Growth: what is it good for?
Accommodating a growing population can certainly be challenging. It means having to find more money to invest in transport and water infrastructure to enable new residents to live and travel in the city. As Auckland Council’s recent consultation on the Long Term Plan shows, asking people to pay more is never a very popular proposition – even if they like how the money’s being spent.
And, as Stu pointed out in his post on Auckland house prices this Monday, population growth can also put pressure on housing markets. Multiple research papers from the Reserve Bank have shown that increases in net migration tend to be followed by increases in house prices – shown in this chart. Obviously, homeowners do quite well out of this, but others face added costs:
In short, it’s not surprising that some people feel trepidatious about population growth and migration. And it’s not surprising that those anxieties are especially present in Auckland, which is projected to continue growing rapidly over the next three decades.
While unease about population growth is understandable, I’d argue that it’s misplaced. In my view, the benefits of urban population growth in New Zealand far outweigh the costs. While large urban areas can become dysfunctional – think of Beijing’s astonishing smog problems or the high cost of infrastructure in sprawling American cities – New Zealand’s cities are nowhere near large enough for the diseconomies of scale to triumph over the economies of scale.
This is easy to see if we look at the periods when Auckland hasn’t been attracting migrants. Here’s a chart from a presentation on Auckland’s demographics by Auckland Council social researcher Alison Reid. It displays the composition of Auckland’s population growth since 1922. In recent decades, natural population increase – i.e. people having babies – has been the biggest source of growth. Net migration is important, but it can be quite volatile – surging up and then crashing back.
What stood out to me from this chart was that the years with little or no net migration to Auckland have not been good times for the city. Net migration slowed to a trickle during the Great Depression, and turned negative during the constrained years during and after World War Two. More recently, quite a few people fled Auckland during the economically calamitous Muldoon years. Net migration remained low during the painful adjustments imposed by the following two governments.
I wasn’t living in Auckland during the 1990s – my parents had joined the queues leaving via Auckland airport – but friends who were say that the city was turning into a ghost-town. History shows that shutting off the migration tap has never led to a better, more vibrant city or more opportunity for residents. It’s simply been a sign of failure.
My hypothesis is that New Zealand has a strong feedback loop between net migration and economic growth. When growth prospects get worse – as they did in the 1970 and 1980s – it dissuades people from coming here and encourages Kiwis to leave for greener pastures. This in turn worsens growth prospects by sucking consumer demand out of the economy and reducing perceived household wealth (i.e. lowering house prices).
By contrast, good growth prospects tend to attract migrants to New Zealand’s cities and encourage potential emigrants to stay. This in turn leads to a virtuous cycle between higher growth and increased migration.
We can’t fully control this process, as it depends in part on what’s happening in Australia and the rest of the world (not to mention macroeconomic variables that we don’t fully understand). But we can make sure that our cities are in a good position to take advantage of population growth.
The first, and most important thing we can do is to build better cities that are able to attract and efficiently accommodate more people. In Auckland, for example, we’ve got some challenges, including transport investment that’s been heavily skewed towards cars (and only cars) and rising house prices. But the flip-side of those is that we’ve got great opportunities to:
- Improve transport choice by investing in Auckland’s “missing modes” – a frequent bus network throughout the city, rapid transit infrastructure, and safe walking and cycling infrastructure
- Improve housing choice by providing opportunities for people to develop higher-density residential typologies in market-attractive areas
- Invest in great public spaces, such as Auckland’s waterfront and increasing numbers of shared spaces.
Second, as we attract more people to our cities, we need to accommodate them in an efficient and environmentally responsible way. This means enabling people to live in areas that are accessible to jobs, shops, and other amenities. As I found when I looked at carbon emissions from commutes in New Zealand cities, people in inner-city areas are considerably more environmentally friendly than their co-workers from the urban fringe.
Moreover, the data shows that increasing density can be a positive-sum game for existing communities as well as for the environment. At the city level, we can’t observe any relationship between rising population densities and congestion – fears of traffic-choked streets just don’t seem to have materialised in practice. (So much for diseconomies of scale!)
On the other side of the ledger, suburbs with higher population densities have better consumption choices. Many of the services that people rely upon – from vege shops to Japanese restaurants to public transport to roads – exhibit strong economies of scale, which means that they get better when there are more people around.
Which suggests that there is also a third important thing that we need to do, which is to tell good stories about the opportunities that urban growth will offer us. New Zealand’s used to thinking of itself as a rural economy with some cities sprinkled around as afterthoughts. That’s a dated and inaccurate self-image when over half the economy is located in our three largest cities.
So, what’s your perspective on urban growth?
A neat little video from Mexico explaining simply connection between housing and transport – in particular the cost that minimum parking requirements have on the city. It comes from Mexico branch of the The Institute for Transportation and Development Policy (ITDP).
My previous post on Auckland’s housing market prompted considerable interest. Even if there were areas of disagreement, simply seeing this level of interest left me feeling more optimistic about the potential for us to find solutions. I think Maggie said it best when she remarked:
In this post, I want to discuss in more detail some of the policies which could be used to address the demand for houses, especially demand associated with investment. First let me present a case for implementing such measures.
My rationale for higher property taxes is actually fairly straightforward: Put simply, property in New Zealand seems to be taxed lightly relative to other countries in the OECD. Grimes (2003) suggests New Zealand collects 5.7% of taxes from property versus 8.3% for the OECD on average. This means the proportion of tax revenue we raise from property is ~45% less than the proportion collected by other countries in the OECD. Moreover the proportion of tax revenues collected from property in New Zealand has been declining fairly rapidly over time.
As a result, it should come as no surprise that every man, woman, and mangy dog in our great little country (and places elsewhere) is investing their spare dosh into the property market. Even those who wouldn’t recognise an asset bubble from a doggy hydrobath (NB: These are very fun BTW, for all involved).
I also think dynamics are important: That is, in an increasingly liberalised global economy (which incidentally is something I generally support), then we can expect differences in taxes between countries to influence investment patterns across those countries. So aspiring for closer economic relations with Fantasia, or any other country, is all well and good – provided we consider whether misalignment in our respective tax systems has the potential to distort investment decisions. And if so then maybe, just maybe, we should consider whether we need to harmonise some aspects of our tax systems a little first?
