Twiddling thumbs on climate change

Under the National government, being the Climate Change Issues Minister must be the easiest job in the world. Sure, Tim Groser does also have the more demanding role of Trade, but if I had to guess the number of hours each week he spends thinking “what can I do to help New Zealand reduce its emissions?” I’d guess the answer is pretty close to zero. And I’d guess much the same for the Associate Minister, Simon Bridges (who is also the Minister of Transport).

This is frustrating, when there are many things that we should be doing to cut our emissions right now – especially in transport. It’s even more frustrating when many other countries are taking climate change seriously, and gearing up to make big pledges at a climate summit at the end of the year, and our own government is so firmly on the wrong side of that line.

Because this summit is coming up, there’s actually been a flurry of articles in the Herald and other media, whereas climate change has struggled to get the attention it deserves in the last few years, in NZ at least. This reflects that our government is heading into the summit with an extremely weak pledge, where we essentially aren’t planning to do anything at all to reduce emissions.

“The Government’s refusal to do much of anything to curb New Zealand’s emissions is as economically myopic as it is morally contemptible”.

Brian Fallow, economics editor for the New Zealand Herald, 2013

Brian Fallow is a man whose pieces tend to be thoughtful and measured in tone, hardly someone who is prone to exaggeration. His recent column on the topic reads:

The legacy of woeful climate policy by the present Government and Labour before it – woeful from the standpoint of actually reducing emissions – is that emissions are running more than 20 per cent above 1990 levels. They shouldn’t be, but they are.

The ETS was enacted in the last few weeks of Labour’s ninth year in power and was promptly emasculated by National. As it stands, it exempts the great majority of New Zealand emissions altogether and has in recent years imposed on the rest a carbon price measured in tens of cents rather than tens of dollars.

Fallow continues, but, essentially National are opting for a “kick the can down the road” policy, without giving NZ businesses and individuals any incentive to actually decrease their emissions. Predictably, some recent modelling work suggests that emissions will actually increase under this scenario. The government will then need to buy credits from overseas countries that are actually doing something, so that we can meet our international obligations.

National’s stance on this has been criticised by a number of scientists and organisations, as in the article above:

Professor James Renwick of Victoria University of Wellington, an actual climate scientist, says the target is as weak as previous ones and does not come close to what is required, if New Zealand is serious about keeping warming to less than 2C, as the Government has said we are.

“The science says, compared to 1990 we need about a 40 per cent reduction by 2030, 90 per cent by 2050, and 100 per cent by 2060 – and then negative emissions (removal of CO2 from the atmosphere) for the rest of the century.”

New Zealand, he notes, is one of the highest emitters in the world on a per-capita basis.

Fallow also wrote another article three days later, which continues on this theme. My emphasis in bold:

The greenhouse gas emissions reduction target for the 2020s the Government intends to pledge has been rated inadequate by Climate Action Tracker, and as falling short of a fair share of the international effort required.

If most other countries were to follow New Zealand’s approach, global warming would exceed 3 or 4°C, a world that would see oceans acidifying, coral reefs dissolving, sea levels rising rapidly, and more than 40 per cent species extinction.

“While most other governments intend cutting emissions, New Zealand appears to be increasing emissions, and hiding this through creative accounting. It may not have to take any action at all to meet either its 2020 or 2030 targets,” Hare said.

There are no policies in place to address the fastest-growing sources of emissions in New Zealand from transport and industrial sources. For the energy system, whilst it is predominantly hydro and renewables, there is potential for further increasing renewable energy, and improving efficiency on the user end.”

It also points out, as domestic critics of the target have and as Climate Change Minister Tim Groser has conceded, that it does not put New Zealand on a direct, straight line path to its longer-term goal of a 50 per cent reduction by 2050, unlike other major economies such as the European Union or the United States.

“New Zealand’s climate policy is projected to head in the opposite direction from the world’s biggest emitters such as China, the United States and the European Union.

It has taken little or no action on climate change since 2008 – except for watering down its ETS – and we can find no evidence of any policies that would change this,” said Professor Kornelis Blok of Ecofys.

As per one of our posts from 2013, New Zealand’s emissions come largely from agriculture – which is a tricky problem to solve – and energy, including transport. Since it’s going to be hard and expensive to cut our agricultural emissions, we’re going to have to put a lot of focus on transport emissions, and reduce them significantly.

John P Emissions

How do we cut our transport emissions? Electric vehicles will help. Indeed, in the decades to come, they could actually make a huge difference, given NZ’s mainly renewable electricity supply. But that’s a long way off. In the meantime, we need to stop building huge new highways and motorways, and start investing in public and active transport instead. These things are not about NZ being a leader in reducing emissions, or even a “fast follower”. We’re slipping further and further behind on that front. It’s simply about taking cost-effective, sensible and actions which will prove themselves much more sensible in the long run.

The government has recently started to boost cycling funding, which is good – and it may well be more effective than public transport spending for our small to medium cities. But for our larger cities, we need both public and active transport. For Auckland especially, we should be investing in public transport infrastructure – the big ticket stuff like the City Rail Link, the quick fixes like bus lanes, and the intermediate things like busways. The council understands this, to a reasonable extent. But the government has stayed right out of it, overriding the priorities set by the council or Auckland Transport and instead pouring billions of dollars into motorways instead. That has to change.

Supply and demand and regional airfares

Back in June, Stuff published a report on regional airfares, focusing on the way that prices are affected by major events such as concerts and sports competitions. Now, I’m no airline economist, but I’ve got a general interest in transport pricing so I figured that it would be worth taking a look at the topic.

The point of the article seems to be that airplane tickets are higher during periods of high demand. That doesn’t seem too weird, but this guy in Nelson is absolutely ropeable at the thought:

Nelson man Steffan Eden is furious about Air NZ’s fares from Nelson to Auckland and return for the weekend of March  5 and 6 when Madonna will give her first New Zealand concert at the Vector Arena.

