More on the National Land Transport Programme

Last week the latest iteration of the National Land Transport Programme was announced. This is largely a business as usual plan, dominated by the big spend on a few massive state highways projects. However there are a few things to be celebrated, especially for cycling, and even more in the language and thinking in the supporting documents. This was repeated at the launch too, especially in the words of NZTA CEO and AT Board representative Geoff Dangerfield, and NZTA Auckland/Northland Regional Director Ernst Zöllner.

BRITOMART JULY 15_3344

The high level aims are all strong and commendable. The focus on ‘economic growth and productivity, safety, and value for money’ are incontestably valuable. If they were to add ‘resilience, energy security, and environmental performance’  it would probably be a perfect list. But of course this is really set by the Government Policy Statement.

Dangerfield was his usual clear and persuasive self, setting a high level context and skilfully bating away questions. Zöllner was particularly articulate about both the dynamic nature of the situation in Auckland and the unformed quality of Auckland’s PT networks; especially the incomplete nature of the core Rapid Transit Network. Both noted the strong growth of PT ridership numbers, which will see a rise in the PT opex spend.

Here’s what the agency says about the Transit and Active modes, in the Providing Transport Choices document:

NZTA The role of PT.
And
NZTA Economic Growth through PT

All incontestable good sense, and exactly the sort of points regular readers here would recognise, especially the emphasis on the value of the high quality own-right-of-way Congestion Free networks of rail and dedicated busways.

People using public transport on high-quality public transport services with a dedicated right of way, like the Auckland Northern Busway or metropolitan rail networks, can now enjoy fast, efficient journeys on comfortable modern buses and electric trains, while freeing up road space for other people and freight.

There remains, however, some considerable daylight between this analysis and the actual projects being funded. This is especially the case with the comparatively tiny sum of $176m for Public Transport Capital Works in Auckland out of a total $4.2 billion spend over the three year period in the region [~4%] and $13.9 billion nationally. This sum [half of which is from the Council’s Transport Levy] will bring much vital kit, like the Otahuhu, Manukau City, and Te Atatu bus interchanges. But is a long way from fixing those big gaps in the RTN network. In response to my questions on this they quite reasonably countered that some funding for bus capex is in other budgets, notably under the AMETI programme, as part of the North Western massive highway works, and the Northern Busway extensions.

However the two Busway sums do not result in the construction of even one metre of additional RTN. For the Northern Busway the previous minister deleted construction of the proposed extension from the accelerated motorway package [a loan to be met from future NLTF], so all we are left with is ‘future proofing’ and no one can ride on a busway that has only been future proofed for. On the Northwestern we do get the improvement of bus shoulder lanes and a station at Te Atatu; but no RTN. AMETI is the best of the bunch, but that’s only if the proposed BRT does happen instead of the place-ruining flyover that appeals more to some entitled voices there.

Then we come to the great problem that the National Land Transport Fund is barred from investing in rail infrastructure yet Auckland is now showing the huge value of using this separate network for moving increasing numbers of people completely outside of traffic congestion. And some RTN routes are clearly best served by rail. Just as well the Council has the courage to just get on with the CRL first stage by itself so at least this vital gap at the heart of the RTN is getting a start.

The case for near term investment in PT and especially for completing the RTN can be summarised thus:

  • current demand growth of 20+% on Auckland’s Rapid Transit Network,
  • the RTN is showing improved operating cost effectiveness as it grows,
  • the strongly voiced value the agency sees in quality PT networks especially their positive effects on traffic congestion and economic growth,
  • the well known relationship between what is invested in and what then grows in use plus the positive externalities of increased PT use,
  • and the observed sub-optimal nature of the city’s current PT networks in both quality and extent, ie the clear opportunities for improvement.
So despite the good work being undertaken by many in all our transport agencies: NZTA, AT, and MoT, there seem to be structural problems that are leading to important opportunities being missed in our only city of scale. It is this context that I wrote to NZTA Auckland and Northland Director Ernst Zöllner with concerns about two specific projects that embody these issues. As this post is already quite long I will run the letter tomorrow morning in a follow-up post…

Ministry of Transport CEO on the future

An interesting piece on Radio NZ what the CEO of the Ministry of Transport think will be the future of transport in NZ. I agree with some of what he says but in others it seems like he off the mark. You can listen to an interview here


Or listen here

New Zealand had 2,488,008 licensed cars and vans on its roads at the last count three months ago.

However Mr Matthews, who is also Secretary of Transport, said in three decades there will be little point in people owning such vehicles.

“I have to say as a self-confessed petrol head and the owner of five vehicles, the concept of not owning a vehicle is pretty hard for me to swallow.