Consider the arguments advanced on this property investment website:
In this context, the demand for property in Auckland does not really qualify as “speculation”, inasmuch as it’s a quite rational response to tax levels, even if prices are in my view inflated.
This is why I am so frustrated with John Key’s somewhat circular logical when it comes to house prices. He’s basically saying that housing is not over-valued because people are prepared to pay the current prices, while simultaneously we need to address supply-side issues, while indirectly stacking the deck of our taxation Titanic in favour of property investment. Too much demand? Naaaaaaaaaaaahhhhhhhhhhhh …. yeah.
For this reason, I am simply proposing that New Zealand increase our taxes on property to a level that is commensurate to that of our major trading partners, lest we expose our property market to large influxes of mobile capital looking for a home. This is especially true in the current international climate, where central banks around the world are busy handing out cheap money.
Higher property taxes are not just a practical response to the globalised world in which we inhabit, but they are also theoretically appealing (insofar as land is immobile) and progressive in the sense that they tend to fall most heavily on high wealth households. I’ll consider these points in more detail in my next post.
How might we go about increasing property taxes? Well, there’s a number of potential mechanisms including:
- Capital gains tax, which is levied when properties change hands; and/or
- Stamp duties, which are levied on either the buyer or the seller when a property changed hands; and/or
- Land value tax, which are periodically levied to the property owner.
Let me know if I’ve missed any important ones. In the next post I’ll expand on the merits of these mechanisms a little more as best I can, hopefully with some help from y’all.
One final point is worth noting: Increasing property taxes does not necessarily lead to increased tax revenues, i.e. they could be designed to be fiscally neutral. More specifically, the revenue generated from property taxes could be used to reduce taxes elsewhere, e.g. GST, income taxes, and corporate taxes. This is actually very similar to what the Government did when they reduced income taxes and increased GST. Hence, please don’t view this discussion as advocating for “increased tax”; I’m more interested in the methods through which taxes are raised, rather than the quantity that is generated.
It’s worth considering what a fiscally neutral property tax might do: First, it would directly reduce the demand for houses, especially from investors seeking returns. Second, this direct effect might have an additional impact by way of interest rates: Less demand for houses would, all other factors being equal, allow interest rates to be lower than they would be otherwise. Third, by enabling us to reduce taxes elsewhere, people would benefit from higher incomes. In this way even fiscally neutral property taxes might tilt the playing field quite strongly back in favour of home owners.
At least in theory! Heh heh heh …
An article in the Herald on Sunday by academic and so-called resilience expert Dr Bridgette Sullivan-Taylor really raised some questions for me:
You might be reading this in an Albany cafe or a Wellington hair salon. You might be in the Sylvia Park food court, a Riccarton outlet complex, a Westgate supermarket, waiting to bungy-jump off a bridge or even at the airport.
It has probably already occurred to you that, while doing these activities, you could be placing your life in the hands of terrorists.
Questions such as:
And also some more technical questions about how much we should be willing to pay for “insurance” against unlikely or unpredictable events. Dr Sullivan-Taylor continues:
Black swan extreme events — those that come as a surprise — have a major effect and are often inappropriately rationalised with the benefit of hindsight. The challenge is to be prepared for them…
Examples of this are the cyber threat to banks and other global systems from such things as Ed Snowden’s classified information leak from the National Security Agency over the past two years; Fonterra’s Chinese milk crisis that threatened our major primary market; and the Germanwings disaster a few weeks ago in which a suicidal pilot flew a plane with 150 people on it into the French Alps.
So basically, she strings together a small number of totally unrelated events into an argument that we’ve got to be prepared for the next low-probability event. In other words: the world’s a scary place, and you’ve got to be frightened wherever you go!
Dr Sullivan-Taylor argument seems to be that we have to be “resilient” to any possible threat, no matter how unlikely. That’s an interesting, if unrealistic, assumption that I want to revisit after looking at her recommendations for not getting victimised by terrorism at your local mall food court.
So how might this affect New Zealand consumers? Hardening or toughening soft targets could mean that if you are going to the mall, you might have your bag checked at the entrances, and there might be restrictions on how long you can stay in the carpark. Employees might require security passes, and purchases might be checked on leaving the mall.
If you’re going to the cinema, there could be more security screening, including bag-checking machines. You might see more CCTV or facial recognition software being used inside the mall and in carparks that are watching all your movements. Security or police staff might ask for proof of identification, carparks might be occasionally restricted directly under or on top of the mall, and we might see more information in the media informing customers about raised security threats at particular locations.
There are two problems with these recommendations.
The first is that there is almost no way that Dr Sullivan-Taylor’s recommendations would stand up to a cost-benefit analysis. For comparison, here’s a review of a recent paper on the costs and benefits of protecting airports from terrorist attack:
Mark Stewart and John Mueller are here to alert us about the security at our airports. They want to warn us that it is too good. Or, at least, there’s too much of it. Their new paper is titled “Cost-benefit analysis of airport security: Are airports too safe?” The answer, the authors say, is most likely yes…
Stewart and Mueller calculated the cost of traditional airport security measures and compared it against the risk of an airport attack, the cost of the damage an attack would cause (in lives and property), and the efficacy of particular security measures in preventing an attack. Their finding: “Many of the assessed security measures would only begin to be cost-effective if the current rate of attack at airports in the U.S., Europe, and the Asia-Pacific increases by a factor of 10-20.”
In other words, the benefit-cost ratio for measures to protect airports from attacks is in the range of 0.05 to 0.1. That’s shockingly low even by the standard set by the RoNS. Given that airports are more tempting and systemically important targets than shopping malls and tourist attractions, it’s likely that costly measures to secure everything will be even less worthwhile.
According to Mueller:
“What’s your chance of being killed by a terrorist if you’re American?” he says. “It’s now about one in 4 million per year. Maybe that’s enough, maybe that’s not enough. Some people might say we can save some money and make it one in 3.5 million. What I’m trying to do is just apply standard analytic techniques to the hazards of terrorism.”
If we assume that New Zealanders are equally at risk of terrorism as Americans – a pessimistic assumption, I hope – we’d expect one Kiwi to be killed by terrorism every year. We could probably save as many lives by upgrading half a dozen dangerous intersections or curves in the road as we could by totally preventing terrorism. In other words, the expected value of total “resilience” against terrorism is quite small, and dwarfed by other risks we face.