Fares that the previous weekend cost $79 are twice that at $159 on the weekend of the concert, an $89 fare rises to $169; and a $129 fare becomes $209…

“Look at the fares the weekends before and after the concert, they’re normal fares. Then on the concert weekend they’re virtually double.  It’s quite blatant.”

Eden said the same thing happened when he wanted to go to the Cricket World Cup match between New Zealand and England on February 20.  “I wanted to take my kids but didn’t in the end because of the cost,” he said.

The man quoted in the article seems to argue that these jumps up in fares are due to uncompetitive or discriminatory practices by Air NZ. By contrast, the airline says that the price increases are just due to cheaper tickets selling out faster:

An Air New Zealand statement said it has been experiencing high demand for flights into and out of Nelson that weekend due to both the New Zealand Masters Hockey Tournament which is being held in Nelson from February 28 to March 5 and the Madonna concert in Auckland.

“As you will appreciate, where there are major events on flights tend to sell out well in advance, with the cheaper fares selling out the fastest, so booking as early as possible is recommended.”

Now, as an economist I’m always wary of the potential for companies with few immediate competitors to exercise market power over their customers. But in this particular case, I don’t think that’s happening. What we are seeing is the normal, and in fact beneficial, working of supply and demand.

Let’s start with the supply side. Air NZ doesn’t have an infinite budget for airplanes and staff. It faces constraints. If it wanted to run more services between Nelson and Auckland on particular weekends of high demand, it would have to either:

  • Pull airplanes off other regional routes, which would potentially satisfy Nelson’s demand but would in turn lead to similar stories about how unfair Air NZ was being to Napier or Timaru or what-have-you, or
  • Buy extra airplanes and hire extra staff that would sit idle most of the time and fly only during a few periods of exceptionally high demand. This is superficially appealing, but it would mean an across-the-board increase in fares to pay for a bunch of empty planes.
mojave desert boneyard1

This isn’t really related, but it’s an interesting picture (Source)

So that’s the supply side. What about demand?

Air NZ has observed, correctly, that demand for flights is not constant over time. Simply put, more people want to fly at some time periods than during others. Airlines can respond to this in a few different ways. The first would be to keep prices constant, regardless of demand. This would turn air travel into a first-come-first served game, which is great if you always buy tickets months in advance but terrible if you have to take a last-minute trip for work or a medical emergency.

The second approach, which Air NZ may be using, is to charge higher prices during periods of higher demand. This may seem less fair, but it’s actually better for (almost) everyone. It means that airlines aren’t constantly booking out flights well in advance or misallocating resources in a futile attempt to give everyone a cheap flight. Travellers also benefit – they get a choice between paying more to travel at their preferred time or finding a cheaper fare at an off-peak time.

I fly for work on a semi-regular basis so I’ve noticed some of the patterns over time. Between 4-6pm, departure gates fill up with suit-wearing men and women headed home from their meetings in time for dinner. Not surprisingly, prices are highest at this time. Later on, prices drop, planes get a bit emptier, and the suits get replaced with casual clothes. By the end of the night, most of the people who want to get home have gotten there, and for a price that they’re willing to pay.

Occasionally, this means that somebody decides not to go to a Madonna concert. But that’s not a flaw with supply and demand – that’s how it’s supposed to work! If the man quoted in the Stuff article didn’t go, it’s only because someone who valued being there more bought the ticket instead.

Finally, I have to ask: Why are people outraged when the principles of supply and demand are applied to airfares? Perhaps it’s because we routinely ignore those principles everywhere else in our transport system.

As numerous economists have observed, we manage our roads like a Soviet supermarket. The price to use roads is set at a single, low value – i.e. NZ’s comparatively low petrol taxes – and thus people queue up for ages to drive on them every morning and evening. The same thing happens with parking, where we have regulated to make it abundant and free and ended up in a situation where people can never get enough parking.

In economic terms, there is no difference between this:

SH16 traffic

And this:

latvian-bread-line

They are both situations in which scarce resources, including people’s time, are misallocated due to poorly-functioning price signals. So rather than asking “why don’t we price air travel as inefficiently as roads?”, we should ask “why don’t we price roads as efficiently as we price airfares?”

A failure to price roads efficiently badly distorts our supply decisions. We are forever pouring more asphalt and concrete that accommodates a few more slowly-moving cars at peak times and sits idle much of the rest of the time. By contrast, congestion pricing would allow us to avoid many of these expenditures by giving people an incentive to travel differently.

What do you think about airfares – and transport pricing in general?

Auckland a City of Opportunity?

A new report comparing Auckland with 30 other international cities by PricewaterhouseCoopers (PWC) paints a grim picture in many of the categories we talk about. Titled “A City of Opportunity”, the report released last year compared 30 cities from around the world. Following the 2012 version of the report a separate study was done to see how Auckland compared and the same thing has happened again with the 2014 version. This gives Auckland a useful tool for comparison. The results were given at an Auckland Conversations event last week and you can watch the presentation here while the presentation itself is here.

 

 

While many of the other reports that rank cities do so as a metric for assessing what to pay staff posted overseas, the PWC report appears more focused on the economic opportunity from cities working together. However like other reports, it is based on how a city scores across a number of criteria. In this case there are 59 variables spread across 10 categories which themselves combined into three high level groups with the report taking both a quantitative and qualitative look at city life. One of the things they mention is that while not all variables are under a cities direct control e.g. education, that it doesn’t mean a local council should just ignore the impact they have and should be active in trying to get the government to continue to improve the system. The groups, categories and variables are

PWC - Cities of Opportunity - Ranking Critera

 

The 30 comparator cities are shown below and were picked so there was a mix of cities from all regions of the world and with different attributes. The map below shows the cities along with their overall ranking (the higher the number the better).

