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How much of a “cost” is congestion really?

Like all things in life, when it comes to transport there are always more projects being dreamed up than there is money available. So to determine just what should be built and when there needs to be some sort of prioritisation process. On the blog we try to sit between the two different aspects that make up this prioritisation process: the technical side and the political side.

The technical prioritisation process is typically done through a ‘cost benefit analysis‘, which I’m sure anyone who has read this blog for a while will have heard mentioned on many many occasions. There are clearly two sides of any such analysis: firstly the cost, which is the ‘easy’ part of the equation: what will it cost, what negative impact might it have? The benefit side is much trickier – clearly some transport projects, policies, services or whatever generate a benefit, but how to measure that benefit, put a dollar value on it and then be certain that dollar value benefit is greater than the amount we’re spending?

At this point transport experts make a number of subjective decisions, which are often passed off as objective facts. How much value to put on a minute of saved time? How much to put on a saved life? How to even work out how much time (or lives) will be saved? Will time even be saved in the longer run?

Typically most transport projects generate the vast majority of their measured “benefits” from travel time savings – the difference in some future year between the time it would have taken everyone to travel in a hypothetical “without the project” scenario and another hypothetical “with the project” scenario. Each saved minute by every person using the route adds up to saved hours, then a value is put on each hour and a whopping big number gets generated over the many decades long measured lifespan of the project.

This process has been the stock-standard approach for many decades in New Zealand and in many countries overseas – a supposedly objective way of making transport prioritisation decisions. Yet it is becoming questioned on an increasingly frequent basis. The latest critique is by transport expert Todd Littman, whose specific critique is of something called the “Urban Mobility Report” – a report prepared by the Texas Transport Institute which attempts to quantify the cost of congestion across all different parts of America.

Todd Littman’s critique is based around the idea that current cost-benefit analyses value of time ‘lost’ to congestion (and therefore the benefit of projects that may reduce congestion) far too high:

My analysis indicates that the UMR tends to exaggerate congestion costs and roadway expansion benefits, and undervalues alternative congestion reduction strategies. It uses higher baseline travel speeds and travel time values than most experts recommend (in fact, its baseline speeds often exceed legal speed limits on the roads evaluated), ignores the increased fuel consumption, pollution emissions and crash severity caused by high traffic speeds, ignores the increased external costs of induced vehicle travel, and ignores many co-benefits provided by alternative mode improvements, pricing reforms and smart growth policies. As a result, the UMR’s congestion cost estimates should be considered upper-bound values – when using such estimates analysts should apply sensitivity analysis that also include middle and lower-bound estimates.

These might be familiar critiques for blog readers. For example, we’ve noted that the supposed time savings from the Puhoi-Warkworth road would require someone to travel in excess of the speed limit to achieve. It was only earlier this year actually that NZTA released a report which highlighted that if you measure congestion costs properly, they might actually be ‘only’ around $145 million per year for travel time delay and a further $105 million for something called “schedule delay cost” (people travelling at times other than what would be ideal for them). This compared to an estimated cost of $1.25 billion using an unrealistic comparison with ‘free flow’ traffic.

Obviously the key next question is “well so what?” As explained below, the implications of over-valuing the cost of congestion are pretty vast in terms of how it skews the way we assess and prioritise transport projects:

Why does this matter? What problems will result if urban transport planning incorporates exaggerated congestion cost values?

Comprehensive and accurate valuation of congestion costs is important because urban planning often involves trade-offs between conflicting objectives such as between traffic speed and safety, and between automobiles and other forms of access. For example, expanding urban roadways may reduce congestion but tends to create barriers to active modes (walking and cycling), and since most public transit trips involve walking links, it also reduces public transit access. Exaggerating congestion costs undervalues other impacts and modes, leading to economically excessive roadway expansion and under investment in alternatives, resulting in a transport system which is less efficient, diverse, affordable, safe, healthy and equitable than optimal…

…Exaggerating congestion costs and undervaluing other congestion reduction strategies tends to result in economically excessive roadway expansion, and under investment in alternative modes, such as grade-separated public transit, and demand management strategies, such as more efficient road and parking pricing. This mattered less during the twentieth century when VMT was growing rapidly, so there was little risk of overbuilding roadways – any excess capacity would eventually be used, it was simply a question of when. However, now that automobile travel has peaked in most developed countries, and society is increasingly concerned about the external costs of excessive automobile dependency, overbuilding has become as economically harmful as under building roadway capacity.