Professor Ramesh Thakur from the Australian National University made this point quite well in a Radio New Zealand report on the subject:
“Think of the attention that was given to the terrorist attack on Mumbai. Of course it was a serious incident. But, as I said, in terms of people who are killed on the roads in India and in India it is pedestrians and cyclists who are killed much more than people in the cars, or any other way you look at it, in terms of the real threats to people’s safety and security terrorism should rank way down in the scale.”
The second problem with Dr Sullivan-Taylor’s proposal is that the resulting cost, time, and hassle would dismember our urban life. Cities, by their very nature, concentrate people and bring them together in unpredictable ways. There have always been risks to doing so – consider the burden of disease in Victorian-era British cities or the impact of violent crime in mid-century American cities. Terrorism, or the perceived threat of terrorism, is just the latest high-profile risk.
People have chosen to accept a few risks from urban life because the benefits are far, far greater. Living around and interacting with other people gives you more choices about employment and more consumption options. It gives you better transport choices and more places to go. Frequent, incidental human contact makes us happier.
Putting a security checkpoint everywhere humans might gather together – from malls to the waterfront to buses to art galleries – will cost society much more than it will ever deliver in benefits. The added friction will make the economic life of our cities less efficient and productive and our social lives stultified and hesitant.
In short, Dr Sullivan-Taylor seems to be massively over-estimating the value of “resilience” and vastly under-estimating or ignoring the costs of her preferred solutions. We certainly shouldn’t ignore the risk of terrorism, but as with any other public policy issue, we need to address it in a cost-effective and considered way. Her sensationalised statements about the risk of terrorism at your neighbourhood cafe, and associated claims about the need to secure absolutely every public place, do not amount to a rational risk assessment.
Finally, while the Herald on Sunday never should have printed such an ill-considered take on a serious issue, it did raise the issue of how we value resilience against low-probability events in our cities and urban transport networks. How much should we pay for resilience? I’d like to say more on that topic, but it’ll have to wait for a future post…
Auckland’s house price “bubble” has been in the news a lot lately. Stories such as this one suggest large profits are being made in Auckland’s property market. And this one, which suggests growth in house prices is outstripping growth in salaries.
The first story suggests that if you’re an investor, then you’d be a mug not to invest in property in Auckland. The second story suggests that if you’re looking to buy a home, then don’t delay because you will only see you get left further behind. Either way the message is the same: Get out and buy now.
Even if I find it unconvincing, many people do seem seem to believe this narrative. House prices have almost doubled since 2006, and the rate of increase has accelerated since circa 2012, as shown below. This also highlights how it’s a uniquely Auckland phenomenon.
The Reserve Bank seems to think this is an issue, and I tend to agree with their judgment. The reason the RBNZ are concerned, of course, is because rapid escalation in asset prices can be followed by rapid falls, which can in turn threaten financial stability.
In this post I want to look at some of the fundamental drivers of Auckland’s house prices. The key question is whether price rises are being driven by demand, supply, or both?
In this recent video John Key suggests that the Government views lack of supply as the primary issue. That is, the escalation in prices is being driven by a lack of new house supply, partly due to local government restrictions. Someone close to him may want to show him the graph below, as I think it might prompt a rethink (credit to Peter Nunns for pulling this together).
That is, we do not find a relationship between the elasticity of housing supply and changes in house price for 17 OECD countries in the period from 2000-2014. This suggests that increasing the responsiveness on the supply side hasn’t necessarily been able to reduce prices elsewhere in the OECD.
Now don’t get me wrong: I think a more responsive house supply is worth pursuing nonetheless, because it will result in more houses being brought to market when they’re demanded, and vice versa. But there’s going to be a lag between this policy changes designed to increase supply side and that supply becoming available. So while I support efforts to make our house supply more responsive in the future, this does not seem unlikely to keep a lid on prices right now.
Instead, it seems fairly clear that if (and it’s a big “if”) we want to prevent house price escalation now, then we need to address the demand side of the equation. In a future post I’ll look at potential policy measures, but let’s first identify and discuss some of the different demand drivers:
- Population growth is driving increased demand for owner-occupied dwellings: Auckland’s population is growing rapidly and this is largely good news, i.e. more locals are having babies, fewer locals are leaving (or coming home), and more migrants are choosing to live in NZ, especially Auckland. Reducing population growth is not really a viable proposition, as it basically means either making it less desirable to stay here and/or harder to migrate here. And it seems likely to be the sort of thing that risks over-shooting and heading into negative territory. Population growth does cause problems, but from what I can tell a lack of population growth would be even more problematic, and harder to turn around once it got started.
- Investment this seems to have two components, domestic and international. Domestically it seems like Auckland is attracting capital from around the country. This might be caused by some capital flight from Christchurch and/or a lack of population growth in many rural regions. International investment is likely being driven by increasingly liberalisation of capital flows, NZ’s open economy, low rates of property taxation (see below), and Auckland’s persistently high ranking in international liveability indices. Reducing demand for investment properties really requires policies that reduce the investment returns from property. This applies equally to domestic and international investors.
- Renters: The demand for houses is also affected by the number of people who are prepared to rent. Data suggests more people are opting to rent, which is indirectly serving to take demand out of the market for houses. In comparison to other countries NZ seems to lack long -term protections for tenants. It may be that increasing protections for tenants, or creating a more long-term market for tenancies, would make renting more attractive and in turn help to take heat out of the house market. In this context, it seems to be an odd time for the Government to use KiwiSaver to deliver subsidies to first home buyers (and thereby stoking demand).
For now it looks like the Government is not prepared to make a move on demand; I find their reluctance perplexing for one main reason: New Zealand collects a relatively low share of tax revenue from property compared to other OECD countries. Research by Arthur Grimes and Andrew Coleman (usefully summarised by Interest.co.nz) suggests New Zealand collects 5.7% of our taxes from property versus 8.3% for the OECD. In this context, it seems highly plausible to suggest that some of the demand Auckland is experiencing may stem from relatively low rates of taxation on property.
In my next post I’ll look at potential demand-side policy responses in more detail. But for now I’d like to hear your thoughts; these issues are complex and I don’t pretend to have a monopoly on knowledge and ideas, in fact far from it.
