In Matt’s recent post about MoT’s work on the future of transport, there was an interesting little side-discussion about transport models, and in particular the travel demand forecasts which emerge therefrom.
We’ve previously written about the accuracy of transport models when used for project evaluation purposes. Perhaps the most notable (notorious?) was this post on the Waitemata Harbour Crossing, where we discussed how NZTA’s business case used traffic volumes that were approximately 10% higher than actual volumes. Naturally this led to the benefits of the project being overstated.
More recently, this post on the SH20 Manukau Harbour Crossing found it was carrying approximately 45% less traffic than projected 10 years after it was complete.
Transport models are important not just for the purposes of project appraisal. The outputs of transport models are also used to forecast aggregate travel demands and determine policy at a much higher level. For example, the MoT and the NZTA use (different) transport models to forecast aggregate vehicle kilometres travelled, which in turn determine the funding that is available in the NLTF to fund the projects identified in the NLTP. Hence, our ability to plan ahead is influenced by transport models.
In this context, graphs such as the one below are something of a cause for concern.
But let’s not be to critical of the MoT and NZTA; they are not alone insofar as their transport models have consistently over-estimated demand. Graphs surprisingly similar to that above exist in the US and the UK; one such example is shown below.
In some earlier posts here and here, we’ve presented some possible reasons for what might be causing the transport models that are used for forecasting travel demands (both at the level of individual projects and in aggregate) to get it wrong. The systematic positive bias in forecasting errors has been the subject of formal academic research led by the Danish economist Bent Flyvberg. I presented a paper at last year’s IPENZ Transportation Conference in which I discussed some of these issues in more detail, while Peter wrote an excellent post on the topic here. His analysis of NZTA data suggests that New Zealand may not be immune to the same systematic biases found overseas.
This post, however, is not about the systematic positive bias into transport models. Instead, this post is about whether the mechanics of the models are capturing what they need to capture in order to formulate accurate predictions. I think this is a useful starting point for thinking about “transport futures”, as the MoT seem keen to do.
I also think it’s fair to say that the superficial explanation for the slowdown in the growth of aggregate vehicle travel is that per capita vehicle travel has been on the decline. That is, people (both in New Zealand and overseas) aren’t driving as they used to. But this doesn’t get us very insofar as predicting the future, i.e. observing that per capita demands are declining simply begs the question of why?
And this is exactly where things start to get interesting. In my time thinking about these issues the views that are expressed tend to be readily grouped into one of three broad categories, which I now present for you to consider.
First we have what I call the “establishment view“, which is led by the likes of the MoT, the Government more generally, and a number of consultants. This view argues that the decline in per capita vehicle travel primarily reflects higher fuel prices and reduced economic activity over the last 5-10 years. There’s obviously some logic to this view; it seems reasonable to suggest that both the cost of fuel and the state of the economy will impact on travel demands, at least in the short term (say 1-5 years). Where the establishment view struggles, however, is to explain why the slowdown in vehicle travel started so early (way back in 2005), and why volumes haven’t bounced back more strongly of late. The latter is particularly interesting given NZ’s robust levels of economic growth, strong population growth, and sustained low fuel prices.
While VKT is currently growing again, it doesn’t seem to be growing by as much as one might expect based on these factors.
Which leads me to the second view, which I call the “wider socio-economic view“. This is probably the position which best describes my own views, at least in terms of understanding travel demands in the medium term (say 5-10 years). This view looks beyond the hard economic factors considered by the establishment view and instead consider some wider factors that seem likely to impact on the demand for vehicle travel. People who subscribe to this view will often talk about the following issues:
- Demographic factors, such as an ageing population and changes in the number of people with drivers licences;
- Transport and land use factors, such as availability of public transport and the ongoing intensification of our cities; and
- Vehicle substitutes, such as air travel and telecommunications.
The wider socio-economic view complements the “establishment view” in some senses, because it appeals to similar micro-economic mechanisms, but it does so in a way that allows for a wider range of factors to impact on the demand for vehicle travel. In doing so, however, the socio-economic view can lead to predictions that are quite different to those of the establishment view. Instead, the socio-economic view allows quite a lot of room for future growth in aggregate vehicle travel to differ from what we’ve seen in the past – which is something the establishment view struggles to incorporate.
Finally, we have what I call the “changing preferences” view. This perspective interprets the declining per capita demand for vehicle travel as a function of wider shifts in people’s underlying preferences. This view emphasises, for example, that young people are now placing a higher value on other forms of consumption, such as the connectivity offered by smart phones, than the personal mobility associated with owning and operating a vehicle – at least compared to their parents. The changing preferences view would seem to suggest the trends we’ve seen in the last 5-10 years are just the tip of the ice-berg, and that profound changes are just around the corner. Often people highlight that it’s not just technology which is driving these changes, but also awareness of the health and environmental effects of driving. Evidence for this view were recently summarised in this NZTA research report, which we previously discussed in this blog post.
The following figure is taken from this report.
Which view to believe? Well, personally I think all three have elements of truth to them. I think the establishment view is correct insofar as certain price and economic factors are likely to dominate changes in travel demands in the short term.