PWC - Cities of Opportunity - Cities

 

One of the interesting outcomes that was noted was when the result of the rankings was compared with GDP data.  As you can see there is a correlation between cities that score well and those that perform better economically. It was also mentioned that in some cases – such as a study of 15 Swedish cities using the same methodology – this relationship is even stronger.

PWC - Cities of Opportunity - Economic Impact

Moving on to Auckland, the results below show how the city compared against the 30 other cities in 2012. As you can see we were doing ok in some areas but others we really lagged behind. It is noted that our main weaknesses are:

  • Transport and Infrastructure
  • Economic Clout
  • City Gateway

PWC - Cities of Opportunity - 2012 results

Some metrics aren’t expected to have changed much so not all measures have (yet?) been reviewed in 2015 but the results of four were given.

  • Technology Readiness
  • Transportation and Infrastructure
  • Economic clout
  • Demographics and livability

Here are some the comparisons for these areas. It’s important to remember that the rankings below are how Auckland compares to the other cites, not the scores that it achieved for each segment. PWC say Auckland has been improving but the issue is that in some cases other cities are improving at a faster rate meaning we’re falling down the rankings.

In technology and readiness the governments fibre roll-out initiative is paying off and Auckland is improving and so to is it’s ranking in Software development and multi-media design however other metrics are falling. In the case of Internet access in schools PWC said it wasn’t just about having access to the Internet but also how schools are adapting to it and making the most use of technology.

PWC - Cities of Opportunity - Technology Readiness 2

 

For Demographics & livability Auckland continues to do well for quality of living but slips down the rankings on the other metrics. Of interest, we’re still ranked fairly well for traffic congestion as while many locals think things are bad, congestion is considered nowhere near as bad as many other cities. One aspect in the discussion on traffic congestion that I found interesting was that the example of prioritising walking and cycling in Amsterdam was highlighted. It was said how contrary to what many people and car drivers assumed, walkers and cyclists spent more in city shops than those who drove did and on that basis it was better for the economy to remove the cars.

The very low score for demographics relates to the large ageing population we have which presents both an opportunity (if people work longer) as well as a challenge for the future once they start leaving the workforce.

PWC - Cities of Opportunity - Demographics & livability

The transport and infrastructure results are particularly interesting and concerning. As you can see Auckland ranks very poorly for its public transport system, especially the coverage and cost of it. This is something that electrification, the new bus network and integrated fares help improve but even with those it’s likely we’ll still be very far down the list. The housing result will probably raise a few eyebrows however it was described as being not just a cost to buy measure but also how easy/hard it is to get into a house (regardless of whether you’re buying it).

PWC - Cities of Opportunity - Transport and Infrastructure

And lastly economic clout where we’re doing well in some areas but very poorly in others. This is in part because other cities have been much more affected by the economic conditions in recent years than Auckland/NZ has. The question is if Auckland can sustain the rate of growth it’s been achieving in the last few years because if it can’t, it would likely fall down the rankings.

PWC - Cities of Opportunity - Economic Clout

These are summed up to the following strengths and weaknesses.

PWC - Cities of Opportunity - Strengths and Weaknesses

All up Auckland remains a city with a huge amount of potential, especially thanks to the natural environment we have and it’s clear we’ve been doing some things right. It’s also said that some of the plans we have are good too but one major issue is making sure we get the execution right.

NZTA OIA Response on Additional Harbour Crossing

Prompted by the news that the NZTA is tendering work for route protection of the Additional Waitemata Harbour Crossing (AWHC), I initiated an OIA request to the NZTA which has now been responded to.

I requested, on behalf of the Campaign for Better Transport:

1. A statement defining the land transport problem or issue that the proposed AWHC solution is attempting to address.
2. The studies and comparative assessments of alternative solutions that the NZTA has conducted, including, but not restricted to, an electrified rail only crossing of the Waitemata Harbour between the Auckland isthmus and the North Shore.

The NZTA responded with the following PDF documents:

  • Attachment A: Additional Waitemata Harbour Crossing Preliminary Business Case, January 2011. The business case includes a statement outlining the problem which the Additional Waitemata Harbour Crossing project is attempting to address (refer to ‘Description of Service Need’ on page 9)
  • Attachment B: Waitemata Harbour Crossing Study Phase 1: summary report option short listing, November 2007
  • Attachment C: Waitemata Harbour Crossing Study 2008: Study Summary Report, April 2008

Question 1: What Problem Are We Trying to Solve?

The Description of Service Need is this:

statementofserviceneed

What stands out here is the statement that the “AHB currently provides the only direct, cross-harbour vehicle link between the CBD and the North Shore.”  Resiliency seems to be a major driver behind a solution which supports six lanes of general traffic in a tunnel, with the possibility of rail at some indeterminate point in the future. What is odd is that there is no mention in any of the supplied documents of the Western Ring Route, a $2bn project adding resiliency and reducing demand on the existing Harbour Bridge which, in the NZTA’s own words, will “create a seamless motorway between Manukau and Albany”.  This is due for completion in phases in the next few years.

There are also the usual predictions of increasing traffic volumes, which threaten to “adversely impact on the length and reliability of travel times”. Quite why it is vital to minimise the travel times of single occupant cars isn’t explained.  Regardless, the Business Case uses traffic volumes in 2008 as the basis of forecasting, before the Northern Busway had a chance to make much of an impact.

traffic volumes

However, as Matt pointed out in this post, traffic volumes across the bridge have stubbornly stayed at 2008 levels, at least up until 2014.

AHB Annual Volumes to 2014

And that pretty much sums up the statement of need. As far as analysis of the need for mass rapid transit goes, there’s this analysis of the Busway:

Forecast demand for the Busway indicates that the morning peak hour flows into the CBD could increase to 250 buses per hour in 2041, representing a 138% increase over the 2009 volumes. This figure is the recommended target capacity for the Busway system, representing 12,000 passenger movements per hour6. However, achieving the target capacity is currently hindered by capacity constraints close to the CBD where the provision of dedicated bus facilities is more expensive and bus volumes are at their highest. One of the advantages of a new crossing would be the ability to have dedicated bus lanes across the AHB which would maintain a high level of trip reliability for passenger transport users.