As part of the Long Term Plan the council received thousands of submissions however on the topic of transport, to ensure they also had a representative sample of the views of all Aucklanders – not just those interested enough to make a submission they conducted a phone survey. The survey canvassed the views of 5,022 people and was carried out by Colmar Brunton with the entire process was peer reviewed by the University of Auckland. Yesterday they released the results of that research. Overall they are interesting but I think they have some major flaws.
The survey had three main aims, to measure:
- Aucklanders’ support for increased investment in the Auckland Plan transport network (APTN)
- Which of the two proposed funding options Aucklanders prefer
- How perceptions differ by travel behaviour, local board, and key demographic groups
Overall results for the preferred transport plan and how to fund it are below.
Just over half of people preferred the Auckland Plan Transport Network which is about building everything regardless of whether it helps improve the transport situation or not. As you can also see support for that plan increases with income so those who earn the most want the most spent.
Now it’s not surprising that this is the result when the council only presented such binary options to people. Below is what the participants were asked.
“Auckland’s population growth means Auckland’s transport issues will get worse over time. There are two options to address this: a basic transport network and a more comprehensive transport network. I’ll explain each and then ask which one you support.
The basic transport network covers the completion of current projects, some priority new projects such as the City Rail Link, and also spending to maintain current roads and the current public transport network.
The more comprehensive transport network also includes the City Rail Link and everything else in the basic network, with many projects being completed earlier, plus a range of new projects. These include new roads, rail, ferries, busways, ‘park and rides’, and cycleways, as well as school and community travel plans and safety programmes.
Over the next 10 years, the comprehensive network will cost around $300 million more than the basic network each year. The additional funding needed each year would either come from a motorway user charge, or from higher fuel tax and annual rates increases.
So, in summary, the basic network will result in greater traffic congestion than the more comprehensive network, but will cost less. On the other hand, the more comprehensive network will result in less traffic congestion than the basic network, more public transport options, and greater economic benefits, but it will cost more.
Do you support the basic transport network or the more comprehensive transport network?”
While I don’t expect the council to consult on the likes of Generation Zero’s Essential Transport Budget, there’s no indication that effectively the council are only presenting the extreme ends of the spectrum. I think it’s inevitable that a more balanced middle ground will have to be found and as we learnt recently, it’s not just us that think that with both the AA and the NZCID also saying the same thing (although without specifying what exact projects they prefer).
When it comes to funding a similar percentage of respondents preferred the extra funding needed to come from motorway tolls and as you’d expect the more people used the motorway the less keen on this option they were.
The issue I have with the funding option is that I suspect most people vote for it thinking that they’ll be able to minimise their costs either though shifting their travel time (a good thing) or more likely finding alternative routes which will inevitably mean clogging up local roads and hampering any effort to make them better for active modes, PT and local connections.
The report breaks each of these results down by a number of measures and while there are some differences in the numbers across the different measures the overall trend is similar to the results above.
The final decision on what transport plan will be chosen and how the council would prefer to fund it won’t be decided by councillors till next month. However if they do go for an option that requires more funding they will have to go to the government who have so far not been keen on the idea. Today Transport Minister Simon Bridges is reaffirming that scepticism. He too seems to share the belief that the plans presented aren’t effective enough – something he’s said to us too.
Mr Bridges said, the question of funding tools did not arise until there was an effective transport programme.
Perhaps it’s time the council presented a middle ground version that delivers the benefits in the area’s Aucklanders say they want focus on i.e. PT and Active modes.
Could Auckland have something like this running on a couple of major city routes before this decade is out? The AT board is to decide later this month how to proceed with its Light Rail plan and with what sort of pace. Everybody it seems loves trams, but why now and why there? What problem are they addressing? In a follow-up post I will discuss the financial side of the proposal.
CAF Urbos Tram recently ordered by Utrecht
First of all lets have a look at Auckland’s situation in general terms. Auckland is at a particular but quite standard point in its urban development: 1.5 million people is a city. The fifth biggest in Australasia; behind Sydney, Melbourne, Brisbane, and Perth. But on the location with the tightest natural constraints of the group; squeezed by harbours, coasts, ranges, and productive and/or swampy farmland, it shares the highest density of the group with Sydney in its built up area. And is growing strongly. It also has the poorest Transit network of the group and consequently the lowest per capita Transit modeshare [although the fastest improving one].
So these three factors scale, growth, and density are all combining to create some serious pressure points that require fresh solutions especially on existing transport routes, and particularly on the harbour constrained city isthmus.
This pressure is on all transport infrastructure, at every scale from footpaths [eg Central City, Ponsonby Road]; the desire for safe cycling routes; on the buses, trains, and ferries; to road space for trucks and tradies, and of course road and street space for private vehicle users. Transit demand in particular is going through the roof and this is way ahead of population growth and traffic demand growth, especially at the higher quality Rapid Transit type of service where growth over the last year has been at an atsonishing 20%.
This is to be expected in a city of Auckland’s current state as Transit demand typically accelerates in advance of population in cities of a certain size, because of the universal laws of urban spatial geometry, as explained here by Jarrett Walker;
This problem is mathematically inevitable.
As cities grow, and especially as they grow denser, the need for transit generally rises faster than population, at least in the range of densities that is common in North America. This is completely obvious if you think about it, and I stepped through it in more detail in Chapter 10 of Human Transit. In brief: Suppose a particular square mile of the city doubles in population. Transit demand would double because there are twice as many people for whom transit is competing. But independently of that, if density is higher, each person is likely to find transit more useful, because (a) density creates more disincentives to driving and car ownership while (b) density makes it easier for transit agencies to provide abundant and useful service. Those two separate impacts of density on transit, multiplied together, mean that transit demand is rising faster than population. Again, go to my book for a more extended and thorough argument.
And that this means that the infrastructure needs of our growing city is likely to be ‘lumpy’. Big long lasting kit that is costly and disruptive to build become suddenly urgent:
As transit demand grows in a growing city, it hits crisis points where the current infrastructure is no longer adequate to serve the number of people who want to travel. Several major subway projects now in development are the result of transit’s overwhelming success using buses. I’m thinking, for example, of Second Avenue in New York, Eglinton in Toronto, Wilshire in Los Angeles, Broadway in Vancouver, and Stockton-Columbus in San Francisco.