“But for my grandchildren, I’m sure it won’t be so difficult for them to imagine,” he said.

Mr Matthews told the transport summit he foresees major changes in how people travel, envisioning a future “more tailored to individual needs” and with “more choice”.

“You’ll no longer need to look to see when a bus, train or taxi will be available because there probably won’t be any bus stops or bus timetables, in fact there’ll be no parking as well.

“You’ll probably no longer need to worry about cleaning out the garage to get the car in because you probably won’t own a car.

“It simply won’t make any sense anymore for you to own your own vehicle,” Mr Matthews told the internationally-attended summit.

I agree that in the future people probably won’t own cars however I’m a bit sceptical it will completely happen within 30 years given the pace of change in the car industry, for example the average age of a vehicle in NZ is around 13 years and getting older. The issue of bus stops are an interesting one though as he doesn’t appear to be suggesting that buses themselves will disappear. In my view we’ll still see PT but increasingly it will high quality, high capacity options such as busways and rail (light and heavy) and more dedicated stations rather than small stops. Within that system driverless cars are likely to be quite a useful last mile solution.

Of course if we don’t need carparks or a garage and driveway that also opens up a huge amount of space in urban environments that can be put to better use. In cities like Auckland where space is at such a premium that presents interesting opportunities.

One area I think he’s way off the mark is on the future of freight

He said there needed to be a drive toward significant improvements in the productivity and efficiency of freight supply chains, and he believed freight vehicles would be self-driving.

“These modern road trains will be more flexible, more responsive to market and consumer demands than any of our current train systems can ever be… The rail network outside of Auckland and Wellington, which is shared with commuter services, already effectively provides a separated freight corridor.”

Mr Matthews said these corridors could be transformed into high-speed freight networks.

“Rail may not be the technology of choice in the future for New Zealand… I imagine the space the corridors currently occupy being allocated for a different way of use.

“Imagine platoon trucks not guided by rails, but by a system that allows them to operate safely on narrow concrete pads through these dedicated freight corridors.”

Ripping up the railways and turning them into truckways has been a desire from the trucking industry for decades. Is it really practical for us to spend what would be 10’s of billions to rip up the existing working rail network and replace it with continuous concrete strips strong enough to carry super heavy trucks. Included in that is bound to be a need to duplicate the corridor seeing as most of the rail corridor is single track. We’re then going to have fleets of driverless trucks to run on these truckways in a platoon just like trains and carriages do now. To be honest I’m not quite sure what we gain from this suggestion and if it’s automation that’s desired it would surely be cheaper and easier to upgrade trains to be driverless and then invest in automated systems to quickly load and unload trains at destinations.

The UK consultant who is also quoted in the piece sums up one of the issues quite nicely too.

“Platooning of trucks has been tested, successfully tested quite a few times – it works – technology is not a real problem.

“The problem is acceptability and the problem is liability – acceptability because car drivers don’t want to be associated with large trains of trucks where the person doesn’t appear be in control.”

One thing I will say about the views of the MoT CEO, at least they are starting to look to the future. These comments follow on from a report late last year looking at future demand in which only one of four scenarios would see travel demand increase. They’ve also been doing more work thinking about the future – one piece of which I’ll try to talk about this week.

ResizedImage700325-FutureDemand-Diagram2

 

The economics of fare policies, part 1

A few months back, Auckland Transport put out its new fare policy for consultation. The draft policy, which they call Simplified Fares, has two main elements:

  • Standardised fare zones that ensure that journeys within or between zones cost the same regardless of whether you’re travelling by bus or rail [ferries are excluded]
  • No transfer penalties between services, which is a key element in enabling a frequent connective network.

Those are indeed simple principles, but developing and implementing a fare policy is seldom simple. So the whole thing got me thinking: Why do public transport fares work the way they do? And could we do things differently?

As I’m curious, I figured that I should take a quick look at the economics of fare policies. Part one of the series looks at the biggest-picture question: Why do we subsidise public transport?

First, some background. In most developed-world cities, public transport systems are subsidised by taxpayers. Users pay some of the operating costs – ranging from as low as 10% to as high as 80% – but seldom all. In New Zealand, the national farebox recovery policy requires all regional transport agencies to cover 50% of their public transport costs from fares. However, data from the Ministry of Transport suggests that some agencies are closer than others to this target:

MoT farebox recovery rates 2013-14

Is 50% the right number for all regions? I don’t know – and the answer depends in part on what other goals we’re trying to accomplish with public transport pricing. But it’s clear that some level of subsidy must be provided in order for the entire transport system to work efficiently.

