 1980s (See, e.g., Diba and Grossman, 1988).

The statistical bubble detection tests we employ are designed to establish whether prices are growing and at increasing rate. Peter and his other co-authors provide the theory for these statistical methods in a series of papers (Phillips, Shi and Yu, 2015a; 2015b). A key feature of the methods is that acceleration in price growth must occur over a sustained period in order for us to identify it with any acceptable degree of statistical precision: We are not talking about accelerating price growth over a few months, but a few years. The methods provide not only an indicator of whether an asset is currently experiencing a bubble, they also provide date stamping mechanisms for identifying when the bubble begins and ends. In other empirical applications the methods have proved to be very adept at capturing the onset of bubbles in other asset markets, such as stocks and commodities. And importantly, the end of the bubbles always coincides with a fall in the nominal price of the asset in these empirical applications.

Using this method we identify an earlier, broad-based bubble in most of the regional real estate markets of New Zealand. The bubble appears first in Auckland and Wellington in mid- 2003, before spreading to the other main centres. The onset of the bubble suggest that it was part of a broader global bubble in real estate. The bubble burst with the onset of the worldwide recession in 2007, and coincided with about a 10% fall in nominal house prices.

More recently however, the tests show that Auckland once again entered bubble territory in mid 2013. As yet, the bubble in Auckland has not ended, nor has it spread to other parts of the country.

Many readers will disagree with our conclusion and argue that the accelerating price growth in Auckland is entirely justified by the fundamentals. We mitigate these concerns to an extent by normalizing house prices by an indicator of asset income – in the paper we use either rents or incomes – before running our battery of statistical tests. By doing so, we rule out the possibility that asset prices have been growing exponentially because rents and incomes have been growing exponentially. This leaves open the possibility that price growth reflects exponential growth in expected future fundamentals. But while it is easy to generate a fundamentals-based narrative that results in price growth, it is difficult to construct a narrative that can generate accelerating price growth over a prolonged period of time. This is because asset prices incorporate news relatively quickly, and certainly not over a period of several years. Consider, for example, that the Reserve Bank recently cut interest rates and signalled the beginning of monetary easing in the economy. If this cut was a surprise, and all else being equal, this should lead to an increase in house prices, but not an acceleration in house price growth over the next few years. Many of the common rationalizations for high prices in Auckland – such as lower interest rates or high migration rates – fall into this category. An unexpected increase in migration, or an unexpected decrease in mortgage rates, is good news for property owners, and should lead to a relatively quick increase in real estate prices. But in order to generate accelerating price growth over a sustained period, we would need a sequence of good news that persists over several years. No one is that lucky.

Do bubbles always collapse? Nobel Laureate Jean Tirole provided the conditions for a bubble to survive in an economy (Tirole, 1985). These conditions include durability, scarcity, and common beliefs, and housing sure does appear to be scarce right now. Up until this point in time, urban zoning restrictions have tied real estate to land in Auckland: We do not have the same high density planning as many other cities in the world, and so the number of dwellings per unit of land has been more-or-less fixed. Right now, housing is scarce because land is scarce. If this link between land and real estate persists, then we may just be sitting on a rational bubble. Happily however, the current version of the Auckland Unitary Plan allows for a potentially large increase in the number of dwellings within the city limits. If approved, the land restrictions on dwellings will be significantly relaxed, allowing supply to better respond to the price signal.

Where to from here for Auckland? Unfortunately, the empirical bubble detection literature currently offers little in terms of predicting the future. It is apparent, however, that it can be a long time between when the bubble is first diagnosed and when it finally collapses: Periods of five years or longer are not uncommon. It would be foolish for me to make any claims regarding when the best time to buy or sell a house is, or whether prices will increase or decrease next month. But can real estate price growth continue to accelerate indefinitely? I wouldn’t bet the house on it.


Diba, B. and H. Grossman (1988). “Explosive Rational Bubbles in Stock Prices?” American Economic Review 78, pp. 520-30

Greenaway-McGrevy, R., and P.C.B Phillips (2015). Hot Property in New Zealand: Empirical Evidence of Housing Bubbles in the Metropolitan Centres. New Zealand Economic Papers, forthcoming.

Phillips, P. C. B., Shi, S. and J. Yu (2015a). Testing for Multiple Bubbles: Limit Theory of Real Time Detectors, International Economic Review, forthcoming.