On rail, the Business Case assumes a rail link between Gaunt Street Station in the Wynyard Quarter (underground) and Akoranga Station (at grade). The basis for modelling the tunnel is this diagram:

tunnel map

Construction cost alone of the combined tunnel is $4.6bn in 2010 dollars, with a total nominal cost over a 30 year period calculated as $12bn for the tunnel, including all capital expenditure and operating costs, with a risk factor as well:

nominal costs

The Business Case document comes up with a BCR of 0.4 for the combined tunnel option, including wider economic benefits and not including tolling.  Not so much a Business Case for the proposed AWHC then, but more a massive red flag suggesting  that not building the proposed tunnel is actually more economically beneficial for Auckland.  Even more worryingly, even though there is an assumption that the motorway will be widened to four lanes between Esmonde and Northcote road, there doesn’t seem to be any explanation of how the capacity of the Central Motorway Junction will be increased to cope with the additional three lanes of traffic each way that a new tunnel crossing will provide for.

Incidentally, transport modelling and the Cost Benefit Analysis excluded rail (p.25)

A parallel work stream to this study — The Network Plan — undertook an assessment of the longterm capacity of the existing Busway and concluded that a rail crossing was not required within the timeframes considered for the CBA. As such, the transport modelling excluded the modelling of rail, and the CBA includes costs for the roading component of the crossings only (i.e. the cost for the rail tunnel is excluded).

There is an interesting discussion on tolling (up to $8 each way modelled), but perhaps that is best left for another post.

Question 2: What alternatives have been evaluated?

The Business Case takes it as a given that capacity for additional vehicles is required.  This stems from the earlier options papers, which do indeed include an examination of a rail only crossing, which is the second question of the OIA request. Attachment C covers three short-listed options, with variations for each:

options

The study concludes (p.43) that a combined road / rail tunnel option is best – Option 2C.

summary

So although a rail tunnel was the best passenger transport option, the study recommends a combined road / rail tunnel. The option evaluation process appears not to have used a CBA / Economic Evaluation Manual approach, and it is difficult to tell exactly why option 2C is favoured over a rail only crossing. There is no comparison of BCRs between the rail only and combined tunnel options.  Presumably there is a strong weighting for resilience, but again discussion about the Western Ring Route is non-existent. However, the study also carries this warning on p.45:

Limited spare capacity on the strategic and regional arterial networks on both sides of the Harbour, together with the need to move towards a more sustainable transport system, mean it will be neither practical nor desirable to provide sufficient cross harbour road capacity to match demand. Any additional connectivity should therefore be provided to the best practicable standard, that is, in balance with the remainder of the Auckland road network, and in a cost effective manner.

And cost should probably be one of the most important factors. Page 36 has a table of costs for the different options.

optioncosts

A rail only tunnel was costed at about a quarter of the cost of a road / rail tunnel.

In summary, I don’t really think NZTA’s solution is going to work.  By design, it will increase the number of single occupant cars in the CBD and surrounding motorway networks and, according to their own analysis, make the economy of Auckland worse than if the project doesn’t proceed.  (And that isn’t even considering the impact of tolls on the economy.)

I don’t accept claims that the tunnel will be “future proofed” for rail either.  You only need to look at the history of future-proofing in Auckland (think Te Iririrangi Drive or the Manukau Harbour Crossing) to know that most likely it will never happen.

The taxation and expenditure of over $4bn dollars could make a real difference to Auckland if it was spent on the right things.  I think Aucklanders should get a say on this. Allowing the AWHC route protection to proceed in its current form, at a cost of tens of millions, is the thin edge of the wedge. If planning starts for a tunnel for single occupant cars, then that is what we’ll end up with.

This isn’t urgent. We’ve got time to get it right.

How might the RMA amendments and the Auckland Plan impact on the Unitary Plan?

The advertisement below is from the last local government elections. Here Councillor Denise Krum rallies against the draft Unitary Plan, especially the degree to which it enables “intensification”. Denise’s advertisement claims the draft Unitary Plan is “too intense” and will “change our streets forever”. Instead, Denise advocates for greater restrictions on the degree to which property owners can develop their property in the urban area, and more expansion of the city. Denise was subsequently elected.

Denise Krum

Denise is particularly critical of 3 storey height limits, and goes to the trouble of hoisting herself up (some might say by her own petard) in a scissor-lift so as to highlight differences in building heights.

From this advertisement it seems clear Denise does not support the draft Unitary Plan and instead considers restrictions on intensification as being necessary to preserve community well-being. It is notable the advertisement does not contain any references to any research or surveys which support the positions Denise adopts on these issues. Is it too much for me to expect political advertising to include references to evidence supporting the positions being advanced? Perhaps.

When it comes to planning, however, evidence matters. Recent 2013 amendments to the RMA increased the burden of proof with regards to S32 reports, especially in terms of the economic analysis that should be undertaken to support proposed policy provisions. For those who are not familiar with planning jargon, a “S32 report” attempts to evaluate the effectiveness of proposed policies in comparison to potential alternatives. The 2013 RMA amendments requires S32 analysis to identify, and where practicable quantify, the economic benefits and costs of proposed policies. Some smarty-pants lawyers had this to say about the RMA amendments at last year’s NZPI conference (source):

“Arguably the most significant and material change is an expansion and detailed elucidation of the reference to “benefits and costs”, in the context of assessing efficiency and effectiveness … Post 2013s 32(2) requires, in much more detail, the following:

An assessment under subsection (1)(b)(ii) must—

(a) identify and assess the benefits and costs of the environmental, economic, social and cultural effects that are anticipated from the implementation of the provisions, including the opportunities for—

(i) economic growth that are anticipated to be provided or reduced; and

(ii) employment that are anticipated to be provided or reduced; and

(b) if practicable, quantity the benefits and costs referred to in paragraph (a).