In the medium to long run, however, the other two views presented above seem to have more currency. I mean, if fewer people have drivers licenses then it seems plausible to suggest that there will be a reduction in per capital vehicle travel, ceteris paribus. Similarly, we can expect reductions in the cost of air travel to eat into the demand for long distance vehicle trips. In terms of preferences, these are critical to the accuracy of any model that seeks to forecast future demands based on past behaviours. If preferences changes, then our predictions are resting on a wobbly plank over shark-infested analytical waters.
So what’s the takeaway message? Well, I think it’s fair to say that we simply don’t know what to expect with regards to the future demand for vehicle travel.
In this context, I personally wouldn’t be investing in large transport projects, especially in rural areas, e.g. Puhoi-Wellsford, Waikato Expressway etc. As for the CRL, I think it’s likely to be a good project because of 1) patronage growth on the rail network, 2) Auckland’s growth as a whole, 3) the explosive growth in the city centre (both in terms of population and retail), and 4) wider trends in transport and land use policy, e.g. time-of-use road pricing and removing minimum parking requirements.
But I’m open to being convinced either way, and am interested to hear what others think on all this.
Meet George Jetson, his boy Elroy, daughter Judy, Jane his wife.
That’s the what immediately popped into my head after seeing the future vision for transport released by the Ministry of Transport yesterday. The visions look about 30 years into the future and the reason for doing the work is explained as:
The Ministry of Transport is taking a whole of system, long-term view of the future of transport to help in our role as the Government’s adviser on transport. We want to stimulate wider debate and generate ideas on the possible future of New Zealand’s transport system by sharing our visions of how we think the transport system could look in the future.
The visions we are sharing are not predictions about what will happen, just what could happen.
A lot of the premise for this work seems to be the idea that we’re about to see fundamental change in transport as a result of technology. There are repeated analogies made to the level of change experienced in the early and mid-20th century with them noting how the first cars came to NZ in 1898, that by the 1930’s they were becoming more common while around 30 years later we had wide-bodied passenger jets and had landed a man on the moon.
The technological change expected over the coming three decades is primarily about making our transport system more intelligent. For example the likes of autonomous vehicles and using data to better organise trips.
The ministry have been looking at what the future holds for a while, starting last year with their work on future travel demand. From it they found that in most possible scenarios the level of personal travel – i.e. how far we collectively travel – would decline.
That work also produced this chart which is one of my favourites and shows that their previous predictions of vehicle kilometres travelled have continued to be over optimistic.
The visions released so far are not all of them but do cover off a lot of transport sphere. They note that at least one more they are working on is looking at the future of public transport and I’m taking a trip to Wellington shortly to discuss this with them.
To me the visions as shown in the slides below are a mixed bag. Some seem fairly likely such as the suggestion that we will buy mobility as a service – which is starting to happen right now as a result of companies like Uber – and that high-density urban villages will allow for more trips to be made by walking and cycling which will improve health. However other ideas seem much more fanciful such as the people will be able to commute by plane from a regional centre to a job in Auckland in the same length of time as those who live in Auckland or that we’ll have airships carting freight around.
Some ideas aren’t in the slides but in supporting documents (like this one). One that we’ve seen raised before has been that we turn our rail network – outside of Auckland and Wellington – into guided truckways occupied by trucks platooning together.
The challenge with these road trains is they will probably require dedicated freight lanes. We think New Zealand has unique opportunities in this space. The rail network, outside of Auckland and Wellington, already provides a separated corridor that could be transformed into a high-speed freight network. The space already allocated means we can potentially be an early mover when
the right technology comes along. Imagine platooned trucks, not guided by a physical set of rails, but by a system that allows them to operate safety on narrow concrete pads on dedicated freight corridors. Imagine the productivity gains for our supply chains, and the avoided costs, by not having to extend the road network to accommodate these systems.
We are not advocating we close rail transport in New Zealand, but there may be whole new ways we could utilise existing rail networks and corridors.
Or you know we could just make trains more efficient and not have to pave all the tracks in concrete.
Here’s a couple more videos about the work, one from the MoT CEO and one from the Deputy CEO.
Have you looked through it and what are your visions for the future and do they align with the Ministry’s? Now, where are those moon colonies and how do I get to them.
Last week the Ministry of Transport released a very interesting report looking at how travel in NZ has changed over the last 25 years. The data is based on the ministry’s Household Travel Survey (HTS) they conduct which monitors the travel of all members of a large number of households all across New Zealand. One of the advantages of the over the other sources like the census is that the HTS covers trips for all activities and not just trips to work like the Census currently does. That doesn’t mean it’s perfect but it does at least provide a different picture.
One of the strong themes that comes through in the report is one that we’ve talked about a lot which is that young people are starting to behave differently to older generations. They’re getting drivers licences later, driving less and using alternative modes to get around (or live in closer proximity to their destinations). This is shown a few ways.
- Fewer young people are getting their drivers licence. Part of this will be the driving licence changes of a few years ago but it for many it appears they’re simply not interested in doing so.
- Younger people – and the 25-34 age group especially – are driving less than they have in the past.