So if we are over-valuing congestion costs, then what are better ways of measuring the impact of transport investment and prioritising projects? Well a good place to start would be by analysing the different factors which contribute to the “cost” that transport imposes on our lives – which interestingly highlights even the upper end of congestion costs as being fairly minimal in the scheme of things:

UMR_02

And here’s where we get to the key point:

…a congestion reduction strategy may be worth far less overall if it increases other costs, and worth far more if it provides other benefits. For example, a roadway expansion may seem cost effective considering congestion impacts alone, but not if it induces additional vehicle travel which increases parking congestion, accidents and pollution emissions. Conversely, alternative mode improvements may not seem inefficient considering congestion reductions alone, but are cost effective overall when co-benefits (parking cost savings, traffic safety, and improved mobility for non-drivers, etc.) are also considered. 

Until we fix the way we prioritise projects we’re going to keep making really stupid transport prioritisation decisions.

Should impact on land value be part of the cost-benefit analysis?

Submissions to the Board of Inquiry hearing of the Kapiti Expressway project have highlighted what seems to be a pretty critical hole in the cost-benefit analysis process: that the impact on land values of transport projects is simply ignored when it comes to assessing whether they stack up or not – that is whether they lead to an economic gain or not. This is pointed out by a Wellington Scoop article which quotes an opponent to the project Dr Christopher Dearden.

Dr Dearden says the following:

“Our objective has been to stop the implementation of a hugely wrong solution to a relatively minor traffic problem for which there has already been an agreed, locally supported and considerably cheaper answer – the Western Link Road. A road which would have added to the country’s assets rather than depleting them…

“We have been caught in a situation which is not of our making. It’s a situation where argument is difficult because the proposed expressway has no economic rationale, no practicality in traffic numbers or need, is not geographically or sustainably justified, and flouts all cultural sensibility. It relies on pure political whim and it’s difficult to mount rational arguments against that.

“We ask you to reject this application, return the Western Link Road to us, and recommend enhancement of the existing State Highway 1. If you do allow this white elephant expressway to go ahead, then … the rest of our lives will be a time of suffering noise, light and pollution damage as well as vibration. So will all the 1400 households which live within 200 metres of the expressway, and there will be enhanced pain from all those factors relentlessly during the next five years while this monster is built. As many have pointed out, all our properties will lose their value and be unsaleable. Ironically, we will make the biggest contribution to the cost of this road that destroys our lives.

I have put the really interesting bit in bold – the likely impact of the project on the value of nearby properties. The great irony of motorway projects is that if it runs through your house then you’re the lucky one as you’ll be bought out – the really bad situation to end up in is if the project runs just over your fence. That way you get no compensation but the value of your property property is likely to decline.

Of course all transport projects have positive and negative impacts, with the positive and negative effects felt by different people in different locations. However I think it’s really problematic that the cost-benefit process ignores a potentially significant impact of transport investment, the impact on land values both in a positive and negative sense, because these impacts may end up being potentially some of the most significant effects of the transport investment. A good cost-benefit analysis should attempt to quantify all likely impacts of an intervention so it just seems weird (or mightily convenient for the motorway builders?) to ignore effects on land values.

The irony of government’s dismissal of CRL

The government’s rather odd dismissal of the findings of the City Centre Future Access Study (CCFAS) leave them in a relatively strange position of effectively endorsing a ‘do nothing’ scenario. There are a lot of posts to be written on the CCFAS and its supporting documentation over the next days and weeks and I won’t try to get through everything in a single post, or even 2-3 of them. For this post I’m going to look at the impact of the different options, including what’s referred to as the ‘balanced reference case’ (the “don’t do CRL or any of its assessed alternatives) from the perspective of the impacts on car drivers.

As most readers will know, generally the bloggers on this site aren’t too concerned about congestion levels for car drivers heading into the city centre. If you’re going to do something as stupid as drive your car into the city centre during peak times, as far as I’m concerned you can suffer the consequences. However, congestion levels for private vehicles is something this government is supposedly very concerned about. Remember their recent comments on the Auckland Plan not sufficiently addressing traffic congestion beyond 2020?traffic-speeds-cbdThat’s a pretty concerning table if you’re worried about traffic congestion for private vehicle users. It’s interesting that the government has effectively written this outcome off as being OK. I suppose their legitimate response might be that CRL doesn’t really solve too much of this problem either – looking at the table below:traffic-speeds-optionsHowever, what the focus on CBD speeds somewhat misses is that with CRL in place a far larger proportion of trips are able to avoid the horrors of what’s going on above ground, because they’re on the rail tunnel. In any case, the CCFAS was designed to simply compare the alternatives and on this measure the CRL clearly performs the best. By 2041 CRL’s superior performance to the other options becomes even clearer.

Some of the more interesting outcomes of the surface bus options include, unsurprisingly, significant negative impacts on general congestion levels. This is pretty clear in the section of the CCFAS which runs through the different economic evaluations of the options: options-evaluationNote the numbers that I have put a red box around all include negative signs in front of them. So if, for example, we were to do Surface Bus Option 1 that would generate additional congestion of $270 million over the evaluation period. Even the benefits for public transport users of this option aren’t large enough to outweigh the additional congestion and as a result the option actually has a negative BCR (not just below 1, but actually below 0). The additional congestion arising from all the bus options are a bit factor in them not performing as well as the CRL. And this is not surprising really. One of the CRL’s biggest benefits, from a private vehicle driver’s point of view, is that it gets some of those bloody buses off the road and means we don’t end up having to have a whole pile of streets closed off to general traffic.