The task of complying with these requirements is not insignificant. A systematic approach will need to be taken in preparing s32 reports to ensure that they are compliant and address environmental, economic, social and cultural effects, including opportunities for economic growth and employment.”

Ever since the RMA amendments came into force I have pondered how they might impact on the proposed Unitary Plan, especially with regards to density controls? I have also been wondering how the strategic direction established in the Auckland Plan, which I think was developed under the auspices of the LGAAA, would be relevant to the Unitary Plan?

My interest was further piqued when councillors, such as Denise, dramatically reduced the level of intensification that could occur in metropolitan Auckland, since which time house prices have soared. The differences between the draft and the proposed Unitary Plans is highlighted in the map below. Areas of red show areas where down-zoning occurred, which includes most of the isthmus. These are the areas where property prices are high (and increasing), i.e. where market-driven intensification seems most likely to occur.

Down zoning

From this it seems fair to say that proposed Unitary Plan imposes tighter density controls. The question is whether these controls are supported by economic evidence that meets the requirements of the (amended) RMA? And, moreover, how apparent tensions between the strategic direction of the Auckland Plan and the approach adopted in the proposed Unitary Plan would play out in a hearing context?

The economic costs of density controls are relatively intuitive: They forgo and/or displace land use development. This means we get less of it, especially in higher In terms of the economic benefits of density controls, those who are opposing intensification, such as Denise, will need to present evidence to show that levels of density which are common-place elsewhere, e.g. cities in Australia and Europe, will cause significant harm to communities should they be replicated in Auckland.

I’m skeptical as to whether this evidence exists. Most of the research I’ve read, such as this review by UNSW for Queensland Health, finds no conclusive evidence that higher density development has negative impacts on well-being. In fact, there’s evidence it’s beneficial to many outcomes, such as childrens levels of physical activity and obesity rates. So much for the meme that children need a big backyard to stay fit and healthy!

In my experience living in Auckland and overseas, buildings of approximately 6 storeys seem to have relatively negligible negative impacts on well-being and/or amenity. The photos below illustrate two buildings from Amsterdam and Auckland, but I could have easily added many more photos of multi-storey buildings from Brisbane, Sydney, and Stockholm. While there are large differences in style, I find both buildings quite attractive (the first photo is used under license from myself; the second photo belongs to Ockham).

Amsterdam nightmare

_CM15340 crop-600-600-450-450-crop

For these reasons, I have been somewhat heartened to read the interim guidance on view shafts that was issued by the Commissioners who are overseeing the Unitary Plan hearings process. In this guidance the Commissioners note “the objectives, policies and rules in relation to viewshafts do not meet the s32 requirements of the Act” for several reasons, most notably “amendments were made to s32 in 2013 to require employment and economic growth opportunities (including lost opportunities) to be taken into account and these post-date many if not all of the legacy plans.” The Commissioners go on to note the “PAUP is the first substantive planning process to propose increased levels of intensification to achieve a quality compact city so it is appropriate that the viewshafts are now re-evaluated within that strategic context” and more importantly “… if it is possible to quantify those costs of the viewshaft provisions, then that would assist in decision …

I want to emphasise from the outset that I don’t have a strong view on the relative merits of view shafts. This post is less concerned with the nitty-gritty of viewshafts than it is with understanding how the 2013 RMA amendments and the Auckland Plan may impact on the Unitary Plan, most notably:

  • First, the presence of planning provisions in legacy plans is not strong evidence (in of itself) that those provisions should be retained in the Unitary Plan, mainly because the legacy plans pre-date both the 2013 amendments and the Auckland Plan. Hence, they have not been tested under the current legislative and strategic context.
  • Second, the Commissioners appear to consider that the strategic context provided by the (non-statutory) Auckland Plan, in addition to the Regional Policy Statement, is relevant to the provisions of the Unitary Plan, especially with regards to the development of a quality compact urban form.
  • Third, in light of the 2013 RMA amendments the Commissioners appear to place a higher expectation on economic analysis, especially where proposed provisions do not appear to align with the aforementioned strategic direction of the Auckland Plan.

The Commissioners thus seem to be attempting to strike a balance between strategic outcomes and economic analysis, and do not seem to be placing too much weight on legacy plans. This is heartening because, frankly, the legacy district plans contained many provisions that are of dubious value. Moreover, where provisions proposed in the Unitary Plan run contrary to the Council’s stated strategic direction, then there seems to be an expectation from the Commissioners that this misalignment is supported by robust economic analysis.

Of course, whether this preliminary guidance on view shafts is indicative of the Commissioners’ ultimate position and/or whether it apples to other topics, e.g. minimum parking requirements, is something that will only become clear in the fullness of time. In the meantime, I’d be interested in hearing your thoughts.

Professional and personal disclaimer: The views expressed in this post represent the theoretical and philosophical musings of a not quite defunct economist. This economist is not a planner nor is he a lawyer (so don’t expect to be able to sue me for much money). The views expressed herein should not be construed to represent the views of my colleagues, clients, friends, or pets. They do represent the views of my Mum, whom I love very much. Nor do they necessarily represent my own views in the future – at which point my views may have changed in response to further evidence and information. 

The equity implications of minimum parking requirements

Transportblog’s written at length about the economic harm caused by minimum parking requirements (MPRs). By requiring every new development to adopt a “one size fits all” to parking provision, MPRs consume expensive land, drive up costs for businesses and households, and encouraging more congestion and less use of public transport, walking, and cycling.

Of course, even in the absence of MPRs many businesses and households would want to provide parking. But others might not. Different people have different needs and desires, and a one size fits all MPR doesn’t respond well to that.