To see why, we need to take a look at what economists call “second-best pricing”. According to Wikipedia, it can be desirable to impose a subsidy to “offset” for an uncorrected market failure elsewhere:

In an economy with some uncorrectable market failure in one sector, actions to correct market failures in another related sector with the intent of increasing economic efficiency may actually decrease overall economic efficiency. In theory, at least, it may be better to let two market imperfections cancel each other out rather than making an effort to fix either one.

In transport, we have a situation where people have multiple options for getting around. They can drive, take the bus (or train), cycle, etc. In this situation, a price change in one market – say, a fare increase for public transport – can encourage people to switch to another mode instead of paying more.

As I argued in a recent post on congestion pricing, road space is usually not priced “efficiently”. All road users pay fuel taxes or road user charges based on the total number of kilometres driven or litres of petrol used. But they don’t pay more to drive on busy roads, where they impose delays on other drivers. As this diagram from a 2012 UK study on the external costs of driving shows, the last 10-20% of car trips impose significant costs on society.

marginal-cost-transport

Public transport can play a useful role in smoothing off the big spike at the right hand side of that chart, by providing a more space-efficient option for travelling on popular, congested routes. Another way of saying that is that in the absence of congestion pricing (and in the presence of other subsidies for driving, such as minimum parking requirements), higher public transport fares can result in a perverse outcome – additional congestion and delays for existing road drivers. This is shown in the following diagram:

PT fares and congestion diagram

Effectively, a failure to price roads efficiently means that we have to provide subsidies for public transport to prevent car commutes from being even more painful than they currently are. Public transport subsidies are, in that sense, subsidies for drivers. By making your neighbor’s bus fare cheaper, they in turn make your drive to work a bit easier.

Finally, it’s worth considering how we got into this situation. 80 or 100 years ago, public transport systems tended to cover their operating costs with fares. For example, Auckland’s tram system was profitable, if in need of maintenance and refurbishment, up until its removal in the mid-1950s. (Mees ref?) This changed, in large part, due to the introduction of subsidised motorways.

This article by Joseph Stomberg at Vox describes how the US interstate highway system was developed in the 1950s as an explicitly subsidised – i.e. not tolled – transport mode:

The first step was changing how roads were funded. In the 1930s, there were already privately owned toll roads in the East, and some public toll highways, like the Pennsylvania Turnpike, were under construction. But auto groups recognized that funding public roads through taxes on gasoline would allow highways to expand much more quickly.

They also decided to call these roads “free roads,” a term that was later replaced by “freeways.” Norton argues that this naming shift was essential in persuading the federal government — and the public — to shift away from tolls. “It started with calling the roads drivers pay for ‘toll roads,’ and calling the ones that taxpayers pay for ‘free roads,'” he says. “Of course, there’s no such thing as a free road.”

In other words, the “original sin” of transport subsidies was the construction of non-tolled highways paid for out of general tax revenues. This choice led in turn to a situation in which we must adopt “second best pricing” in public transport, and offer an offsetting subsidy. I’m not necessarily opposed to this… but it does mean that I am skeptical to complaints that buses and trains are subsidised.

What do you think we should do about public transport pricing?

The National Land Transport Programme 2015-18

The NZTA yesterday announced the what it would fund over the next three years as part of its National Land Transport Programme 2015-18 (NLTP). The NLTP combines funding from the National Land Transport Fund (NLTF) – which is essentially road/fuel taxes, council rates and from other government funding sources such as for the spend up on regional roads announced last year.

The headline figure is that over the next three years $13.9 billion will be spent on transport which is about 15% more than the 2012-15 NLTP and of which about $10.5 billion comes from the NLTF. Most of the rest comes from local councils through rates. Where the money comes from and where it is being spent is quite well shown in this graphic from the NZTA.

NLTP 2015-18 revenue and investment flows

As you can see above the vast bulk of the funding is going on building new and maintaining existing roads. Of the $5.5 billion for road improvements the majority (almost $4.2 billion) is going towards State Highways. None of this is particularly surprising as it’s a continuation of the trend we’ve seen for a few years now and one that has been continued with the current Government Policy Statement (GPS) which the NLTP has to give effect to. The GPS doesn’t set specific funding levels but it does provide funding ranges for each category. Just how the actual investment in this programme compares with it’s GPS funding range for each category is shown below. You an quite see quite clearly that for State Highways the funding level is well above the midpoint set by the government – although interestingly local roads are at the bottom of their range (note: this is just for funding from the NLTF so doesn’t include rates).

NLTP 2015-18 allocation vs GPS funding range

One area that is at the top of its range is walking and cycling where the NZTA are putting in over $100 million which is on top of the $96 million from governments Urban Cycling Fund.