One of the big questions is whether the trend will continue or if it is just a blip, will those 25-34 year-olds continue to drive less as they shift into the older age brackets. Given the 25-34 age group decline has been going on since the late 1990’s it seems to be the former. My guess is that in places like Auckland where the city and its transport systems are evolving so rapidly that we’ll see the trend start to flow though.
Travel to Work
This is a measure that hasn’t changed a lot over the last 25 years and seeing as the data is at a nationwide level it isn’t likely to do so much in the future either. At a city level I think Auckland in particular will start to see much more change coming through as transport options improve.
But work isn’t the only place people are travelling too, in fact it’s one of the smallest destinations.
Travel to School
The travel to school data helps show one of the areas where there has been the most significant change over 25 years and also the one of the biggest areas of opportunity. As of the last survey 57% of kids aged 5-12 are now driven to school compared with 32% in 1990. Public Transport mode share has remained about the same and so the biggest contributors to the loss have been from walking and cycling which respectively have gone from 42% to 29% (thanks to a small recovery recently) and 12% to 2%.
It all reminds me very much of this cartoon
Interestingly though secondary school students are actually walking to school more than in the past and catching public transport more too. The biggest change has been cycling dropping from 19% in 1990 to just 3% now.
The MoT look at cycling to school for both age groups separately in the chart below. Statistics NZ estimate there are around 487,000 5-12 year olds and 306,000 13-17 year olds. If they were cycling at the same rate as they did in 1990 instead of being driven it could potentially take over 40,000 car trips off the road in Auckland and 100,000 nationwide. Of course some of the current driving figures will be the result of a parent dropping the kids at school on their way to work so it wouldn’t necessarily result in a reduction of car use in the immediate term – just a shifting of where and maybe when it occurs. Instead the process of getting back to those kind of mode share will certainly involve much better bike infrastructure and that will get others using it too.
With the PT data there isn’t the long term charts like above but there is some very interesting information from the most recent survey.
The chart below shows the frequency of usage of PT across different age groups and as you can see the 13-17 and 18-29 age groups are the ones most likely to catch a bus, train or ferry.
Around 2/3 of all those who used PT during the survey used it to get to work or to education but another third were doing so for other reasons.
Lastly the report includes a section on how much time is spent drinking alcohol per week. It seems this was put in the survey in the context of drunk driving. What I found fascinating is how much the younger generations have taken reduced the amount of time spent drinking. It seems to only be those 65+ who are drinking more than they were
All up some very interesting stats and a good report from the Ministry
We’ve written before about the construction disruption coming to central Auckland next year. In particular there are two big half billion dollar full block rebuilds in the Convention Centre and the Downtown development and associated tower, plus the City Rail Link early works, then there are numerous other office and residential towers due to start. Only projects very close to the CRL route are shown below, there’s a lot more to the west both at Wynyard and around Sale St and elsewhere:
AT have some details on their CRL page about the details of their work, including a video of the Albert St process, no doubt they will communicate more closer to the time. Work on the pipe-jacking access shafts start early next month on Albert St. But as there is so much other construction starting next year I wonder if AT wouldn’t be wiser to really take an bold line on this as it all winds up? For the people who are used to driving through the city it’s more than likely these habits will be impacted. I feel the best way for AT to manage this frustration is to front-foot it, to ‘own’ this disruption, explain that people should not expect to get by without making changes. Say this is going to be big and difficult, but worth it in the long run. Just hoping to minimise disruption and try not to draw attention to it and that it’s all going to be ok seems to me to invite more of a backlash. In particular to invite accusations of carelessness and incompetence.
I think AT should consider a little Catastrophising; should call down a full ‘CARMAGEDDON’ for the central city next year. This has four potential benefits:
1. They can’t then be accused of downplaying or not taking the disruption to peoples’ commutes and daily business seriously.
2. It is likely to get a number of people to change their plans especially it may get more people to trying other methods for getting into the city, thereby actually helping to reduce the impacts of all this construction activity.
3. For these and other reasons it is likely that it won’t actually be as bad as they paint it, so people will feel more relief than anger.
4. It is a good way to get communication into the media, and with it the opportunity to discuss the value of the projects too.
Here’s an example of what I mean. The I-405 in LA:
A section of I-405 was closed over the weekend of Friday, July 15, 2011 as part of the Sepulveda Pass Improvements Project. Before the closing, local radio DJs and television newscasts referred to it as “Carmageddon” and “Carpocalypse”, parodying the notion of Armageddon and the Apocalypse, since it was anticipated that the closure would severely impact traffic.
In reality, traffic was lighter than normal across a wide area. California Department of Transportation reported that fewer vehicles used the roads than usual, and those who did travel by road arrived more quickly than on a normal weekend. The Metrolink commuter train system recorded its highest-ever weekend ridership since it began operating in 1991. Ridership was 50% higher than the same weekend in 2010, and 10% higher than the previous weekend ridership record, which occurred during the U2 360° Tour in June 2011. In response to jetBlue Airlines‘ offer of special flights between Bob Hope Airport in Burbank and Long Beach Airport, a distance of only 29 mi (47 km), for $4, a group of cyclists did the same journey in one and a half hours, compared to two and a half hours by plane (including a drive to the airport from West Hollywood 90 minutes in advance of the flight and travel time to the end destination). There was also some debate about whether the Los Angeles area could benefit from car-free weekends on a regular basis.