Broadway, for example, has local buses running alongside express buses, coming as often as every 3 minutes peak hours, and they are all packed. In that situation, you’ve done just about everything you can with buses, so the case for a rail project is pretty airtight. In all of the cases I mention, the rail project usually has to be a subway, because once an area is that dense, it is difficult to commandeer enough surface street space, and we tend to have strong aesthetic objections to elevated lines in these contexts.
As driving amenity is very mature in Auckland there is very little opportunity to add significant driving capacity to streets and roads to much of the city at any kind of cost, and certainly not without a great deal of destruction of the built environment. This has long been the case so in a desire to solve capacity and access issues with a driving only solution we did spend the second half of the last century bulldozing large swathes of the Victorian inner suburbs into to make room for this spatially very hungry mode. This solution is no longer desirable nor workable. Below is an image showing the scar of the Dominion Rd extension citywards and the still extant Dom/New North Rd flyover. These were to be the beginning of a motorway parallel to Dominion rd to ‘open up’ or ‘access’ the old isthmus suburbs.
1963, Dominion Rd flyover in the foreground
Where we can’t nor want to build ever wider roads we can of course add that needed capacity though the higher capacity and spatial efficiency of Transit. Most easily with buses and bus lanes. There are also potential significant gains to made at the margins by incentivising the Active modes with safe routes especially to Transit stations and schools and other local amenity.
However as Jarrett Walker describes above there comes a point where buses, through their own success, cannot handle the demand as the number of vehicles required start to become both less efficient and more disruptive than is desirable. At this point demand can only be met with higher capacity systems with clearer right of ways. Such systems require expensive permanent infrastructure and are never undertaken lightly. The CRL, being underground, clearly fits this definition and is due to begin in earnest in the new year. And although the physical work and all of the disruption of the CRL build occurs in the Centre City, the capacity and frequency improvements are to the entire rail network, and therefore much of the city: West, East, and South.
But not everywhere. Not the North Shore, not the North West, and not in ‘the Void’, as AT call it, the isthmus area between the Western and Southern Lines. Shown below in purple with the post CRL Rapid Transit Network. This area has a fairly solid and quite consistent density, housing about the same number of people as West Auckland, around 150,000. Note also the South Eastern Busway [AMETI] plugging directly into Panmure is very much a kind of rail extension for the Transit-less South-East, as is the Manukau spur further south.
These three major areas will still be relying on buses. The CRL, New Bus Network, and Integrated Fares will enable and incentivise more bus-to-train transfers that expand the reach of the core rail network and that this will help limit the numbers of buses going on all the way to the city. But this is primarily for the South, South-East, and West of New Lynn, there will still be an ever increasing number of buses with from the remaining areas converging on the City Centre. AT calculates that we need to act now to cut the bus numbers from at least one of these major sources to leave room for growth from the others, and all the other users and uses of city streets. [More detail on this in Matt’s previous post, here].
The North Western is currently getting more bus priority with the motorway widening
, and hopefully proper stations at Pt Chevalier, Te Atatu, and Lincoln Rd [although NZTA and/or the government are showing little urgency with this aspect of the route]. Also priority improvements to Great North Rd and further west too. The North Shore is the only one of the three with a Rapid Transit system [which also should be being extended now
], and while there is still plenty of capacity on the Busway itself, like the other routes these buses are constrained once in the city. This leaves the very full and frequent ‘Void’ bus routes as the ones to address with another solution first.
So essentially LRT for this area has been selected because of the need:
- for higher capacity and efficiency on core Isthmus bus routes
- to reduce bus numbers on these routes and especially in the central city
- adds Queen St as an additional high capacity North-South city route
- for extra capacity both before and after CRL is operational
- to address Auckland Plan air quality, carbon emissions, and resilience aims
- to enable major public realm improvements along routes, especially Queen St
and possibly because:
- it may be able to be financed as a PPP so helps smooth out the capital cost of building both projects [more on this in a follow up post]
Above is a schematic from AT showing the two proposed LRT branches. The western one leading to Queen St via Ian Mackinnon Drive from Dominion and Sandringham Roads, the eastern one down Symonds St from Manukau and Mt Eden Roads, some or all routes connecting through to Wynyard Quarter. More description in this post
It is worth noting that this area, The Void, gets its very successful and desirable urban form from this very technology; these are our premier ‘tram-built’ suburbs. With all the key features; an efficient grid street pattern, mixed use higher density on the tram corridors, excellent walking shortcuts and desire lines. So what the old tram made the new tram can serve well too.
Auckland Isthmus tramlines
With all door boarding and greater capacity LRT will speed more people along these routes with fewer vehicles and lower staffing numbers. Frequency will actually drop from the current peak every 3 minutes down to 5 or 7 minutes [I’m guessing]. This along with the narrower footprint required by LRT is a big plus for other users of the corridor. But the huge gain in travel time comes from improvement to the right of way and intersection priority that can be delivered with the system. Stops are presumably to be at intersections, instead of midblock as buses are, so the passenger pick-ups are coordinated with traffic lights.
But best of all for this writer is that LRT is a tool to drive enormous and permanent place uplift. The removal of cars and buses from Queen St, improvements to New North and Dominion Rds, hopefully including that intersection itself, a fantastic new Dominion road with the potential for real uplift to premier status. It will spur the redevelopment of the mixed uses zone all along Dominion Rd. This is real place quality transport investment. And all of course while moving thousands and thousands of people totally pollution free and with our own mostly renewably generated electrons. Breathing in the Queen St valley will become a fresh new experience.
We all look forward to hearing the proposed details of the routes and of course the financials. I will follow up this post with my understanding of the thinking on this next.
Finally it is very good to see that there is no dispute over the necessary solutions to Auckland’s access and place quality issues, just the details and timing. Auckland Transport’s map above is pretty much the same as our solution in the CFN. We are delighted that AT are planning for four light rail routes were we proposed one.