The other interesting thing in the table above is seeing what an impact changing the discount rate and evaluation period has on the project’s BCR. This is a useful answer to the question of “how can the best solution to a problem that needs to be solved actually not be worth doing?” which is certainly somewhat perplexing when you put it like that. What is highlighted in using a lower discount rate and longer evaluation period is that CRL’s benefits increase significantly – because it is a long-lasting solution – whereas the other options don’t seem to get quite as much of a boost, because they’re only ever going to add value up to a certain point in time before you probably need CRL anyway.

Overall, the irony of course is that CRL is most definitely the “pick of the bunch” when it comes to private vehicles because it actually makes things better, not worse. While the government hasn’t come out and said “we prefer the surface bus option”, all the alternative options as well as the “do nothing” situation really do have terrible impacts on private vehicle congestion -something I thought the government was concerned about.

In my next post I’ll look at what happens to public transport if we don’t build CRL. Just think lots and lots and lots of buses.

What does the CCFAS document tell us?

Whoever leaked the draft City Centre Future Access study (CCFAS) is, as Mr Anderson said in a comment the other day, a complete and utter idiot (assuming that it’s someone from Auckland Transport rather than Central Government). After working so hard over the past year to get beyond the differences in opinion between the two parties which plagued last year’s review of the CRL’s original business case, it’s really dumb to spoil this goodwill by jumping the gun. But I guess what’s done is done. Let’s just hope it doesn’t have a long-lasting impact on the project.

From Brian Rudman’s two articles on Friday we know some really interesting details have emerged from this important study into future access to and from Auckland’s city centre (which isn’t what the CRL is solely about of course, a fact that seems to escape many from time to time).

  • We know that without CRL, even by 2021 (a mere nine years away) the CBD is projected to be one heck of a congested place, with most bus networks at capacity and general traffic speeds having slowed down tremendously from their current levels. Remember that the CRL isn’t due to open until around 2021/2022 and also that the bus network will be revised significantly by 2016 to improve the efficiency of the PT network tremendously. In short, it seems that we simply can’t delay CRL’s opening date beyond 2022 without utter chaos resulting.
  • We know that other options to “solve” this problem, including surface buses and an underground bus tunnel, perform significantly worse than the CRL in terms of a benefit-cost analysis. I suspect that this is because they rely upon significant existing roadspace being taken away from general traffic and given to the exclusive use of buses – whereas CRL uses a completely different transport network. This highlights an amusing irony: that the CRL is likely to clearly be the best option for car users. I wonder if the AA will start changing its tune from supporting “buses instead of trains” now?
  • We know that there’s something strange going on in terms of accurately capturing the benefits of the CRL project, if it’s clearly the best option for improving access to the city centre, the implications of “do nothing” are horrific, but it still doesn’t have a cost benefit ratio of greater than 1. There is something of a logical fallacy there: the best solution to a problem that needs to be fixed almost by definition must be worth doing.

On this last point, Rudman’s opinion piece highlights the connection between this clear logical fallacy and the often vexed issue of discount rates, which lower the benefits of a project by a certain percentage each year to take into account net present value and the opportunity cost of spending money now. New Zealand uses an 8% discount rate and assesses projects over 30 years – which is pretty high compared to most international countries and means that in year 30 after a project’s completion we’re only saying the benefits are worth 11% of the benefits in “year one”, while we don’t bother counting the benefits in year 31. For some projects, like an intersection upgrade or widening a road, the benefits get “eaten up” pretty quickly and a shorter assessment period and a high discount rate make sense. But for projects with very long-lasting benefits – the CRL being perhaps the most prime example of that – the high discount rate and relatively short assessment period are illogical.

This is perhaps best illustrated in a graph comparing the benefits of CRL under New Zealand’s system and the UK system:

 

Of course lowering the discount rate and lengthening the period we count the benefits will improve all projects and doesn’t magically mean we can now afford a whole pile of stuff we couldn’t afford before. But it highlights that BCRs are perhaps not the objective tool for measuring whether or not we should do something they’re often made out to be (and of course this rings true for motorway projects as well), but rather an excellent tool for comparing apples with apples – like has been done in CCFAS. Likewise using a BCR to compare the Puhoi-Wellsford project with possible alternatives such as bypassing Warkworth or the more extensive Operation Lifesaver would tell us a lot about which option makes the most sense

Judging by what we do know, and assuming that there’s no massive change between the draft report and it being finalised, it will certainly be interesting to see what Central Government’s eventual response is. They may rely on the BCR number (which could still go up in the final version) to say there’s no proof the project is worth doing, but now that the consequences of a “do nothing” seem to have been explored in more detail – and are pretty horrific – that approach seems unlikely. What’s perhaps the most interesting conundrum for the government is that it sounds like CRL is clearly the best option for those people government really cares about: the car drivers. Will the government help out the poor car drivers by helping fund a project which means hundreds of extra buses on downtown streets are no longer necessary and avoids the need for whole major roads to be completely closed off to general traffic and given up to buses only?