Fortunately, many New Zealand cities are starting to cut back on MPRs. In Auckland, the proposed Unitary Plan removes them from town centres (following on from the highly successful removal of MPRs from the city centre in the late 1990s) and the higher-density residential zone. But it’s still leaving them in place in most residential zones, which cover the majority of the city.

Is this a good idea? One could argue, I suppose, that MPRs in residential zones won’t be very costly because the households living in these areas will all own cars and will therefore all want parking. This argument is a bit circular – if it were true, it would actually mean that there is little need to have MPRs. But is it true?

In order to find out, I took a look at Statistics NZ’s data on household car ownership from the 2013 Census. Every Census, Stats NZ gathers data on the number of cars owned by each household throughout the country. This data can give us rich insights into the demographics and location of Auckland’s car-free households.

Here’s one look at the data. I’ve broken down Auckland’s approximately 470,000 households by the number of cars that they own. As you can see, the vast majority of Auckland households own cars. This is a costly proposition, but frequently a necessary one due to Auckland’s under-investment in frequent public transport and safe walking and cycling options.

But let’s not look only at the mean: the variance is equally important when considering the impact of planning regulations. Approximately 33,500 households, or 7.6% of all Auckland households, own no cars. (My household falls into this category – three people, zero cars.) MPRs will require car-free households to buy parking spaces or garages that they don’t need. Sure, it’s possible for them to use garages for storage or workshop space, but it would be better to have another bedroom (or a smaller, cheaper dwelling) instead.

Car-free households face a double budgetary whammy from MPRs. Because they require retailers to over-provide parking, parking costs are bundled into the price of everyone’s merchandise rather than charged directly to drivers. This means that every time someone who doesn’t own a car goes to the supermarket or mall, they are effectively subsidising people who drove there.

Auckland household car ownership chart

In short, MPRs can be costly for households who don’t own cars. When considering the effects of this policy, it’s necessary to ask: Can those households afford to bear those costs?

Here’s some relevant data from the Census. It shows the share of households in each income band who don’t own cars. Almost all high-income households own cars, but a large share of low-income households don’t own cars. Almost one-third of households earning less than $20,000 and one-fifth of households earning between $20,000 and $30,000 own no cars.

Overall, two-thirds (66.7%) of car-free households earned less than $50,000 a year. For comparison, Census data shows that the median household income in Auckland was $76,500 in 2013. Car-free households are overwhelmingly concentrated in the bottom quartile of the income distribution, which means that MPRs are a sharply regressive policy. They impose high costs on the people who are least able to pay, while having few effects on high-income households.

Auckland share of households with no cars chart

Finally, it’s worth taking a look at the geographical distribution of Auckland’s 33,500 car-free households. One of the ways in which households can avoid the costs of car ownership is to live in places which offer other ways of getting around or good proximity to jobs, shops, and amenities.

I’ve put together a quick map showing the number of car-free households in each Auckland area unit. Dark blue shows areas with more car-free households, while yellow shows areas with few car-free households. A few things pop out from this map. The first is that the largest concentrations of car-free households are in the city centre – fewer than half of city centre households own cars. This is not surprising – it’s costly to warehouse cars downtown and easy to get by without one.

But don’t let that fool you: car-free households are distributed widely throughout Auckland’s urbanised area. Only 16% of the region’s car-free households live in the city centre. Many, many more people are living without cars in west Auckland, south Auckland, the isthmus and even the North Shore. Orewa has a surprisingly large number of car-free households due to its status as a retirement community.

Auckland car-free households map

Because car-free households are living more or less everywhere in Auckland, the blanket application of MPRs in residential areas is likely to be inappropriate. And, because low-income households are more likely to own no cars, MPRs will tend to be heavily regressive. It’s a policy that many Aucklanders simply can’t afford.

Fortunately, it’s possible to imagine and implement better policies. As Transportblog has consistently argued, we can:

  • Let people make up their own mind about parking – if they don’t want it, don’t make them buy it!
  • Give people better transport choices by providing frequent, reliable public transport services and safe walking and cycling options – in other words, give them the choice to go without a car
  • Make it easier for people to live in areas where they don’t need cars, and make it easier for people to “retrofit” underperforming car-based places like Manukau centre.

What do you think about the equity impacts of MPRs? Do you think we could do things better?

Changes to CBD Parking costs

Auckland Transport have announced that the price of parking in their city centre carparks will be changing. Currently their Downtown, Civic and Victoria Street car parking buildings have an hourly cost of $3 which is capped at $17 for the day. They also have evening rates of $2 per hour capped at $7.50 for the Downtown and Victoria St buildings and $8 for the Civic building. The reason for the different cap for the Civic building is it more frequently fills up from events.

The hourly charges aren’t changing but from 1 August AT will increase the caps at the three carparks. The changes are:

  • The day rate in the Downtown, Civic and Victoria Street car parking buildings will increase from $17 to $24.
  • Evening and maximum rates: Civic: Flat fee of $12 (post 6pm). Victoria and Downtown: Increase from $7.50 to $10.

The rationale for the changes is below

  • Historically AT has subsidised people to drive into the city at peak times, which is adding to congestion.
  • AT is continuing to move towards the customer pays for their stay approach. This replicates AT’s central city on-street parking approach
  • Our prices are increasing further to dis-incentivise people from driving during one of the busiest times of the day (am peak).
  • AT anticipates this move will free up some peak hour occupancy in its off-street parking facilities while continuing to provide for short stay users encouraging turn-over and availability
  • The removal of the Early Bird option in December 2014 has not had the desired impact in changing customer behaviour. A further step is needed to assist in modal shift behaviour from cars to public transport, walking or cycling.
  • Additional note: AT has a small percentage of off street car parking spaces in the central city and region wide. Downtown: 1937 spaces. Civic: 939 spaces. Victoria Street car park: 888 spaces.

On that last point, the chart below just how few carparks AT has compared to what else is in the city centre. In addition there’s likely to be significant increases in carpark supply over the coming years from new developments – the biggest of which is the new Convention Centre for which SkyCity want to add over 1,400 spaces. A number of other developments are adding 200-300 carparks each.