One aspect I was interested in was how the money is divided up across the regions. A lot was said about how Auckland is getting ~$4.2 billion in funding however when you look at on a per person basis (using Stats 2014 population estimates) it appears Auckland is spending about the National average while it’s the Waikato doing pretty well.

NLTP 2015-18 Regional Spend

Just looking specifically at Auckland around $4.2 billion will be spent over three years. I find the press release and other information about this investment quite odd as it seems the NZTA are doing everything they can to avoid saying how much their spending on roads. They focus attention on the $1.175 billion going towards Public Transport (of which only about $176 million is for new PT Infrastructure and services), on the $960 million on road maintenance and the $91 million on cycling yet there is very little focus on the over $2.1 billion being spent on roads, $1.8b of which is state highways.

There are also a few other things I picked up on, including:

  • The term Congestion Free is entering the NZTA’s lexicon

Mr Zöllner says Auckland’s future depends on a strategic joined up approach to both its motorway and local road network, along with critical public transport, walking and cycling networks, to ensure highly reliable, dedicated and congestion free travel.

  • It is claimed that spending $960 million on maintenance will help ease congestion, I’m not quite sure how that will work.
  • That the changes to the Northern Motorway will include the design and consenting for extending the busway to Albany which is good although no actual construction on it will happen within this time. They also say the motorway widening is only to address predictions of large travel demand in the future i.e. there is no proof it will actually happen and of course any predictions of large demand for PT seem to be ignored, especially by the government.

These projects aim to address predictions of large travel delays in peak times within the next decade, and provide alternative travel options.

  • The NZTA are now talking about the package of works to widen the southern motorway between Manukau and Papakura as part of the route between Auckland, Hamilton and Tauranga. As such seem to be lumping in the time savings from other projects such as the Waikato Expressway to claim the works will help save 30 minutes. This is odd seeing as one of the reasons they lost the Basin Reserve Flyover was that they lumped in time savings from other projects.
  • It’s been cut from the online version but in the original emailed version of the press release they claim the Puhoi to Warkworth motorway will save up to 30 minutes, odd seeing as it only currently takes about 20 minutes now except for about four days a year in a single direction.

Road of National Significance, providing a safer, more reliable connection between Auckland and Northland by extending the four-lane Northern Motorway (SH1) to Warkworth. The project is estimated to cut 30 minutes from journey times in peak periods.

  • This map shows where the NZTA is investing. It seems to me that the symbols are way off in some places and also minimise the impact of massive projects such as Waterview which only gets a single icon for all the North Western work that’s happening.

NLTP map auckland

One of my big concerns about the PT funding in particular is that it simply won’t be enough investment to cope with the increase in demand. The NZTA say they think with this investment that over the next three years PT patronage will increase to 21%. Given we’ve had roughly a 10% increase in patronage over the last year alone and we still have the New Network, integrated fares and the completed roll out of the new electric trains that 21% figure seems a little undercooked.

Lastly I think the NZTA deserve credit for how they’ve made the NLTP data available. Through this table you can select any combination of activity classes and regions and get a list of every single project that will be funded from the NLTF and also download all of the data easily.

Encouraging Multi-modality

The issue of road pricing in Auckland has been talking about recently as a way of raising additional funding to pay for transport projects. The government has so far not been very supportive of the idea however they have said they would consider funding options once they have a transport accord agreed with the council. One of the stated benefits of road pricing is that it enables us to better manage demand. A key issue with road pricing that we’ve long suggested is that as things stand right now, far too many people don’t have good alternatives to driving.

We know that giving realistic alternatives is key to changing travel behaviour. Services like those that use the Northern Busway show that when good quality and time competitive options are provided that people will use them in droves. That’s not to say that everyone will or must use those alternatives but at least the option is there. However even when alternatives exist I wonder how many still stick to driving simply because of one type of journey they make. It’s a scenario that’s certainly happened to me a few times. I usually commute to work via PT or by cycling yet every now and then I have something on that means I need to drive – ironically it’s occasionally when I have a meeting or event related to the blog.

An article I saw a few months ago made me wonder that if we were to introduce proper road pricing (rather than just revenue gathering), whether we could use it to create a more multi-modal future. It idea came from Atlanta and a pilot programme they are running with their High Occupancy Toll (HOT) express lanes. The express lanes are lanes on the freeway that can be used by buses, T3, motorbikes and a few other vehicles for free but that also allow those that don’t qualify – e.g. single occupant vehicles – to use the lane if they pay a toll. The toll is dynamic and ranges between US.01 cents per mile and US.90 cents per mile and changes based on demand in order to keep journey times reliable i.e. if it’s busy you’ll pay more to use the lane but if it’s quiet you won’t pay much. The lanes are 16 miles in length meaning prices range from US$0.16 to US$14.40.