I guess we will see.

Sideswipe Covers Travel Time Savings

In recent days the Herald “Sideswipe” column has helpfully illustrated some of the core issues around urban sprawl and using travel time savings as a measure of the worth of a transport project. It started with this on Monday:

 Good life in the country costs less

OK, so you move out to, say, Whangaparaoa from the North Shore to get a more affordable mortgage. The estimated extra petrol costs ($55 a week) aren’t going to make it more expensive than the difference in mortgage payments. Mike Dennehy explains:

“1. You live close to town and have a $500,000 mortgage. Using Westpac’s online mortgage calculator, repaying a $500,000 mortgage over 20 years at the current rate of 5.6 per cent p.a., your monthly payments are $3468.

“2. You move out of town and get an affordable house at, let’s say, a $300,000 mortgage. Using the same calculator, the monthly repayments are only $2081. The difference looks like this – you will save $320 a week on your mortgage, and pay an extra $55 a week for transport. You’re $265 a week better off, and you’re on the housing ladder. It gets better: the annual difference is $16,640, but you only have to come into work for a maximum of 48 weeks, so the extra travel works out at $2640 a year. You’re better off by a whopping $14,000 a year!”

A reader responded to this on Tuesday with:

“If you live in Whangaparaoa instead of, say, Takapuna, you will spend around 30 minutes extra each way in your car at rush hour. Since in each eight-hour work day most people spend at least a couple of hours doing pretty much nothing (coffee, gossip etc), commuters work an extra day a week, equal to 20 per cent of their salary in lost time/money.”

I do wonder if this particular reader is a transport economist for the NZTA, as this evaluation seems to be straight out of the Economic Evaluation manual. Finally today there are some more responses in today’s Sideswipe, including one from yours truly:

Commuting isn’t equal to cash

“A commuter in Whangaparaoa might spend a lot of time commuting by car, but this isn’t ‘equal’ to 20 per cent of their salary,” says Cam Pitches. “People choose to commute in their own time, not their employers’. A recent NZ Transport Agency survey found that 40 per cent of people actually enjoyed their commute. Common responses identified any time savings would be spent on non-work/non-study activities such as sleeping, more time getting ready for work, eating breakfast, family time, household chores and reading.”

Cheaper doesn’t mean better value

A reader says Mike is right that buying a cheaper house further out will cost you less to pay off, but he is forgetting that at the end of paying off the mortgage, you have a house worth $300,000, not $500,000.

 West is best for the commute

Gary lived in Cockle Bay, Howick, for 27 years, but this year he moved west, to Riverhead. “I work in Newmarket and it was 24km to work from Howick. Now I travel 28km to work, but the trip is 20 to 30 minutes quicker because I don’t have to battle traffic on the Pakuranga Highway anymore. I now enjoy the wide open spaces for the same sort of money as a house in Howick. Because of the position of Riverhead and new motorway links, I can head north or south out of Auckland, or go anywhere within Auckland and not have to use the harbour bridge. That alone made the move worthwhile.”

These are quite useful illustrations of how human behaviour contradicts the official way benefits are calculated, as covered in this post.  The last is a good example of how increasing capacity of a transport corridor encourages longer distances to be travelled.  It is also backs up David Metz’s research which concluded that in spite of billions of pounds being invested in transport in the UK, average commute times have remained largely unchanged for decades. Perhaps it is time we focussed more on the absolute peak carrying capacity of the transport corridors we build too?  And favouring transport projects which reduce our reliance on fossil fuels.

Of course the other important issue is how much more productive/relaxed a commuter would be on the 897X from Whangaparaoa, over a commuter in their their car – again a point ignored when travel times are considered to be an economic “bad”.

Hopefully NZTA takes note of their own survey and revisits some of their economic assumptions.

Thoughts on “Band-Aid” solutions

There are often two competing arguments when it comes to transport investment:

  1. Build the project now, you’re going to need it eventually
  2. Only build what you need when you need to build it

This is a really interesting debate, because both sides of the argument have a good point to make. The first argument suggests that if we’re going to really need a piece of infrastructure a while in the future there’s little point “wasting” money on an interim fix – you might as well bring forward investment on the big project. But at the same time, we need to recognise the concept of  “net present value” and noting that if we’re spending money on something we only kind of need now, we’re probably taking money away from something we really need now.