Phillips, P. C. B., Shi, S. and J. Yu (2015b). Testing for Multiple Bubbles: Historical Episodes of Exuberance and Collapse in the S&P 500, International Economic Review, forthcoming.

Smith, V. L., Suchanek, G. L., and A.W. Williams. (1988) Bubbles, Crashes and Endogenous Expectations in Experimental Spot Asset Markets. Econometrica 56, 1119-1151.

Tirole, J. (1985). Asset Bubbles and Overlapping Generations Econometrica 53, pp. 1499-1528

Flags and Public Transport

The flag debate has dominated a lot of discussion over the last week since the four insipid designs were released by the government’s flag panel.

Jarrett Walker who is a public transport expert and author of the book Human Transit – and who has helped AT develop the New Network – has published an interesting post on his blog about what can be learnt from our flag design process. Most interestingly he has also linked the issues with the flag design process with that of public transport. It’s definitely worth reading the whole post.

If you care at all about visual communication — and if you aren’t blind from birth, then you do — you should be following the remarkable debate about the New Zealand flag. National flags are so enduring that it is hard to imagine a graphic design task with higher stakes. Revising one triggers a profound argument about national identity, which ultimately comes down to a couple of questions:

  1. One or many ideas? Can the nation come together around one image or idea, or must there me a mash-up of several to satisfy different groups or points of view?
  2. Fashionable or enduring? Graphic design is so much about fashion and fun that identifying an image that will make sense for decades is harder than it sounds. Yet that’s what a flag must be – and the greatest company logos have mastered this challenge as well.


Final Four Flags

But the real problems are these:

  • #2 and #4 are both mash-ups, obviously collisions of multiple unresolved ideas. A mash-up suggests that the country is too divided to revere any single image. If Canada — a far more diverse country in terms of landscapes and identities — could avoid this mistake, New Zealand certainly can. (British Columbia is another matter …)
  • Except for #3, they are all over-designed, with an attention to today’s graphical fashions instead of any thought about what might stand the test of time. This is equivalent to saying that they call attention to the designer.

What do you gain, designer of finalist #1, by flipping half of the silver fern image into negative, and making the frond leaflets more rounded so that they no longer resemble the plant? How is this better than the simple silver fern on black? Only that a graphic designer obviously designed it, in a way that is supposed to look cool.

But a flag is supposed to outlast its designer, and the design fashions of the moment.  Remember, the Canadian flag was designed in the 1960s.


You can’t tell, looking at the Canadian flag, that it’s an artefact of the 1960s, and that’s the whole point. A flag has to have a sense of timelessness and simplicity, which is why you must reject any design that calls attention to the cleverness of the designer or relies on design fashions of the moment. The creativity it requires begins with the willingness to disappear as the creator. None of the finalists displays this.

So how does this all relate to public transport? As Jarrett explains below, how we design our PT system including even what modes we use have impacts on how people experience it.

How is this debate relevant to this blog’s concerns in public transit?  If you really want to sell public transit, teach people to count on it.  Make it seem solid and enduring, not just sexy and ephemeral. Go for the simple, solid idea that will still make sense — practically and aesthetically — decades from now.

London Roundel

And this principle extends even beyond graphic design, to debates about whether transit technologies should be chosen for “fun” or reliability.

Do you notice how insecure companies change their logos and liveries more often than confident ones do?  Do you notice how they use flashy look-at-me images instead of clean and enduring ones?

Flashiness, fun, and novelty may attract customers, but only simplicity and reliability retains them. Which message do you want to put forth about your transit system, or your country?

I think Jarrett is spot on with this. Auckland’s current PT network is much like those Kyle Lockwood designs, we have a bunch of different elements such as buses, ferries and trains that have just been thrown together with little thought. Many of Auckland Transport’s current projects are exactly about pulling the various elements together into a single coherent network. This includes big things such as integrated fares or the design of the New Network down to smaller things such as a common livery, or some of the new requirements in the bus tender documents.

Of course all this also flows through to the logo’s we’ve assigned for public transport. Within the last decade we’ve had three logos, MAXX, AT and now AT Metro. The first two are below and the AT logo is certainly better than the awful MAXX days

Maxx logo
AT Logo

Are AT doing enough to make our PT system solid and enduring, will the current AT logo and designs stand the test of time? I guess we’ll have to wait and find out.

Interestingly Roman Mars in his Ted talk about city flags (worth a watch with the current flag debate anyway) also refers how flags and design can help shape PT to be better.