There are of course plenty of debates to had about further extensions to the Transit networks that this proposal invites; LRT in a tunnel from Wynyard to Onewa, Akoranga, and Takapuna? Then up the Busway? From Onehunga to through Mangere to the Airport? Along Grey Lynn’s apartment lined Great North Road, to Pt Chevalier, and the North Western? Panmure, Pakuranga, Botany, Manukau City Airport? Which of these need to be true grade separate Rapid Transit and for which are bus lanes or busways a more cost effective option? Are their others that would be better suited to extending the rail network? Is there enough density elsewhere in the city to justify other LRT routes?
In this earlier post Matt discussed the proposed Mill Rd project in South Auckland.
I actually grew up in Franklin (Waiuku) and know the wider sub-region quite well. Mill Rd is, in my experience, an unsafe stretch of road within a somewhat disconnected/fragmented network. So there’s definitely some transport/land use issues in the area that deserve our attention.
Tick to AT on that front.
As a transport economist, however, one must always ask whether the benefits of a proposal are commensurate with the costs. In terms of Mill Rd, the economic benefits of the proposed project are shown below (NB: This is extracted from the scheme assessment report pg 79).
The benefit cost ratio of the project is stated to be 2.2. This means that the project receives a “medium” rating for economic efficiency under NZTA’s project evaluation policies. It’s worth nothing that in Peter’s post on the MoT’s analysis of capital spending on roads, local road projects were found to typically have BCRs in the range of 3-4. Mill Rd’s economic efficiency is, in comparison, somewhat underwhelming.
Digging a little deeper we can see that the largest 3 benefits attributed to the project are 1) travel time savings ($271m); 2) agglomeration benefits ($69m); and 3) vehicle operating costs ($27m). I thought the benefits ascribed to agglomeration were the most interesting (NB: For those who haven’t heard of “agglomeration” before, you might want to read some of our previous posts on the topic here and here).
In a nutshell the literature suggests the primary agglomeration economies typically arise from:
- Regional economies of scale, i.e. larger markets for goods and services (especially more efficient labour markets). This can be achieved by either bringing more people/firms into the city and/or bringing existing people/firms closer together by reducing transport costs;
- Local knowledge spillovers in dense urban environments that increase productivity; and
- Efficiencies in the public provision of infrastructure/services.
When discussing agglomeration benefits the Mill Rd SAR notes (emphasis added):
“Agglomeration economies describe the productivity advantages that arise from the close spatial concentration of economic activity. There is a strong link between transport provision and the benefits that arise from the spatial concentration of economic activity.
The contribution of the improved Redoubt Road-Mill Road corridor to the upgrading of the Auckland transport system qualifies for the agglomeration benefits to be taken into consideration. Economic Evaluation Manual, Vol.1, Section A10 provides the methodology for estimation of these benefits.
The corridor provides an access route to Auckland CBD and Manukau City Centre. Both are major employment and commercial centres, which justify an adoption of the agglomeration benefits for the project. The value of these benefits was assumed at 20% of the total benefits, which is conservative as similar projects in the Auckland region use values in excess of 25% to 30%.“
Having observed that agglomeration economies arise from the close spatial concentration of economic activity, the SAR then proposes to estimate agglomeration economies by applying a blanket 20% factor to total benefits.
At this point I emitted audible “hmmm”, a bit like Homer Simpson day-dreaming about warm pie (NB: Source).
The SAR is correct that agglomeration benefits can arise from spatial concentration of economic activity. Where the SAR seems to make a fairly large leap of faith, however, is by assuming that the Mill Rd project (and specifically the land use patterns it enables) will logically lead to sizable positive agglomeration benefits. It’s worth noting at this point that from a quick read the above extract is the only discussion of agglomeration economies in the entire (200 plus page) report, despite them supposedly representing the second largest source of benefits for the project.
Before discussing agglomeration economies in more detail let’s introduce an important concept” The “counter-factual”. This describes would happen without the Mill Rd project. In the case of agglomeration economies, we’re primarily interested in land use effects, i.e. what would those 10,000 households do in the absence of the Mill Rd project?
It seems plausible to suggest that some households would simply choose to locate in the area anyway, while enduring slightly longer travel-times. For these households the agglomeration effects are almost identical to the base case. Other households might instead choose to locate somewhere else, most likely in a more central location. This would actually tend to generate larger agglomeration benefits than would have arisen had they located in the Mill Rd area, i.e. for these households the Mill Rd project can be considered to have a negative effect on agglomeration economies.
This discussion highlights two important points about agglomeration economies: 1) You can’t have a very informed discussion about them without first carefully defining the counter-factual (land use) scenario and 2) depending on this counter-factual scenario, it is possible that transport investment gives rise to negative benefits, because it encourages/enables development to spread out more (and create more congestion) than would have eventuated otherwise.
In this context, simply assuming a 20% agglomeration premium on total benefits strikes me as a tad presumptuous. Let’s now go back to the three micro-economic channels that contribute to agglomeration economies that we listed above and consider how they relate to the Mill Rd project.
First, it seems unlikely the Mill Rd corridor will, on its own, impact on regional economies of scale. It’s simply not a sufficiently large step change in accessibility that it would encourage more people/firm to migrate to Auckland than would have done otherwise. Indeed, with Auckland’s annual population growth running at approximately 50,000 people per annum, the total growth expected in this area over the next 30 odd years (25,000 people) is a veritable drop in the growth bucket. It’s primary effects seem to be bringing Papakura closer to Flat Bush and Botany Downs, and both of these centres slightly closer to Manukau. Unlike the SAR, I’m not sure how it provides a new access route to the city centre, at least to a degree that would have implications for regional productivity.
Second, it seems unlikely that the Mill Rd will contribute much to knowledge spillovers. In a geographic sense, the area is right on the periphery of the metropolitan area, and relatively remote from employment areas to the north. It is especially remote from the city centre, which is the source of most of the knowledge spillovers in Auckland. While secondary centres like Manukau do experience some agglomeration economies, these seem more likely to arise due to the two types of agglomeration discussed above and below.
Third, Mill Rd doesn’t seem to give rise to major efficiencies in the provision of public infrastructures and services. Indeed, the Mill Road transport project represents approximately $20,000 in CAPEX costs for every household that is expected to locate in the immediate vicinity. It seems plausible to suggest that these households could be accommodated for similar (if not lower costs) somewhere else in the region. To make the case for these agglomeration economies, we would expect to see evidence of surplus capacity existing in nearby health and education facilities.