There are a few classic example of this debate around at the moment. With Puhoi-Wellsford, we have seen necessary short-term projects put off (like upgrading the notorious Hill Street intersection) because the larger project is going to bypass this anyway – at some point in the future. Another example is the City Rail Link, where the debate seems mostly around when we will need this project, rather than whether  we will need it: even Steven Joyce agreed that the CRL was the logical next rail project for Auckland and it ‘made sense’ to protect its route.

It’s quite possible that the absolute need for the CRL could be put off for a bit by spending big bucks on bus infrastructure around the central city and its main feeder routes – but if we’re going to end up needing the CRL anyway in the not too distant future, why bother with all of that? Of course some improved bus infrastructure will be needed regardless of whether the CRL is built, but how much value would we really get out of a ‘band-aid solution’ in advance of the CRL? This is a similar question to one raised by the Transport Politic blog  (brought to my attention by this post) in relation to Ottawa, Canada: which is now looking at replacing its BRT system with a light-rail system:

Ottawa’s several busways transport passengers quickly and relatively comfortably. Unlike most “BRT” lines in North America, this city’s are mostly grade-separated, producing actually high-speed buses.

But now Ottawa is planning to give up its primary transitway… Is the Ottawa model — raise ridership with buses, and then think about more expensive rail options — falling flat? What went wrong?

The quick answer is that Ottawa was too successful, encouraging the city’s citizens to take an average of 125 trips by public transportation a year, more than any equivalently-sized North American city. The transitway has so many riders that it puts 2,600 daily buses onto two downtown streets, and by 2018, the system will have literally no more capacity. By 2030, Ottawa would have to get a bus downtown every eighteen seconds to accommodate all of its riders — an impossible feat.

Ottawa has incredibly high public transport use, and on the one hand the BRT system has clearly “built the demand” for the light-rail system. But on the other hand, the BRT system clearly took a lot of time, effort and money to put in place – and it’s now needing complete replacement. Why not have just built the LRT system in the first place? This question is explored further:

With expenses like that — practically equivalent to building a new rail line from scratch — one wonders whether there was ever any fiscal advantage to using buses first along the rapidway. Did the city lose out by not choosing rail when the transitway first opened in 1983?

In terms of operations costs, it almost certainly did. Even with a nine percent increase in ridership in the first year alone, light rail is expected to allow the city to save up to C$100 million annually on bus drivers’ salaries, gas consumption, and right-of-way maintenance. By dramatically increasing the average number of passengers per vehicle thanks to long trains and by switching to clean and cheap electricity from diesel fuel, the city will find notable economies in rail. It will also produce far fewer greenhouse gases — saving 38,000 tons by 2031.

I think there’s a cursory lesson for the CRL in particular here, but also wider in terms of helping us get a better answer about the appropriateness of “band-aid solutions”. There are some key matters to consider:

  • What’s the cost of the interim measure and will its benefits be realised by the time you further upgrade to the “real” long term solution?
  • What of the interim measure will still have some functional and helpful use even after the long-term solution is implemented?
  • How far into the future do the interim measures really push the need for the ‘proper’ project?

Vancouver’s B-Line bus services are an example of a good “band-aid solution”, as they fit well with our criteria noted above. They involved relatively little infrastructure spend (the benefits of the initiative could be realised extremely quickly), they helped build a market for future Skytrain lines and they managed to effectively shift a lot of people pretty quickly. This has meant the B-Line services did a pretty good interim job and made it possible for Vancouver to focus on constructing one major line at a time, rather than jumping into a heap at once.

Looking at Auckland, applying the same criteria provides us with a useful process for understanding just how far we should go with further bus investment before we really bite the bullet and build the CRL. As far as I can understand it, the way Auckland operates its bus network in the city centre doesn’t work very well even at the moment. That can be improved through changing the routings and through some infrastructure investment (particularly better bus lanes), but really this only fixes things to a certain extent, or for a certain length of time. After that it will really be necessary to either spend some serious cash on finding a way to make the city (not just the city centre, but right across Auckland) handle even more buses (ignoring, for the time being, the issue of trying to create a world-class city centre) or build the CRL. That’s when we really start to ask ourselves whether those additional interventions are desirable – even if they are feasible and could push the need for the CRL out a bit further into the future – or whether we just cut to the chase and build the darn thing.

If we are smart enough to learn from Ottawa, we will realise that spending serious cash on what will always be a ‘band-aid solution’ just doesn’t make sense.

Measuring ‘transport benefit’ better

In transport planning there’s a lot of talk about ‘cost-benefit analyses’, leading to a “BCR” (benefit cost ratio) for a particular project. Projects with a BCR of greater than 1.0 deliver more benefits than the money expended upon them (and any disbenefits the project generates) and are therefore worth considering spending money upon. In terms of transport projects, the BCR is used to measure a project’s “efficiency” – which together with an analysis of “strategic fit” and “effectiveness” determines whether that project should happen or not. BCRs of between 1 and 2 get a “low” ranking, 2-4  for a “medium” and above 4 for a “high”.