The segment below highlights how Atlanta are encouraging multi-modality.

The pilot program is offering northeastern metro Atlanta commuters $2 in toll credits for every transit trip — on lines with routes that include I-85 — with a maximum of $10 a month and $60 over a six-month period, reports the the Atlanta Journal-Constitution. This means that commuters willing to kick back for their commute five days a month could underwrite much of their driving the rest of the month. To get the credits, drivers have to register and connect their bus pass with the highway express lane mechanism, called the Peach Pass.

So far Auckland isn’t talking about HOT lanes or dynamic pricing but instead a toll toll charged each time you enter the motorway. It has been promoted as changing depending on the time of day but it’s not truly demand responsive like the example above is. Even so I think the overall idea could still apply here. The basic idea is that you would have your car numberplate hooked up to your HOP card and if you use a certain amount of PT you get a credit to use on the toll road for those occasional times that you really need to drive. The exact details would have to be worked out but it’s something that might take some of the concern about road pricing away. Of course rewards type system for PT would also be needed – although as AT have already been making noises about it I’d expect that to occur long before we ever had motorway tolling or road pricing.

The impact road pricing could have on patronage is enormous. Currently Auckland averages just over 50 trips per person per year on PT. If from tomorrow we could get all 1.5 million Aucklanders to on average use PT for just one day a week i.e. to work and back – it would double patronage to almost 160 million trips. Of course as it stands now there is no way the system could cope with that many extra passengers at once.

The cost of space (for cars)

Earlier this month, urban policy researcher Todd Litman published a useful summary of some of his new research into the cost of sprawl:

Our analysis indicates that by increasing the distances between homes, businesses, services and jobs, sprawl raises the cost of providing infrastructure and public services by 10-40 percent. Using real world data about these costs, we calculate that the most sprawled quintile cities spend on average $750 annually per capita on public infrastructure, 50 percent more than the $500 in the smartest growth quintile cities. Similarly, sprawl typically increases per capita automobile ownership and use by 20-50 percent, and reduces walking, cycling and public transit use by 40-80 percent, compared with smart growth communities. The increased automobile travel increases direct transportation costs to users, such as vehicle and fuel expenditures, and external costs, such as the costs of building and maintaining roads and parking facilities, congestion, accident risk and pollution emissions.

[…]

We estimate that in total, sprawl costs the American economy more than $1 trillion annually, or more than $3,000 per capita, and that Americans living in sprawled communities directly bear $625 billion in extra costs, and impose more than $400 billion in additional external costs. This is economically inefficient and unfair: it wastes valuable resources and imposes costs on people who do not benefit from sprawl.

These findings should not be particularly surprising to regular readers of Transportblog – or, indeed, to anyone with an elementary understanding of geometry. (Serving dispersed suburbs with network infrastructure is more expensive.) But the magnitude of the costs is impressive.

I was particularly struck by the following chart, which illustrates the amount of space required for various different transport modes. Litman estimates that each automobile requires a total of 80 to 240 square metres, mostly for parking. By comparison, walking, cycling, and public transport require less than 20 square metres per passenger:

Litman-space-required-by-mode

As I’ve written before, space is expensive in cities, which means that we must use it efficiently. Moreover, the cost of space for cars is rising rapidly, while demand for driving is levelling off. In this situation, devoting more space to roads and parking – or preventing the re-use of road space and parking lots for other purposes – may represent a significant misallocation of resources:

AHB traffic volumes and real house prices, 1961-2014

So, we might ask: How much space have we misallocated as a result of our bias towards building roads rather than public transport and cycling options? And what else could we be doing with this space instead?

First, some data. As we tend to build road networks for peak demands, they tend to have spare capacity during the middle of the day and evenings. Consequently, I’m going to focus on trips taken in the morning peak. This is a conservative view on the space required for a car-based transport system, as cars used during off-peak times still require lots of parking.

According to modelling results reported by Wallis and Lupton (2013), in 2006 there were around 450,000 vehicle trips taken during the morning peak. (See Table 4.1 in their report.) Most of these are trips in single-occupant vehicles. How much space do we need to accommodate all these vehicles?

Based on Litman’s figures, travelling by car requires an average of 150 square metres of space – around 40 square metres of roads per car when moving and 110 square metres for parking. This implies that the 450,000 vehicles moving around during the morning peak occupy 67.5 square kilometres of space, including (at minimum) 18 square kilometres of roads.

That’s a lot of land. Urban Auckland covers a total area of around 544 square kilometres, which suggests that we’re using up around 12.4% of the city’s land area simply to move single-occupant vehicles during the morning peak and warehouse them during the day.