Granted this was only for one weekend, but still the principle is the same; own the cause of the likely negativity boldly.
What do you think is the best way for Auckland deal with these growing pains?
The model demonstrates that basic spatial interactions between land uses and transport infrastructure are the most powerful factors that govern the patterns of metropolitan growth.
Thanks to our London branch.
Below is a schematic of current apartment development in a small area of Melbourne just north of the City Centre, next to the Victorian Markets. These are pretty tall; one already under construction is 88 stories.
And here is a blog post from our Melbourne friends OhYesMelbourne on another City Centre adjacent development site; Docklands. And I thought Auckland is experiencing a building boom. Well it is, and this growth is impressive, but of course Auckland is a small city by global standards, and the current boom is well in proportion. Across the world it looks like we are in a phase that is concentrating development pressure in primary cities. So while urbanisation is widespread it seems to be especially concentrated in the cities that dominate their regions, like the Australian State capitals and Auckland in the South Pacific. It’s not just in the new world either; that classic primary city; London, is building up at a new rate too.
Aside from issues of about the balance of this growth from a nationwide perspective or architectural style [blingy is the term that springs to my mind], what is the likely impact of this kind of additional dwelling supply coming onto the market in these cities? Currently Melbourne is getting about 1500 new residents a week [1838 per week last calendar year, in fact]; which at current household sizes means there is fresh demand for about 500-1000 new residences each and every week; pretty hard work to satisfy that demand you’d think?
Well think again; the boffins at the Reserve Bank of Australia are worried about oversupply according to this report from Business Insider. Here’s the recent apartment supply growth:
So while the RBA couches this situation as a warning to financial stability, or at least risk to property developers loosing their shirts in a saturated market, isn’t this exactly the sort of quantity of new supply that overheating urban property markets need, like Auckland?
Price growth is already slowing for inner city apartments in Melbourne and Brisbane, and there are signs that activity in the Sydney property market is beginning to slow after two years of breakneck activity. Supply and demand in all three regions appears to be nearing equilibrium, with significant more supply scheduled to come. It’s clear that downside risks to prices are building.
It seems there is a lesson from the cities across the Tasman that supply/demand equilibrium in cities can be achieved most effectively by building up, although at the risk of supply overshoot. But then isn’t that always the case in any attempt to rebalance a market? So what are the barriers to this sort of solution occurring in Auckland? Is it even possible? One problem is inner city land supply, is there that much available space? Melbourne certainly has a lot of city proximate available land. Auckland is likely to need this sort of growth to also occur in metropolitan centres as well as the Central City simply from a space perspective; given how tightly bound our City centre is. But in that case we will also need to complete the Rapid Transit Network in a timely fashion to make that model function properly. But then we have to do this however we grow; or we are just planning traffic gridlock.
Then there are our planning regulations, especially height restrictions and view shafts, limiting spatial efficiency, and Minimum Parking Regulations adding unnecessary cost to construction [as well as feeding traffic congestion]. I’m sure some will argue that Aucklanders won’t live in apartments, but recent growth in inner city living shows that we have yet to find the limit of those happy to make that choice. It seems likely that out of 1.5+ million there still more willing to live this way, especially as the quality of city amenities and distractions improve [especially public transport, the cycling and pedestrian realm, street quality and waterfront spaces]:
And this is even more likely to be the case if new supply is sufficiently scaled to affect property price growth; then these dwellings will become even more attractive; more affordable as well as proximate. Perhaps, if the RBA’s handwringing is prescient, at the cost of one or two over-ambitious property developers’ businesses…?
Is it happening already? Certainly all the growth in dwelling supply in the last couple of years has been in attached structures: Stand alone houses used to completely dominate Auckland’s housing supply; at three-quarters of the market four years ago to around half now.
The evidence from these nearby cities suggests that ‘up’ may well be a more immediately effective solution to rampant dwelling inflation in Auckland than distant, hard to service, and slow to deliver detached houses out on the periphery. Certainly in as much as it is a supply-side issue.
Can cities fill up? Has Auckland simply become too populated to accommodate any more people, as some have argued? Do we need to put up the “closed” signs?
In a word, no. There is plenty of room to accommodate more people within the existing urban footprint, although doing so would require us to do things a bit differently. It wouldn’t mean losing the things that make Auckland special – but it could mean that we gain some new amenities.
Emily Badger over at Washington Post’s Wonkblog has put together some interesting graphics showing how cities almost always have the capacity to accommodate a few more people. She writes:
Echoes of a similar suspicion to the contrary, though, are widespread in how we talk about the places where we live. The entire city of San Francisco is “cooked. Done.” There’s no more room in Silicon Valley, either. Brooklyn is at capacity. Boston, too. The nicest parts of Northwest Washington long ago reached the limit. Chicago’s coveted Lincoln Park wants fewer people. Even whole countries now suffer from this condition: Britain just can’t take in any of those refugees because the island, at long last, is full.