To calculate a benefit-cost ratio there are obviously two things you need to know – one is fairly easy, being the costs. The other, the benefits, is much more complex. Economic theory says that the best cost-benefit analyses capture as many costs and benefits relating to an intervention as possible, but when it comes to transport matters things are a bit narrower.

The “Economic Evaluation Manual” – an incredibly long and complex document, is used for this process. The EEM outlines which benefits are relevant for measurement and how one goes about measuring them. The main benefits are typically the following:

  • Travel time savings
  • Vehicle operating cost reductions
  • Safety benefits
  • Travel reliability benefits

For public transport projects, benefits are split into those enjoyed by the PT users themselves and those enjoyed by other people as a result of a PT improvement (people changing mode from driving will mean everyone else can drive a little bit faster). In recent times a lot of thinking has gone into analysing “wider economic benefits” of transport projects – with “agglomeration benefits” (being the benefit arising from economic activity being more closely located) now able to be included in the EEM calculation of any project’s benefit. Agglomeration benefits are usually calculated as a proportion of the travel time savings benefits, with that portion dependent on the type of project being considered.

While a fairly wide range of benefits are outlined above, in the calculation process they are certainly not all considered equally. For most projects, the vast majority of benefit arises in the form of travel time savings – an extrapolation of the old saying “time in money”. A transport project that makes it quicker to get from A to B is said to generate a dollar benefit. This benefit varies depending on whether the trip is for business, commuting or “other” purposes. Add up all the minutes saved, multiply by the dollar amount and you have a project justified.

The problem with this approach, in my opinion, is that it does not properly capture many other benefits and costs. Widening a road to shift traffic faster not only comes at the cost of construction, but also at the cost of a street that’s now probably less friendly for pedestrians and cyclists and has less general amenity. This amenity loss is likely to only show up in analysis of the impact of a project on property values, but that’s not something able to be captured in the evaluation process.

Similarly, a project which slows traffic down to improve things for pedestrians, cyclists and to boost the attractiveness of an area will come out of this process with a negative BCR (not just below 1, but actually below zero) because it slows vehicles down – even if it generates a whole pile of other benefits. This is why NZTA makes no contribution to footpaths, why it is so often extremely difficult to get additional traffic signals put in place for pedestrians and why we end up with horrible roads like Mayoral Drive, Hobson and Nelson streets: because vehicle speed is valued above everything else.

Creating this road would have had a fantastic BCR, but was it worth it?

 Let us think for a minute what the real benefits of something like the London Underground of New York Subway really are. It’s not in the reduction of congestion: the roads are still full of traffic. It’s not in making traffic go faster: as I said, the roads are still full of traffic. But rather, the real benefit of both projects is that they have enabled each city to grow far bigger and far more prosperous than would have ever been possible without that infrastructure being in place. These underground rail systems enable a simply huge number of people to travel around the cities without destroying the fabric and attractiveness of those cities and without requiring utterly incomprehensibly large amount of space for parking.

These are a different kind of transport benefit from what we’ve measured in the past, and really get to the crux of transport being a “means to an ends” rather than an ends in and of itself. While roading projects could very well be measured in the same way, for some reason they’re not – perhaps because they’d perform rather badly in comparison (they require such a huge amount of space for the benefit they bring).

The crux of this issue is that when the government says that various public transport projects don’t “stack up”, it’s largely because they are being assessed against a system that is flawed and misses out so many of the most significant benefits that something like the City Rail Link would bring. Where’s the assessment of the benefit provided by Auckland’s city centre being able to double in employment count? Where’s the assessment of the benefit from not needing to waste so much space on tens of thousands of carparks? Where’s the assessment of the benefit to property values – not just in the city centre, but also along all the rail corridors?

Other RoNS to cut back?

Yesterday’s announcement by NZTA that they are scaling back the Otaki to Levin section of the Wellington Northern Corridor Road of National Significance, from a four-lane highway to an upgrade of the existing road, has some really interesting implications – as Matt commented on in his post last night. Perhaps the assumption that RoNS = new four lane highway has finally been broken and we can start to approach the transport area in a slightly more rational way.