If anything, this is probably an under-estimate of the spatial cost of Auckland’s car-based transport system. A 2013 UN-Habitat report on streets as public spaces and drivers of urban prosperity found that Auckland devotes 14% of its land area to roads alone. Parking is likely to cost us even more space, as this map of Manukau central shows. Everything that’s not coloured in red or green is a carpark or a road:

mcc-coloured

But regardless of whether we’re dealing with 12% of the city’s land area or 30%, we’re talking about a lot of expensive space devoted to moving or storing cars. Even a modest reduction in the share of people travelling by car in the morning peak would save us a large amount of land.

Let’s say, for example, that we’d invested in better transport choices that enabled 10% of the people in cars to shift to public transport or cycling, which require around 10 square metres of space per person. If we had done so, we would have had an extra 6.3 square kilometres of land that didn’t need to be used for roads and carparks. [6.3km2=45,000 vehicles*(150m2-10m2)]

This is valuable land. Assuming an average land price of around $500 per square metre, it’s worth $3.2 billion. And it could be used for so many more things – housing, businesses, public parks, schools, etc – if it hadn’t been gobbled up by our space-hungry transport system. If it had been developed to the same density as Auckland’s average neighbourhood – around 43 residents per hectare – instead, it could have housed 27,000 people.

In a city that’s struggling to find enough space to house it’s growing population, this amounts to a minor scandal. Since the 1950s, local and central governments have spent lavishly on roads and neglected public transport, walking, and cycling. Those decisions have inadvertently contributed to our housing woes today, as they’ve saddled us with a space-inefficient transport system and a shortage of developable land.

At the moment, local and central governments are looking at ways to get best us out of their own properties. Auckland Council’s setting up Development Auckland to manage and develop its substantial land-ownings. At this year’s Budget, the Government announced a more hastily-developed plan to sell off a significant chunk of the land that it owns in Auckland for development.

Given their interest in the subject, they should also be thinking hard about how to minimise the “opportunity cost” of Auckland’s space-hungry car-based transport system. Investing in public transport and safe walking and cycling can allow us to move more people without gobbling up more valuable land.

What do you think about the spatial cost of our car-based transport system?

Productivity Commission report on Land for Housing

The Productivity Commission has released a draft report called Using Land for Housing which looks at options for how more land can be made available for development. At first blush that may sound like code for “open up lots of greenfield land for development” however the report appears to actually look at many of the issues in a holistic way giving a fairly balanced outcome. On a first skim through I agree with most of the changes the commission has suggested.

Before I go into the recommendations I think it’s useful to highlight that the commission start off by showing a good understanding of why cities are important. This is from a short summary document however there is a more detailed discussion in the draft paper. I think this is important as far too often if feels like many see and treat cities – particularly Auckland – like some kind of unnatural aberration sucking the value out of the rural areas.

Cities are national assets. They provide a wide range of jobs, higher incomes, generate higher productivity and raise the prosperity of surrounding regions. Cities also offer access to amenities not available elsewhere, such as specialised health and education services. Allowing cities to grow and accommodate new residents can help improve the wellbeing not just of the people who live there, but also those elsewhere in the country.

The main recommendations revolve around a few key categories, namely: planning/regulation, infrastructure and overcoming existing barriers/behaviour.

The recommendation that’s probably gained probably the most attention so far falls into that last category and is the suggestion of setting up Urban Development Authorities (UDA) – much like Auckland Council is already doing by merging Waterfront Auckland and their property CCO. They say a UDA could assemble, rezone and prepare for development large parcels of greenfield or brownfield and then partnering with private developers to build at scale. This seems pretty much identical to what’s being going on at Wynyard Quarter.

What’s gaining attention though is a suggestion that these UDAs could have powers of compulsory acquisition which would help in assembling suitable land and address issues such as land banking. It’s worth noting that compulsory acquisition was possible in the past and I believe is partly how the former Waitakere City Council was able to buy up large amounts of the town centre – although the government has currently removed the ability to do so in future.

UDA - venn diagram

They also suggest these UDA’s could help capture some of the increased value that occurs from the development. Overall I think the idea of a UDA is a good one although I can certainly understand the concerns about giving so much power to them.

Planning/Regulation

Looking at the other parts of the report, they say that one of the current issues is that existing homeowners have a disproportionate influence on local political processes as they are the ones who benefit the most from restricting supply in their area – thereby inflating the value of their own property/s. This then gives those homeowners greater incentive to be more politically active and push for regulations that restrict development opportunities. This is of course exactly what we saw happen in the Unitary Plan discussions.