Built into these arguments is a powerful but slippery contention: It is possible to fill up a place…
“Economists reject absolutes like ‘full’ and ‘need,'” says Joe Cortright, one of several urban economists I asked. “It’s always about tradeoffs and choices.”
Cities, in particular, are about tradeoffs between hectic streets and vibrant economies, between scarce parking and neighborhoods worth traveling to, between cramped subway cars and the mass of humanity that makes the subway possible.
And so, from an economist’s point of view, there is no such thing as a full place. Especially not in America, where our neighborhoods, as urban planning professor Sonia Hirt puts it, are “astonishingly low density” compared to the rest of the industrialized world. Maybe your particular geology can’t handle the foundation of a mile-high skyscraper. But, for the most part, we can always make choices to make more room, to build taller and denser, to upgrade schools and rethink roads to let more people in.
That we don’t isn’t a limitation of physics. It’s a matter of politics disguised as physics.
Here’s one of their graphics showing how much more intensely urban space is used in different places. (Side note: these figures are based on average density across the urban area, which can be misleading in some cases. Population-weighted density is a far better measure.) If you’re at the bottom end of this range – as Auckland is – it’s hard to argue that it’s physically impossible to build up a little bit.
However, points on a map don’t necessarily feel very real. So here’s another comparison between Auckland and San Francisco (via Mikavaa). As you can see, the Auckland isthmus is about the same size as the tip of the San Francisco peninsula:
We can see the difference between the two cities even in a satellite map. San Francisco’s urban footprint shows up as a swathe of white and grey, while Auckland’s is largely a mix of green and muddy grey. That’s not to say that San Francisco is all concrete jungle. It’s preserved extensive urban parks – the Presidio, Mount Tamalpais, Ocean Beach, McLaren Park, Golden Gate Park, etc – and reclaimed much of its waterfront for people. But its parks, unlike Auckland’s are situated within a densely-developed, productive, high-amenity urban fabric.
A comparison with San Francisco, a city with similar geographic constraints to Auckland, shows how inefficiently our limited space is used. The tip of the San Francisco peninsula houses around 1 million people. The Auckland isthmus accommodates less than 400,000 people. (The San Francisco figures include San Francisco City, Daly City, and South San Francisco; the Auckland figures include the Waitemata, Albert-Eden, Puketapapa, Orakei, and Maungakiekie-Tamaki local boards.)
Although San Francisco is over twice as densely populated as the Auckland isthmus, it isn’t exactly compromising on aesthetics or amenity. The city is widely appreciated for its beautiful natural settings, which are enhanced by appropriate infrastructure:
It’s also known for its historic buildings and beautiful neighbourhoods. Here’s an example of a fairly typical form for a San Francisco neighbourhood – lots of timber-framed midrise buildings close together:
And lastly, San Francisco’s always had a vibrant and innovative culture, both in the arts and in the booming tech industry. In other words, the city’s density has supported, not undermined, its natural surroundings, built environment, economic productivity, and cultural vibrancy. Of course, the city’s got some challenges – such as high housing costs resulting from limits to further intensification – but they are largely a consequence of its success as a dense place with high amenity and high productivity.
But overall, what this comparison shows is that Auckland has the potential to use its limited land area far more efficiently – without compromising our natural or urban environments.
In the last few months we’ve published several posts which have, in various ways, touched on some important issues facing local government in Auckland. In this post I seek to summarise some key concepts that have emerged in these posts, and consider some broader implications for Council policies, especially relating to transport.
For a self-confessed policy wonk it’s been heartening to see posts on seemingly arcane policy matters such as rates, transport levies, golf courses, and heritage policies attract passionate and oftentimes informed debate. This is not to say we’ve been able to reach agreement on the issues. Indeed many people disagree, for example, on whether Auckland Council should continue to own golf courses.
In the face of such disagreements should avoid posts on these topics? Should stick to puppyhood and apple pie posts about Amsterdam, which everyone can either get behind or comfortably ignore – by virtue of the fact that it doesn’t challenge anyone’s pre-existing notions? I don’t think so. To do so would be to rest lazily back in incomplete hammocks haphazardly woven from our own subjective experiences.
Rather, it is primarily through debating controversial issues that we can begin to understand our own values, and those of others. Even if we don’t start with the same values, we might reach agreement on relative priorities. This post is written in such a spirit. Or at least that’s my intention.
Of course the “DNA” of the post was born from my own incomplete hammock. For this reason I encourage you to tear it apart and splice it back together. Democracy often works best when people with different values work together to breed superior mutant hybrid policies.
Just so we’re on the same page: I define “policies” as things that local government either invests in and/or or regulates. And when I say “invest”, I am referring both to operational investment, e.g. public transport subsidies, as well as capital investment, e.g. owning golf courses. Without further ado …
Opportunity costs. The issue of opportunity costs has popped up frequently in our posts on rates and golf courses. That is, when Council decides to invest in something, then this will reduce the money available to invest in other things, i.e. investment has an opportunity cost in the short-term.
Some Council assets, such as Ports of Auckland, generate a direct income stream. Moreover, this income can be generated at a rate that is higher than Council’s “cost of capital”. Such investments actually increase Council’s ability to invest. Other assets, e.g. golf courses, do not generate (net) positive revenues. By continuing to own golf courses, Council’s has less ability to invest in other things, including public transport and walking and cycling.