Of course there are plenty of other bits of the RoNS programme which ought to be considered in a much more sensible way, as NZTA has managed with Otaki to Levin. Matt’s post discussed the infamous Puhoi-Wellsford road as a clear candidate – with the Warkworth to Wellsford section being a complete no brainer. Furthermore, a comment from “Watcher” on an earlier post suggests that NZTA may even be looking at staging the Puhoi-Warkworth section of the road – and doing the Warkworth bypass section first. Just as proposed in Operation Lifesaver, thought up by our former admin Josh. Here are the relevant bits of Watcher’s comment:

I have heard that NZTA are looking at splitting Puhoi-Warkworth into at least 3 sections with the first section to be built being Warkworth to somewhere around Perry Rd.  This would effectively act as a Warkworth bypass (non-tolled) until, at some later stage, they can link up with Puhoi. Given that this first stage has few cuts, fills and viaducts it would possibly be one of the cheaper to build – but one of the more expensive when it comes to the cost of property purchase – something which I believe is giving NZTA a bit of headache because NZTA don’t have the budget for property purchases – certainly not the numbers who wish to paid out sooner rather than later.

We certainly await with interest to see if this is true. Perhaps with Gerry Brownlee not micro-managing NZTA to the same extent as Steven Joyce did, they are able to actually do their job much more now and be a bit more sensible around the staging of projects.

Looking a bit further south though, I wonder whether there are other projects which may benefit from a more sensible approach to the RoNS programme. While there are some sensible bits to the Waikato Expressway project, there are also some incredibly expensive bits to it as well – which just seem a bit unjustifiable if you look at their details. Let’s take a look at the Hamilton bypass section for example – which is shown in the map below:


This section of the Waikato Expressway is 21.8 km long and comes at the eye-watering price tag of $890 million. Now I hate driving through Hamilton as much as the next person, but some fairly decent bypass routes already exist (SH39 to the west, SH1B or SH27 to the east). Is it really worth the money?

Looking in a bit more detail at the plans for this route, it becomes clear that – once again – bits of the proposed route make sense, but other parts seem to not require anything like a super-expensive motorway standard road. Let’s take a look at the daily traffic volumes for 2021, which is a couple of years after the route is proposed to open:


You’ll see that I’ve circled a bit of the proposed highway that has what I think are pretty low traffic volumes for what’s proposed to be a four-lane motorway. By way of comparison, in 2010 the Kopu Bridge had just under 10,000 vehicles a day across it – when it was still a single lane bridge controlled by traffic lights at each end! You would think it might be far more sensible to extend the semi-bypass that’s being built in the west part of Hamilton rather than duplicate this with a super gold plated road to the east which isn’t even going to see much traffic.

To hammer this point home a little further, the traffic projections for 2041 still show pretty low volumes for the section of road mentioned above (and remember NZTA are likely to be extremely optimistic in their projecting of future volumes): The 2041 volumes reinforce that bits of the project are necessary, but suggest that there are likely to be far more cost-effective options available than a full motorway – considering the vehicular volumes are still pretty low on some sections. It does appear as though most traffic is travelling to Hamilton – either from the north or from the south – rather than completely bypassing it. I imagine this is because of other existing bypass routes further to the east and west. Google maps suggests, for example, that the best routes from Auckland to Wellington or Auckland to Taupo go nowhere near Hamilton.

Perhaps it was with good reason that the SAHA assessment of the RoNS package gave the Waikato Expressway such a poor cost-benefit ratio:
I suspect that similar observations could be made about many more of the RoNS projects.

Edit: This is the blog’s 2000th published post. Woohoo!

Peak traffic?

Another article has highlighted that Auckland’s traffic volumes aren’t growing anymore – rather stagnating and even falling slightly:

More Aucklanders are leaving their cars at home for the commute to work as high petrol prices bite.

New figures show almost 900 fewer cars a week travelled over the Auckland Harbour Bridge this year compared with last year.

The drop corresponds with a fall in petrol sales in the city and an increase in public transport patronage.

NZTA figures show 1,684,601 cars crossed the bridge in the year to December, 44,545 fewer than last year.

Figures provided by New Zealand-owned petrol retailer Gull from local authority levies on petrol sales in the Auckland region showed 19 million fewer litres of petrol were sold in the year to June – a two per cent drop on the previous year.

The change in volumes over the harbour bridge is very slight (and the above article is wrong with its yearly total as around 160,000 vehicles cross the bridge a day, meaning you’d get to 1.6 million in just over a week, not in a whole year) but the change in petrol sales is perhaps most interesting, highlighting a reduction in driving throughout Auckland, not just a shifting of traffic away from some roads and towards others.

This isn’t just an Auckland phenomenon either, with a more enlightened than average traffic engineer in the USA pointing out that traffic projections may need to be fundamentally changed from how things have been done in the past. He notes:

I’m working on a traffic study where the reviewing agencies asked us to prepare 20 year forecasts in addition to looking at the build out year. Typically, we look at data trendlines on nearby roads and throughout the county to determine a “typical growth rate” for traffic in the area. This has historically been an annual growth rate of 1 to 3%. This often leads us to factoring traffic up 50% or more over 20 years and then layering on the traffic from the proposed development. Factoring existing traffic volumes up approximately 50% is also how traffic forecasts are often prepared for road design projects.