To counter this the commission suggest that councils engage in more sophisticated consultation processes and giving the government more say in planning processes. I do agree with the first point but the second I’m not so sure about given the past comments from the likes of Nick Smith.

The commission specifically call out a number of planning regulations that have been imposed – often by the processes above – that have made it much more difficult and costly to develop urban land thereby reducing density. They make the following recommendations in this regard saying we should:

  • remove District Plan balcony / private open space requirements for apartments;
  • review minimum apartment size rules in their District Plans, with a view to removing them (once the MBIE has completed planned work on updating Building Code rules and guidance related to air quality, lighting, acoustics and access in multi-unit dwellings);
  • remove District Plan minimum parking requirements and make more use of techniques for managing traffic demand;
  • lift current building height limits where it cannot be demonstrated that the benefits outweigh the costs; and
  • undertake robust cost-benefit analyses before considering the introduction of building height limits.

We have addressed all of these points in the past, especially the minimum parking requirement issue so it’s great to see the commission pick up on these points.

Infrastructure

There is quite an extensive amount of discussion on the issue of the provision of infrastructure and how it is funded. In short they suggest funding constraints – often from the political processes mentioned earlier – makes it difficult for core infrastructure such as water and roads to be built in advance so it is done piecemeal which adds extra costs to the process.

They suggest that councils need additional tools to both help manage demand on existing infrastructure and to help fund new infrastructure that supports growth. They particularly point out that the government need to allow for road pricing on existing roads where it can be justified.

They also want to see more variable pricing in things like water connections. The example of Watercare is used which charges a flat fee for any new connection however they say that distorts costs and reduces transparency. Instead they think the charge should be influenced by local conditions i.e. if connecting a new dwelling an area has excess capacity in the network then that could be cheaper to connect to the network than a house on the edge of town in a new subdivision that needs new pipes installed.

Interestingly the specifically call out as not practical a few finance methods often suggested by those pushing greenfield growth such as Tax increment financing (TIF) and Municipal utility districts (MUDs). They do call for greater use of targeted rates to pay for local infrastructure though, for example the costs of the core infrastructure to new developments mentioned above could perhaps be paid off by a targeted rate levied against that area so it doesn’t impact on the rates of the rest of the city.

A few other recommendations around rates are made. This includes that council rates should be based on land values not capital values as it would encourage “land to flow to its highest value use”. It also suggests that the government should pay rates on core crown land including hospitals and schools. This is for the same reason as having rates based on land values, to encourage the best use of it. It’s one recommendation that I’m sure won’t be implemented. I would like to see rates paid by other organisations too such as churches. An example I highlighted the other day on twitter was this one up around Oteha with huge amounts of land dedicated to parking that pays almost nothing in rates due to being a church.  Note: this is not a debate about or an attack on religion.

City Impact Church NS

There are a number of other recommendations and in the interests of space and time I won’t cover them all. All up it seems like a fairly well balanced report that importantly recognises that cities and density are important. If you want to make a submission, you need to do so by 4 August.

PINZ in the Auckland housing balloon?

I was a bit surprised to hear the Property Institute of New Zealand warn of an “apartment bubble” in Auckland earlier this week. I was even more surprised when I read their press release. The CEO, Ashley Church, is predicting a bubble as a response to 1) banks being likely to decrease their deposit thresholds on apartments from 20% to 15%, and 2) the Reserve Bank potentially bringing in “loan-to-income restrictions”, where mortgagees would then only be able to borrow X times their income.

The press release then gives a hypothetical chain of events:

 1. The Reserve Bank restricts mortgage loans to a percentage of household income – effectively making the purchase of freestanding residential homes almost impossible to all but the very wealthy.

2. With median household incomes of just $76,500 – home buyers flock to the apartment market to find properties which comply with the new rules.

3. The relaxed deposit rules, by the major banks, allow buyers to borrow a little more if the apartment is new – (on average, a little over $400,000 if we adopt the Brit formula) – and this combination fuels a new wave of apartment building and streamlined marketing programs designed to entice buyers.

4. Property Investors – many of whom have also been caught by the new rules – also start buying apartments in large numbers.

5. The combined effect of this new wave of buyers quickly pushes up the price of apartments – fuelling an ‘apartment bubble’.

6. Perversely – the quality of new apartments suffers as developers focus on the ‘low-end’ of the market so as to appeal to as wide a range of potential buyers, within the Reserve Bank rules, as possible.

7. Meanwhile, the cost of renting free-standing homes in Auckland also increases as demand outstrips supply due to the absence of traditional property investors buying these types of properties.

8. Within 7 to 10 years Auckland becomes a highly ‘intensified’ city with large numbers of low quality apartments dotting the landscape and free-standing residential homes becoming the preserve of the well-off and wealthy renters.