Now, many people have argued Council’s investment in golf courses is worthwhile despite their (high) opportunity costs. I’m OK with this provided people are clear about the fact that maintaining investment in golf courses will reduce Council’s ability to invest in other areas. Put another way, I want the opportunity cost associated with golf courses, and all other Council investments, to be made explicit – so we can formulate some relative priorities.
As I discuss in more detail below, Council’s ability to increase rates to fund improvements in services is constrained by our democratic “willingness-to-pay”. Opportunity costs are important and they are not something we can simply sweep under the carpet.
In Peter’s last post on golf courses, for example, it was suggested that the opportunity cost of Council’s investment in golf courses amounted to mere “pennies”. My quick back of the envelope calculation suggests Council ownership of golf courses amounts to an additional ~$100 in rates per household per annum (NB: This primarily reflects their capital value). This cost arose simply because Council has debt, on which it must pay interest. Hence owning golf courses increases the debt, and by extension the amount of interest that must be paid. This is the opportunity cost of owning golf courses.
Now, $100 per household per annum may not sound like much to some people, but it is worth keeping in mind that it’s approximately equivalent to the temporary transport levy that was recently adopted by Auckland Council (to howls of outrage from some quarters). Moreover, in just 3 years the revenue from this transport levy will enable Auckland to pursue a much more ambitious transport investment programme, especially for public transport and walking/cycling.
This is all just to highlight the importance of opportunity costs, and the potential gains that might follow from optimising Council’s investments. Which brings me onto the topic of …
Level of investment. It is useful, I think, to think about the “level”” of Council’s investment somewhat separately from the “mix” of investments.
In my previous post on rates I suggested that we should measure the level of Council investment in terms of $ per capita. The figure below highlights some broad possibilities in Council spending. We can either increase, maintain, or reduce government expenditure. Those are your options – and your homework for next week is to find out where your local Councillors stands on these issues.
Notwithstanding what you hear in the media, Council is currently holding rates constant in real terms. But because the population of Auckland is growing, holding rates constant in real terms equates to less spending per person, i.e. we’re in the blue box in the above figure.
The blue box requires either 1) cutting services and/or 2) improving productivity. If Council wishes to hold services per capita constant, then productivity improvements will need to be equal to or higher than the rate of population growth. In Auckland, the latter is humming along at 3-4% p.a. That gives you a feel for the scale of the fiscal challenge Council is currently operating under.
Productivity improvements are one area where the public sector may be able to learn a bit from the private sector. For example, Air New Zealand has committed to identifying cost savings that are sufficient to offset inflation. This is discussed in the slide below (NB: Source).
It’s key to note that Air New Zealand are, in general, looking to realise these savings not through one-off “slash and burn” type changes, but instead through sustained, incremental improvements that are made across all areas of their business, i.e. they seek to leave “no stone unturned”.
I think Council needs a similar approach. It’s better to identify efficiencies consistently, rather than wait until major cuts are required. In this context, I think it’s reasonable for people, like Peter, to identify areas where savings might be made, such as golf courses. Other people may disagree. That’s fine, provided they have alternative ideas on how to either 1) find savings and/or 2) increase revenues.
Finally, I should say that I place “user charges” under the general rubric of “cutting services”. This is because if something was previously provided free, and we change it such that people now have to pay, then this is effectively a cut in service. This is *not to suggest* that user charges are necessarily a bad thing. I support, for example, user charges for things like wasterwater, parking, and development where they encourage the right kind of efficiencies. Which brings us nicely to the next topic …
Effectiveness and efficiency. This is an important distinction, which I think is frequently conflated – probably because the concepts are not always easy to separate.
From a public policy perspective I think of “effectiveness” as a question about whether a policy contributes to wider strategic objectives, including consideration of (potentially unintended) consequences. Efficiency, on the other hand, considers whether policies are well implemented. It may be, for example, that a particular policy supports strategic objectives, i.e. is effective, but nonetheless is implemented in an inefficient manner, such that the benefits are not as high as they could be.
While I tend to despise wish-wash diagram spam, I do think the following figure illustrates the distinction between effectiveness and efficiency quite nicely for y’all.
Let’s say, for example, that Aucklanders collectively decided that Council ownership of golf courses was an “effective” policy, insofar as it contributed to wider strategic objectives. The next question people like Peter and I would ask is whether Council was delivering golf courses in the most efficient manner?
We might then put forward questions such as:
- Do we own the right number of golf courses and are they in the right location?
- Are Council golf courses priced/sized appropriately? E.g.:
- Should we increase green fees so that the users covered not just operating costs but also some of the opportunity costs?
- Should we convert 18 hole golf courses to 9 hole golf courses? And If so then should we create public parks and/or residential/commercial development?
So even if we conclude that continued Council investment in things like golf courses is effective, we might still want to consider ways to make that investment more efficient. And that latter in turn would realise savings to invest in other Council services, and/or lower rates …
Focus on public transport. How might these concepts relate to public transport? Most Aucklanders, myself included, appear to be of the view that public transport is “effective”, i.e. our aspirations for the city see a larger role for PT.