So what’s the take-away message from all this econo-mumbo-jumbo-fiddle-faddle?
First, even taking the economic evaluation of Mill Rd project at face value, we find that it’s a fairly mediocre local road project. While there are transport issues in this area, addressing them in this way seems expensive compared to most local road schemes around the country.
Second, I’m not confident it is reasonable to assume the agglomeration benefits of the Mill Rd project equate to 20% of the total benefits. By extension, I question whether there is sufficient evidence to include them in the base economic evaluation. Instead, it seems more reasonable to treat them as a possible sensitivity, and even then 20% seems to be a very high premium given the location of the project. Removing these benefits from the evaluation causes the BCR for the project to drop from 2.2 to approximately 1.8. It’s important to note this is not necessarily a terminal issue for the project; the proposed scheme obviously still manages to address some importany problems in the wider area. It’s just probably not as urgent as it appears from the evaluation.
Finally, it highlights what I think is the most important and interesting policy issue: That is, the need for land use policies to be informed by transport outcomes, and possibly linked to financial incentives. In this case, it seems like the Mill Rd project will cost quite a lot. Perhaps, then, there is a need for AC to revisit the merits of enabling growth in this area. Indeed, AT can rightly say that they are to some degree simply responding to land use plans developed by AC. And the latter may want to consider whether development would even occur out this way in a hypothetical situation where the actual infrastructure costs were internalised into the costs of development and ultimately passed onto consumers?
What do you think is the best way to balance public/private interests when it comes to transport and land use outcomes?
Last week Infratil – the owner of NZ Bus among other things – held their annual investor day and one of the speakers was Simon Bridges whose ministerial portfolio’s of Transport, Energy and Resources as well as being the Associate Minister of Climate Change cover a lot of Infratil’s businesses.
The video of his talk is online and there are a number of quite interesting things he’s said in relation to transport which I’ll cover below.
In the first part of his talk he talks about what he sees as two key themes running through his portfolio’s, they are:
- Climate change – for which his two portfolio’s account for about 50% of NZ’s emissions.
- Disruptive Technology – where he cites changes such as electric vehicles and autonomous vehicles – which he says he wants companies to be testing them in NZ.
For those that want to watch the video the actual discussion on transport starts at 8:45 however I’ve transcribed the relevant parts below.
In a sense it’s a period of continuity, the goals of this government in transport have been the same throughout our time in office. There’ve been productivity and growth and supporting that through our transport network. There’ve been safety and there’ve been getting greater value for money from the NZTA – primarily I should say from the NZTA.
I wouldn’t be doing my job as transport minister if I wasn’t in a sense adding my values and overlay on to that so I’ve got four or five personal priorities that I want to drive quite hard. One of them is results. I want to make sure I’m getting results primarily from the New Zealand Transport Agency and that they’re delivering the things we’ve said we would like the Roads of National Significance, like the urban cycleways, like an accelerated roading package in Auckland and a regional package throughout the regions. Significant money involved in that and I expect them to deliver those projects on time on budget or if they can much better than that so that will be a real first tier priority.
There’ll be a slight change of emphasis relevant to New Zealand Bus. In a sense if you think about what we’ve done, we’re caricatured as the roading guys and girls because the roads of national significance have been such a strong branding exercise. Actually there’s a lot more to it, we’ve spent 2 billion dollars on metropolitan rail in Auckland and Wellington, about $1.7 billion in Auckland and about half a billion in Wellington. And I want to work harder as a matter of emphasis on us emphasising what we are doing on public transport and other modes whether it’s cycling whether it’s metropolitan rail or the like because we’re spending significant sums. Those that follow these things will have seen the government policy statement which informs where the money goes. I’ve upped the money in some of these areas and we will be doing more in that regard.
The suggestion that the RoNS are just a successful branding exercise is something Simon mentioned to us when we met him recently however it’s clearly much more than that. As we’ve talked about and shown many times before the RoNS have been prioritised above and sucked funding out of other projects, many of which performed better economically. It’s also been a strong branding exercise by the government to suggest they’ve spent $1.7 billion on rail in Auckland when much of it money spent or committed by the previous government or a loan that Auckland has to pay back.
Auckland will be a real priority, effectively I want to make sure we’re getting the best value for money and the right projects out of Auckland for the money we spend. That is probably going to involve Central Government having more formal engagement with than we have in the past with Auckland City the Council, with Auckland Transport, a more hands on role because as I say we want to see an effective value for money long term plan for that city because it’s so crucial to New Zealand’s Growth.
I’ve mentioned technology and my itchy – in a sense faith in it. I want to really see us using technology in transport. I’ve mentioned EV’s, autonomous vehicles and so on but there’s many examples where we get efficiencies, more productivity and enhance New Zealanders lifestyles in that.
The comments about Auckland are particularly interesting. There has been increased talk recently about the government and the council agreeing on a transport accord. While an agreement does sound good in theory it all comes down to just what’s inside the agreement and there’s always a risk the either party will force a number of unpalatable projects on the region for political reasons. More useful would be if it focused on how to get better and more coordinated planning, funding and prioritisation of projects. One possible way would be having AT also be responsible for state highways and the local rail network.
And some questions and answers of the Minister
Question (16:15): As you know in the last few years private motoring has got cheaper thanks to the cheaper price of petrol but catching the bus has got more expensive because the regional councils are pumping dough into the trains as you mentioned. Is that something that you’re worried about?
Simon Bridges: In relation to rail vs buses – I mean that’s a bit blunt but if we sort of put it like that – yeah I do, I don’t want to say worry about that, but I do think we have to tread somewhat wearily and make sure we’re in a sense platform neutral across these things. There is a lot more life in buses and I’m not kind of just saying that because I’m here in a room full of investors where you’re a company with buses I genuinely think that.
So you and I have talked for example, privately but I’m happy to open about this idea of light rail/trams in Auckland. It seems to me that’s a strange idea when you take into account that, look in London buses are the hottest things there. They have more passengers going by bus than they do by the underground and that’s because it’s seen as a premium offering. It’s got the wireless, it’s a better offering and so I think as we see more double decker buses there’s a lot more life in busing in New Zealand. It has a very strong capacity to bring the public transport and congestion benefits that yep you can also get for rail but I think often times you get from rail at a higher price.