CBD Parking Supply

I suspect there could be one more reason why AT are pushing this now and that’s related to the CRL. Starting later this year AT start the enabling works which will see the CRL tunnels dug along Albert St as far as Wyndham St (actually tunnelling won’t begin till next year). This is going to cause immense disruption to buses and cars and as such it makes sense to try and reduce that as much as possible. Shifting more people to public transport is one way of get more capacity out of the transport system. I guess if you think about incentivising change as a case of using carrots and sticks, this change represents AT using a bigger stick.

Of course none of these facts are likely to matter to those who use the carparks and I expect there will be howls of outrage about the change – in fact I’d be surprised if it hasn’t yet been picked up by the likes of the Herald (I wrote this on Sunday). I suspect that in particular they’ll come under attack for being so honest about their desire to get more people out of their cars and using public transport. The reality is that’s kind of been happening for a long time now.

Data from the council’s annual Screenline Survey shows that from 2001-2014 all of the growth in trips to the city centre in the AM peak has come by way of public transport and most of that via the Rapid Transit Network (Rail and Busway). The number of people driving has actually declined slightly. Unfortunately despite the survey being conducted annually since the 1980’s we don’t have any data for 2015 as the council stopped it in a bid to cut costs. Hopefully AT will find a way to replicate the survey with data from systems like HOP and traffic counters as it provides an incredibly useful measure as to how various initiatives are working.

CBD Transport Change CBD Transport Change #

 

You won’t solve housing market issues without being constructive

A week ago today Labour’s spokesperson for housing, Phil Twyford, released some data which apparently showed that Chinese buyers are currently snapping up 40% of all homes on the market in Auckland, although Chinese residents in Auckland are just 9% of the population. I felt, as did a lot of people, that the way in which Twyford (and the Herald) went about this was divisive, not constructive. See here for a good roundup of commentary, or here for a review of the methodology. That second link also makes a key point: “The root problem is that Labour’s analysis doesn’t measure residency. It measures ethnicity”.

Twyford neglected to look at current immigration patterns, of course, since that didn’t suit his argument. But for the record, some quick number crunching shows that in the last year, there were nearly 12,000 “permanent and long-term arrivals” from people previously living in China, Hong Kong or Taiwan. That’s an NZ-wide figure, but my guess is that the vast majority of them would have come to Auckland. This would be more than 20% of Auckland’s immigrants in the last year, so it explains part of the discrepancy (not all).

Anyway, what Twyford really wanted to say (but stumbled over) was that foreign buyers – wherever they may come from – are having a big effect on house prices here, making it hard for Kiwis to afford homes. These are valid concerns, and worth discussing. Various commentators have suggested that the government should be collecting information on how many homes are being bought by non-New Zealand residents, which they sort of will be doing from October. Others are going further and suggesting that non-residents should only be able to buy “new” homes, not existing ones.

I’m generally in favour of open markets, so I don’t actually mind if people overseas want to buy property in New Zealand, even if that means a permanent shift to higher house prices (other people will have different views, and fair enough, and we can have civilised discussions about that).  The main issue I have is the possibility that offshore demand leads to a bubble in prices.

For example, in a few years time the overseas buyers might lose interest, sell up and shift their money to a different country. Or, if it is indeed Chinese money pushing up prices in Auckland, the Chinese government might regulate to stop its citizens moving their money offshore, with the same result (however, it seems that the government is loosening the restrictions, not tightening them).

I don’t have any policy solutions here. I don’t even have particularly strong views on the “no restrictions” thing. Maybe we do need to restrict offshore buyers to only buying new homes – if only because we’re not currently building enough new homes, and this might help to boost supply. On the other hand, why would we make restrictions on houses when we don’t do it for anything else? At any rate, it’s possible to debate these things constructively, and I don’t think Labour’s move last week did that.

 

Blanket Heritage Check to be Removed?

Some fairly important news about the Unitary Plan has emerged in relation to the Pre-1944 demolition control the council wanted to implement. The control prevented all houses built before 1944 – that weren’t already covered under normal heritage provisions – from being demolished without any assessment of whether it needs heritage protection. Land owners would still be able to get consent however it is argued that by making it harder will prevent people from even trying. The control seemed to come about following regular complaints from heritage groups about anything old being demolished.

In interim guidance from the hearing panel released Wednesday it was announced that they are not convinced by the arguments put forward by council and some submitters on the need for the control. They say there is a lack of robust section 32 (s32) analysis and evidence and that the provision has not been assessed in the wider context of the strategy for a more compact and higher density city. They go further to say that it places unnecessary constraints and burdens on land owners who may want to develop their property.

They say they think that if the council want to change the way they protect a number of residential areas that they should go through a plan change to do so which would also require them to produce a robust section 32 analysis of the relative benefits and costs of the change. That would also enable more public participation on the issue. As an example they were concerned that large numbers of people who owned/lived in properties affected by the control didn’t submit on the Unitary Plan who were likely happy with the existing provisions.

The map below shows the scale of the control and as you can see it primarily affects the isthmus and east coast of the North Shore. It’s also worth noting that many properties in some of the gaps have more formal heritage protection.

Pre-1944 Building Control

Understandably heritage groups are upset saying the decision is a ‘mistake’ and a ‘bombshell’ however I’ve long thought the same way about proposing the control in the first place. The council have said in the past that they choose 1944 as the cut-off point as that’s a date they have good records from of what housing stock existed. To me the whole thing is just to arbitrary and clunky in its current form and even though the control wasn’t blanket protection its effect would have been to prevent most small scale development as land owners would be too put off by the requirements.

In addition to this while the heritage protection groups fight to keep anything and everything old, at the end of the day it’s generally not them who pay the price for the impact blanket rules like this have. If it prevents sensible development in the right locations it can affect the entire city and in particular young people who want a place to live that isn’t out on the suburban limits

When it comes to heritage I quite like this from reader Stephen Davis. If we really want to protect heritage should we require those in heritage areas to also ride around in a horse and cart.