But is Auckland’s public transport system efficient? Well, no not really. Or at least not yet.
It is true that sustained capital investment in public transport has started to flow through to “the bottom line” in terms of higher farebox recovery. For the uninitiated, farebox recovery measures the percentage of operating costs which are covered by fare revenues. Recent trends in Auckland’s farebox recovery over time are illustrated below.
You can see that in the last year or so it’s increased from ~46% to ~48%. This is heading in a positive direction, but is still quite low in comparison to many high performing cities overseas (with the notable exclusion of Australia – which is something of an outlier in terms of its operating costs, mainly for rail). Amsterdam, for example, achieves 75%, while Edinburgh, London, and several German cities achieve closer to 100%. The implication? All other factors being equal, these cities will have more money available for other things.
So how might we improve the efficiency of public transport in Auckland?
Well, the first thing I think we should do is to remove subsidies for cars where it is effective/efficient to do so. Cars are currently subsidised in terms of the parking they use, as well as the externalities they generate, such as congestion, noise, and air pollution. By charging people more to use cars, we would increase demand for public transport and hence generate increased revenue from the existing system. Such actions are, however, relatively slow to bear fruit, so we need to also look elsewhere.
In terms of the public transport system itself, we know AT is currently working on a range of things like growing HOP uptake, implementing PTOM (i.e. new bus contracts), rolling out bus lanes, reducing rail dwell times (and possibly staffing), the New Network, and the CRL. I am optimistic about these changes and their collective potential to improve the efficiency of our PT system. For those who are interested, my colleague Jarrett Walker has written some interesting stuff about making PT more efficient.
As mentioned above, improving the efficiency of PT is a means to an end, not necessarily an end in itself. More specifically, reducing PT operating subsidies frees up money within the existing PT budget to invest in efficiency-enhancing infrastructure, such as more bus lanes. In this way, improving the efficiency of our PT system gives us the opportunity to reinvest in the system, and thereby make it more useful and more abundant.
Key message? Operating PT efficiently allows us to provide it more abundantly. And abundant PT is what many of us want. For this reason, if you’re keen for PT to become more widely available and/or more widely-used, then you should also support initiatives that seek to make it more efficient. These measures may make trade-offs that involve cutting services in some areas, simply because the “opportunity cost” attached to those services is too high. I don’t think we should shy away from such decisions; we can’t make a great PT omelete without throwing away some bad PT eggs.
In short, if we can improve the effectiveness and efficiency of Council spending across all areas, then we can all look forward to more abundant public goods and services. This applies to golf courses, public transport, libraries, and indeed everything else that Council invests in.
Now I think I’ve said enough and it’s time to hear what others have to say …
How should we think through the dynamics of housing markets?
Conceptually, there’s a very simple answer and a very complex one. The simple version is that housing is just another market, shaped by the interaction of demand – i.e. people turning up with money to buy dwellings – and supply – people building new dwellings to meet demand. Policies can affect the supply side (e.g. by making it more costly or difficult to build new dwellings), the demand side (e.g. by subsidising home ownership), or both (e.g. by imposing supply restrictions to produce local amenities like parks).
And then there’s the complex story, in which we have to think about things like:
- Interactions between owner-occupation, renting, and property investment
- The impact of mortgage lending practices and asset values on housing
- The durable nature of housing, which means that prices can overshoot in a declining market
- The geography of jobs, amenities, and housing supply – not all locations are equally desirable, which means that houses in the wrong place don’t do much good
- Government provision of housing services (e.g. state homes) and subsidies for property ownership or renting
- Industrial organisation in the building sector, including firm size and structure and supply of skilled labour
- A wide range of local and central government regulations covering building materials, performance standards for dwellings, and the bulk, form, and location of dwellings
- Etc, etc, etc.
So it’s not usually possible to fully explain housing market dynamics with a simple supply and demand story. However, it’s often useful to start with a clear understanding of that story.
So with that in mind, here’s a key concept for analysing housing market dynamics: elasticity of housing supply. In an earlier post on public transport fares, I introduced the idea of elasticity of demand, which measures how responsive people’s demand for a good or service is to higher (or lower) prices. Supply elasticities are much same idea, but on the supply side of the equation.
Elasticity of housing supply is an important concept because it provides an indication of how many new dwellings will be constructed in response to an increase in prices (or demand). For example, an elasticity of less than 1 would indicate that developers are relatively unresponsive to increased demand – i.e. if prices rise by 10%, it will cause new housing construction to increase by less than 10%.
It’s easy to see why this is an important metric. In the aggregate, a relatively “inelastic” supply will mean that the housing stock will struggle to meet demand in a growing city. But aggregate lasticities aren’t everything – if new dwellings can’t be built in areas that are proximate to jobs and amenities, bad things will still happen
Supply elasticities can be measured empirically by looking at how markets have evolved in the past. In fact, a number of people have done just that.