I would agree that there is a large role in the future for buses in NZ and that still the majority of PT trips will occur on them however it’s also important to remember they are part of an overall network. When the changes that Auckland Transport are making are finally rolled out we will do away with modes that compete with each other and instead they will complement and enhance each other. It’s also a reality that on some parts of the network the capacity that buses provide simply isn’t enough and in those places rail is likely to be the best option – just like in London and any major city.
Question (18:50): Two questions related to transport, do you see a role for the private sector in some of those projects because at the moment they seem to be a central and local government initiative but we’ve seen the role PPPs can play in accelerating infrastructure. The other question around light rail for example, is it in some New Zealand projects more of an affordability issue or a timing issue.
Simon Bridges: So on your first one without going over the top on it. I think what we can say is a couple of generalisations that one, let’s just talk about Auckland for a second. It’s so fundamentally important because it’s going to see 60% of New Zealand’s population growth for the next 20 years, three quarters of a million population growth over the next 30 years so that’s Waikato/Bay of Plenty put together, that’s all of Canterbury put together, maybe a bit more so it’s important right.
What we can also say about big cities is that I think I’m very safe ground to say as they get big their transportation problems do become more complex and the projects they require become bigger and more complex alright. So even if you take my, what I’ve just said about light rail vs buses. Yep we are going to do the City Rail Link, to answer your question directly, yep there may be a place for light rail there might not be but over time we’ll work that out but there will be bigger and more complex projects is what I’m saying to you.
Where they meet the sort of tests we have I think there’s a good chance they will they’ll be by PPPs. We will need large corporate and international expertise on these things. So my hunch, more than a hunch, my view is that we will see more PPPs in New Zealand over time. We’ll pick up pace on that and that’s in the large roading projects but also in those significant public transport ones. I mean we already know we’ve got City Rail Link coming, no decisions been made on that but that foreseeably will be a PPP. We’ve got the Waitemata Harbour Crossing coming sometime in the mid to late 2020s. That will be the biggest infrastructure project New Zealand’s ever seen, it’s a $5-$7 billion project that chances are will be a PPP. Puhoi to Wellsford etcetera so already there you’ve got potentially three, four, five PPPs.
Of course based on what AT have been saying we could probably add Light Rail to that potential PPP list. I also think that depending on how they’re structured the public transport PPPs have the potential to be some of the more attractive ones as they could allow the private sector to also really integrate and leverage land use around stations. While that’s also possible if the council funds it directly.
Overall some interesting comments by Bridges and they are certainly more open towards Auckland that we heard from his predecessor. We await with interest to really see what stamp he will put on the portfolio.
The council have announced the results of the public submissions on the Long Term Plan. We saw a few updates during the consultation including this one from on the results up to 19 February. At that time there had been around 5,000 submissions however the full consultation ended with over 27,000 – that’s a lot more than the 10,000 from the previous LTP.
Auckland Council’s 10-year budget consultation received a record 27,353 written submissions, with the majority of Aucklanders opting to support the advanced transport network, it has been revealed today.
In addition to the written submissions, there were 1,354 pieces of feedback via social media and more than 1,400 Aucklanders attended a Have Your Say event. The previous LTP consultation received 10,084 submissions.
The consultation saw Aucklanders provide feedback on a number of issues including the levels of investment in the region over the next decade and what council needs to do to fix the region’s transport problems.
Figures show that 50% opted for the advanced transport network and 29% supported the basic transport plan. On the question of funding the transport options, 34% supported motorway tolls, while 27% favoured a fuel tax and rates rises.
Auckland Mayor Len Brown says that elected officials now had a responsibility to listen to what Aucklanders have said.
“Aucklanders have spoken and their wishes are clear,” he says.
“They want a more comprehensive transport system that will cater to the needs of our growing city.
“The council now has a responsibility to listen to what they have said and act decisively through the decisions we make.
“Yes, it will be challenging to get where we need to go, but there is no doubt in my mind that Auckland is ready for that challenge.
“Our future depends on us having a transport network that is fit for purpose and has the ability to cope with the increase in population that will take place here over the next 30 years.
“So my thanks go to all those who got involved to give us their views. I will do everything in my power to ensure that we don’t let them down.”
Elected officials will now consider the feedback in a series of briefings and workshops ahead of final decisions that will be made on May 7 & 8.
The plan will be formally adopted by the council on 25 June and the final plan, including 21 local board agreements, will be available at www.aucklandcouncil.govt.nz along with a summary of decisions made in July.
The accompanying report provides a lot more information. First up the demographic breakdown. This is something Peter looked into more closely in this post. I’ve updated his table with the final information which shows that over time the numbers from some demographic groups did improve however some segments of the population are still well over represented. One of the biggest shifts has been in the 15-34 age brackets which likely highlights the great work that Generation Zero did and shows that younger people are keen to be involved when engaged correctly.
The next table breaks down the results by local board area (where it was available) and you can see that the rural areas, the North Shore and much of the Isthmus area tend to be over represented while the west and south to be under represented.
Moving on to the actual results.
Of the people that answered, 54% disagreed with the proposed 3.5% rates increase which was up slightly from the earlier updates. This update doesn’t say whether people think the rates should be higher or lower but I assume most would think the latter (was 79% last time).
More interesting are the areas where people want more or less focus to go on. There are some notable changes compared to the earlier feedback. Previously those saying to spend more on transport only slightly outnumbered those who said spend less. The comparison now shows a lot more people want more spent on transport. The other major change is for parks and community. Previously those wanting more spent were only about half of those saying to spend less whereas now it is much more even. The graphs for the other results aren’t that different to the earlier results.
Next up the question of which of the two official transport plans people support and preferences for how the Auckland Plan network should be funded. The results seem very similar to the numbers from February. It’s worth remembering that the council tried to push both of these questions as a binary choice yet the results are anything but.
So what is it people think we should be focusing on? In short public transport and cycling. I wonder what out transport budget would look like if it mirrored the results below. Of course this isn’t that dissimilar to the results the AA released a few weeks ago.
The last question I was interested in was on the public’s views for merging a few CCOs such as Waterfront Auckland and Auckland Council Properties Ltd to create a single one called Development Auckland.
Now we wait to see if the councillors listen to the results.