However, this chain of events misses out half of what defines a bubble. He’s postulated a rise in prices, sure. But where does the subsequent decrease happen? To me, this sounds like a recipe for a one-off, permanent increase in apartment prices. A permanent shift in the demand curve, as it were. I’m not making any predictions on apartment prices, I’m just pointing out that the chain of events here doesn’t actually include a drop in prices, and therefore isn’t a bubble.

Moving on from that (rather important) point, there are a lot of other strange things in this press release. Firstly, it seems a bit far-fetched that the Reserve Bank would impose harsh restrictions to the extent that only “the very wealthy” could afford freestanding homes, and the press release also ignores the price response (i.e. prices would drop, and many people would still end up in those homes – there aren’t enough “very wealthy” people to fill them all up).

Secondly, if the Reserve Bank is going to clamp down on Auckland home loans, it’ll be because they’re worried about a city-wide bubble. I’d say this is a much bigger concern than an apartment bubble – it’d affect a lot more people.

Point 7 is one I’ve been reading a few variations of recently, which doesn’t follow from economic intuition. If landlords drop out of the market, do rents to rise? Given that each landlord dropping out of the market means there’s an owner-occupier there instead – and therefore a smaller rental market on both sides – the effect on rents might go either way.

Points 6 and 8 in the chain of events are odd too, essentially scaremongering about large numbers of low-quality apartments. The press release continues in a similar vein:

Mr Church says that he is aware that a focus on ‘intensification’ through building more apartments is consistent with the Auckland Unitary Plan and that some might see this outcome as a good thing – but he notes that this provision is also strongly rejected by a large number of Aucklanders and shouldn’t be forced on the city by the Reserve Bank.

“The drive for Intensification is based on a political ideology and is rejected by a large number of Aucklanders. It should only happen if Aucklanders want it”.

It’s a strangely political statement itself, coming from an organisation which began as the professional body for valuers. The PINZ’s statement in March that “the Reserve Bank Governor needs to “stop chasing shadows and stick to his knitting” seems a bit ironic.

As an aside, I think it’s great that the banks reviewing their lending policies on apartments; after all, it’s a more established market now than it was ten years ago, and there’s (hopefully) a lot less speculation going in that market than there was in the mid-2000s boom-bust. The banks will still be cautious about lending for leaky or leasehold buildings, and perhaps shoeboxes, and once those are taken out of the equation the apartments that are left should have a manageable level of risk.

Supergold changes good

The government have confirmed the outcome of their review of the Supergold Card and the outcome appears quite good.

The changes are below.

  • Lift the moratorium on new services entering the scheme from 1 September 2015, and apply criteria for new services
  • Cap Crown funding for the scheme at $28.129 million per year for the next five years, with annual Consumer Price Index adjustments to account for inflation
  • Replace individual fare reimbursements for councils with bulk funding
  • Cap Crown funding for exempt services at their current levels, adjusted for CPI
  • Allow tendering on the Waiheke Island route where there is competition
  • Require SuperGold Card holders to purchase smartcards, such as the AT HOP card, as smartcard ticketing systems become available.

The lifting of the moratorium on new services and allowing competition for the funding on the Waiheke route is just logical so it’s good they’re being made. I actually think the biggest change will be that HOP cards will be required and that’s a really good change as it will give AT better stats as to trips being taken and should speed up bus boarding. It will likely require a bit of education on ATs part though. I would still like to see a Supergold branded HOP card with the concession pre loaded to make it even easier for card holders.

How travel trends are changing by age over time

Here are a few more charts from the report into public transport and Generation Y I posted about the other day.

I was surprised to see that in general the numbers of young people getting drivers licences by age group isn’t really changing all that much – with the exception of older people as more people age with licences, and the youngest age bracket due to changes in when you can get a licence.

Percentage of driver licences by age

One of the most interesting is how the distance we travel in vehicles changes with age. You can clearly see those under 35 are travelling less than the same age bracket did in past which helps to highlight the behavioural shift that’s occurring. The same is also being seen for those over 70 which is perhaps partly an impact of initiatives like the Super Gold Card.

VKT by age

I was surprised by just how much the amount of time we spend walking decreases as we get older.

Time Walking by age

 

The percentage of cyclists by age group is quite interesting with the results showing a lull in mid to late 20’s before increasing again with a second peak in the 40’s. Particularly noticeable is the strong increase in all of the older age groups over the last few measures.

Percentage of cyclists by age

Lastly young people clearly use PT much more than older age groups. As the report indicates, if we can improve PT so that it becomes more useful then a lot more of the 15-19 year olds will continue using it as they age and that will lead to large increases in PT use.

Time on PT by age