In their 2012 housing affordability inquiry, the Productivity Commission surveyed some of this literature (see pages 33-34 of their final report). They published this chart comparing long-run elasticity of housing supply in 21 OECD countries, including New Zealand. Remember, higher numbers indicate more responsive housing supply:
New Zealand’s elasticity was around 0.7 – on the inelastic side, but still within the top 1/3 of the countries in the study. In other words, neither terrible nor fantastic. We have historically had a more elastic supply of housing than the UK or Australia, but we’ve lagged behind several Scandinavian countries as well as Japan, Canada, and the US.
Now, elasticity of supply is influenced by a number of factors. Building industry capability and productivity plays an important role. So do geographic constraints – a topic I’ll come back to in a future post. State house construction can also play a role, by ensuring that building activity doesn’t bottom out when prices dip. And, of course, planning regulations and consenting processes play a role. But how much of a role?
Unfortunately, we don’t have any good international comparisons of planning policies. However, the World Bank’s annual Ease of Doing Business report publishes some data on the ease of obtaining building consents, which provides a rough indication of the stringency of countries’ planning processes.
Here’s the upper echelons of their 2015 rankings. As you can see, New Zealand is ranked as the second easiest place to do business. When it comes with dealing with construction permits, we’re ranked 13th – ahead of countries like the United States (46) and United Kingdom (45) but behind Hong Kong (1), Singapore (2), and, oddly, Iraq (9).
Here’s a bit more detail on how Auckland’s consenting processes stack up. We have fewer procedures, a shorter consenting timeframe, and a lower consenting cost than the average OECD country:
So what does all this data mean? I think there are a few lessons we can – and can’t – learn from it.
The first is that perhaps we don’t have as many problems as we think we do. I have to admit that I was surprised by these figures. I was expecting our elasticity of supply to be lower and our consenting processes to be ranked lower. But perhaps – as with Auckland’s congestion – our problems aren’t that bad when put in international perspective. Kiwis do tend to prefer doing things efficiently, and NZ’s not large enough to require overly cumbersome bureaucratic machinery.
The second thing is that there is room to improve. There is almost always room to improve. New Zealand’s housing supply is still inelastic, which suggests that we may have trouble accommodating growth. Although the World Bank’s data on the ease of obtaining building permits seems to suggest that regulatory processes are less onerous here than many other places, who really knows? There are likely to be gremlins in any bureaucratic process.
The third lesson is that there are multiple paths to a well-functioning housing market. The countries with the highest elasticities of housing supply don’t have a lot in common with each other when it comes to policy frameworks. The US has a different set of policies than Japan or the Scandinavian countries. And it’s also the case that some countries have affordable and livable housing even though their elasticity of supply is low – Germany or the Netherlands, for example.
This is, in a way, really good news. We don’t have to go searching for a single “silver bullet” policy framework. There are different paths we could go down to improve the functioning of our housing market.
What do you make of these comparisons?
This is a guest post from Tony Horton, Senior Strategic Planner at Whangarei District Council
What will the heart of Whangarei be like in 20 years? This is the question currently being asked by Whangarei District Council.
But this is not being asked through the usual myriad of planning documents, strategic frameworks or growth strategies. This time the Council has put together a new website showing a list of key projects, such as turning a waterfront car park into a park or a new theatre complex.
The idea is that these projects are a more tangible way to talk to the community about the future of their city rather than using alien planning language and RMA speak.
It is also an opportunity to celebrate some of the great projects that have been completed over the last few years which have had a focus on connectivity for pedestrians and cyclists.
Te Matau A Pohe, Completed 2014 – Photographed by Patrick
Te Matau A Pohe, Huarahi O Te Whai cycleway/walkway and the Canopy Pedestrian Bridge are world class projects that have had a meaningful impact on Whangarei. They have opened up the waterfront for pedestrians and cyclists.
Since opening the use of the cycleway around the Whangarei waterfront has increased by over 130%. It is being used by both commuters and recreational users, it is being used by the young and old, by residents and visitors.
Canopy Pedestrian Bridge, Completed 2012
The challenge for Whangarei now is how best to build on these successes. Although we are the 8th largest district and growing, we do not have the spending power of the likes of Auckland.
One answer has been to see the Councils role as creating the canvas on which the community then paints a picture. A good example of this is since delivering the basic infrastructure of the cycleway/walkway, community groups and charities have contributed park benches, art works and fitness equipment and commercial enterprises are looking providing cafes, cycle hire and food outlets. This helps create community cohesion and sense of ownership.
Reyburn House Lane, future CBD living along the waterfront
So moving to the future, there are number of projects and ideas which could be catalyst for further quality developments and economic growth. The ideas range from a new theatre with conference facilities, to a new cycleway along a city river connecting the waterfront to Whangarei Growers Market, to enabling more inner city living.
Reyburn House Lane, future CBD living along the waterfront
The website gives an overview for each project, including those that have been completed, those in the planning and finally those which are still just ideas or future concepts. It then allows you to make a comment or just simply click that you like the idea.
Proposed cycleway along the Raumanga Stream from the waterfront
So the Council is seeking feedback on these ideas, from residents and visitors to Whangarei, but also from the developers, architects, planners, engineers and community organisations. We want to hear from people from all walks of life.
So tell us what you like about each of these projects and what you would change? What do you think is missing? And what should be a priority?