I’m strongly reconsidering this approach. Consider Figure 1 below from the Federal Highway Administration’s Office of Highway Policy Information website. From 1986 to 2006, traffic on all of our highways did fit the model of growing by about 2 to 3% a year (or 50% to 60% over the 20 years). But since 2005, we’ve had a significant drop in traffic and the trendline sure makes it look like traffic growth has plateaued.

Here’s that figure one:Further analysis from the famous “Texas Transport Institute Urban Mobility Report” highlights that congestion has remained roughly the same over the past decade, once again reversing a long-term trend of ever-worsening congestion: Mike Spack, who wrote the blog post, makes the obvious – but incredibly important – conclusion from the above data (and a pile of other data he quotes in his post:

Based on national and local trends, my conclusion is that it is very reasonable to think traffic growth has plateaued. The punchline for traffic impact studies: the “no-build” traffic forecasts should be the same as the existing traffic volumes. We don’t need to do opening day forecasts and 20 year forecasts because they can reasonably be expected to be similar.

And given our huge budget shortfalls, this should also mean a policy of fixing the infrastructure we have. NOT expanding our transportation system to add capacity.

There are some excellent points made in the  comments too. This one in particular is very relevant to our debates here in Auckland:

As always, this can be tied back to money. As long as outside funding sources (e.g. state, federal) continue to reward agencies with inflated no-build volumes, there is little benefit to agencies for projecting more realistic no-build volumes.

In addition, many agencies rely on inflated no-build volumes to justify the “need” for a project as required by federal environmental documents.

I suspect that the cost-benefit ratios of most of our proposed roading projects would plummet if we shifted to a “no growth” assumption for traffic volumes. Most projects derive their ‘benefits’ from projecting how utterly terrible things will be 20-30 years down the track if the project in question isn’t built (the increased ‘no-build’ volumes), then highlighting how the project in question will ensure that scenario does not occur. If things aren’t going to get worse in the future, when it comes to congestion and car volumes, then the justification for so many projects just disappears.

The deal on discount rates

In a post a couple of months ago I looked at how the way we calculate the transport benefits of different projects ends up having a huge difference on its cost-benefit ratio. In particular, it was extremely interesting to note that if we had used the British discount rate and length of assessment when analysing the benefits of the City Rail Link project, it would have around five times the amount of benefit compared to the way such a project is analysed in New Zealand. The graph below summarises this issue: A recent paper by economic researchers NZIER provides a useful summary of discount rates and how New Zealand using a “discount rate” much higher than other countries affects the mix of projects we end up funding and not funding.

A discount rate lower (by a certain percentage), the amount of benefit from a project each year into the future, reflecting the fact that having money now is more valuable than having the same amount in the future. At 8% if a project delivered $1 million of benefits in its first year, then even if its benefits were the same in the second year, they would only be counted at $920,000,  $846,400 in the second year, $778,688 in the third year and so forth. This is explained further below, in the introduction to the research paper: To illustrate, you can see the difference in ‘level of benefit’ after a variety of years in the graph below – using two different discount rates: Much of the rest of the paper makes an argument that we should use a lower discount rate, to take more into account benefits of a project that will continue to exist well into the future. It also appears that there’s relatively little theoretical or practical logic behind the current rate used.

Obviously, if a lower discount rate is used and benefits are measured over a longer time-scale, then the cost-benefit ratios of our projects will go up. You can see this by comparing the (traditional transport benefits, earliest business cases) cost-benefit ratios of the City Rail Link and Puhoi-Wellsford projects:
The purpose of the comparison is not to compare the projects, but rather to highlight that lowering the discount rate has a fairly major impact on the BCR of a project. As we only have a certain amount of money available to spend on transport projects, a lower discount rate would – by necessity – raise the bar for the point at which projects were considered to make financial sense. We would have so many projects that look like they perform excellently, that we would have to make tougher decisions over which ones we proceeded with.

For this reason, I don’t really see having a lower discount rate as necessarily justifying a greater amount of expenditure on transport projects (although I’m pretty sure organisations such as the NZ Council for Infrastructure Development will do this). What will be of perhaps greater interest is how the mix of projects funded might change with a lower discount rate but a higher cut-off point. It seems logical that we might see projects with longer-lasting, but slower accumulating benefits, doing a bit better than those which give a quick, but short-lived, pay off. This would seem to be likely to benefit a project like the City Rail Link, perhaps a bit more than something like a motorway widening which will provide some benefit for a few years, before induced demand goes and eats up all that gain.

Auckland Council seems pretty determined to pursue, in partnership with the NZIER, further analysis on this issue and is wanting some more logic to sit behind whatever discount rate we decide to use. It will be interesting to see how this develops, as the government might be keen to try anything that will help improve the cost-benefit ratios of some of the RoNS projects – even if that’s done in a way which ends up benefitting the economic analysis of the City Rail Link even more.