Lastly I think it also opens up the opportunity for the council to have a wider discussion with the community about development and change. As we know Auckland Transport are considering installing Light Rail on the Isthmus right through some of the heaviest areas affected by the pre-1944 controls. One of the issues we’ve mentioned in the past is that while the light rail corridors are busy, we really need to leverage off such a project and enable more development to help make it successful. Perhaps this news is opportune time for the council to start having that discussion

LRT routes

Given this interim guidance it will be interesting to see just the panel say about other rules which can severely restrict development potential such as minimum parking requirements, minimum yard sizes, building setbacks, maximum site coverage and density controls.

The economics of fare policies, part 3

For those that don’t read Transportblog on a daily basis, this is the third part of a series I’m writing on the economics of public transport fare policies. Part 1 discussed a key rationale for public transport subsidies – lower fares keep people from clogging up already-congested roads. Part 2 considered the case for distance- or zone-based fares to ensure that people taking longer (and hence more expensive) trips pay more.

In the comments on those posts, several sharp readers asked about the relationship between fare levels and ridership, and whether there are any opportunities to improve outcomes by targeting lower fares to highly price-sensitive groups. These are excellent questions to ask!

In this post, I’ll take a look at the first question: In the aggregate, how does ridership respond to changes in fares? Hopefully, this will give us the theoretical tools to take a look at the second question in the next installment of the series.

In economic terms, we are asking about the “price elasticity of demand” for public transport. Fare elasticities measure how responsive people are to higher (or lower) prices. They’re usually estimated empirically by analysing data on changes in fares, patronage, and other control variables (e.g. per capita income or GDP) over time.

There are many studies on fare elasticities from around the world, some of which are summarised in the Australia BITRE elasticities database and this useful summary paper by Todd Litman. NZTA has also commissioned research into the structure of demand for public transport – see e.g. Wang (2011) and Allison, Lupton and Wallis (2013).

These studies don’t always arrive at precisely the same result, but they agree on one key thing: Demand for public transport is relatively “inelastic”. All else being equal, a 10% reduction in fares will increase ridership by less than 10% in the short and long run.

Shay-Horay2

Some odd bloke demonstrating the concept of elasticity

The implication of this is that if a public transport agency reduces fares, it will tend to collect a smaller amount of money from users and hence require a larger subsidy. And, conversely, raising fares can increase overall revenue, albeit at the cost of unintended consequences for increased traffic congestion.

Here’s Litman’s best-guess estimates of elasticities for public transport. The key figures are in the first row – “transit ridership with respect to transit fares” for the overall market. Litman’s estimates a long-run fare elasticity between -0.6 and -0.9. This means that a 10% increase in fares would be expected to reduce ridership by 6-9% in the long run.

Notice that short-run elasticities tend to be smaller, indicating that people take a while to fully respond to changes in prices. For example, if someone’s fares for their bus to work went up significantly, they may tolerate it for a little while but choose to buy a car (or rent a parking space) six months down the line.

Litman (2014) recommended transit elasticities

Personally, I wonder if Litman’s estimates are a bit on the high side. Figures from Wang (2011) suggest that long-run fare elasticities (in the second row of the following table) are -0.46 in Wellington and -0.34 in Christchurch. This would indicate that a 10% increase in fares would reduce ridership by 3.4-4.6%.

Wang (2011) NZ bus demand elasticities

Both of these tables also contain information on how people’s demand for public transport changes in response to other price changes and service changes, which is another interesting topic. Without going into a great deal of depth, I’d note two things:

  • First, increasing petrol prices do tend to increase public transport demand, but this effect may be relatively modest. Car ownership, on the other hand, can have a big impact, as people who have already paid the fixed costs to own a car have strong incentives to get as much use out of it as possible.
  • Second, improved service quality – meaning better frequency and reliability of buses and trains – has a stronger impact on ridership than lower fares. This has important implications for transport agencies, who are often better off putting their marginal dollar towards upping frequencies.

Lastly, it’s worth considering how this might play out in practice. Let’s assume, for a moment, that fare elasticities of demand are at the low end of Litman’s range, i.e.:

  • Short-run fare elasticity = -0.2
  • Long-run fare elasticity = -0.6.

Now, let’s consider a hypothetical scenario in which public transport fares are $2 and there are 1,000 daily riders on a given bus route. The public transport agency collects $2,000 in fares every day ($2*1,000 riders).

Now let’s consider what would happen if the agency chose to reduce fares by 10%, from $2 to $1.80. This is obviously great for people who are already on the bus, as they can pay less to get the same service. Daily revenue collected from them drops to $1,800 ($1.80*1,000 riders).

However, the lower fares also attract new riders. In the short run (0-2 years), we predict that a 10% reduction in fares will lead to a 2% increase in ridership (-10%*-0.2). This means that an additional 20 people (1,000 riders*2%) will take the bus and pay a total of $36 in fares every day ($1.80*20).

So far, this is not looking great from a financial perspective. The transport agency has lost $200 in fare revenue from existing riders and gained only $36 from new riders.

Things aren’t much better in the long run, where a 10% reduction in fares is expected to lead to a 6% increase in ridership (-10%*-0.6). This means an added 60 riders who pay $108 in fares every day. Again, this is not enough to cover the loss in revenue from existing riders.

Does this mean that fare reductions are never worth it? Not necessarily – if the reductions in congestion from fewer people driving are sufficiently large, then we should be willing to pay a bit more in subsidies.

singer subsidy cartoon

A second factor is that different people and different types of journeys respond to higher prices in different ways. In principle, we may be able to increase patronage at a relatively low cost by targeting fare discounts to price-sensitive people. But that is a topic for next time!

What do you make of the data on fare elasticities of demand?