Guest Post: $1 billion Fletcher/Crown housing development — Christchurch CBD – Part 4

This is part four in a five part series of guest posts on the Christchurch rebuild from reader Brendon Harre. It first appeared on the Making Christchurch blog.

You can read Part 1Part 2 and Part 3

Part 4: An alternative explanation?

An alternative to the exploitative explanation is that the governing ‘elite’ response to the Christchurch earthquakes has exhibited a cargo cult mentality (definition of cargo cult here). Eric Crampton a Canterbury University economist who has recently moved to Wellington to work for the NZ Initiative wrote about this thinking behind the desire for higher Central Christchurch property prices in government circles.

The Blueprint produced by the Christchurch Central Development Unit purpose was the following, as reported by The NZ Herald in 2012, “The frame, in tandem with zoning provisions, reduces the extent of the central city commercial area so that the oversupply of land is addressed,” says the Blueprint. “It will help to increase the value of properties generally across the central city in a way that regulations to contain the central core, or new zoning decisions, could not.” The document goes on to say a further purpose of the frame is to create a buffer zone for the core to expand in the future — “if there is demand for housing or commercial development”.

Eric described this thinking as;

Because successful cities have high downtown property prices, they thought they could make Christchurch successful by forcing prices to be high. Well, that doesn’t work: high prices in successful cities reflect that people get a lot of value from being located in great downtowns, not the other way around.

Eric Crampton’s analysis (articles here and here) indicate the Fletcher/Crown high property price business model is a risky strategy for redeveloping Christchurch. It is a big ‘all your eggs in the one basket’ project. The risk being that the fundamental amenity value of Central Christchurch has fallen, not risen. There are less businesses, shops, workers in Central Christchurch than previously. Long-term inner city Christchurch problems of transport and parking have been put in the ‘too hard’ basket and left for another generation to solve. Christchurch itself lost just over 2000 residents or nearly 1% of its population between the 2006 and 2013 censuses. Meanwhile the neighbouring Cantabrian councils of Waimakiriri grew by about 6500, or by close to 20%; Selwyn grew by 8700 — more than a third. Eric Crampton states these facts indicate prices and rents in downtown Christchurch, in particular the east side of the CBD should fall -not rise. A local property developer explains why.

Developer Ernest Duval, founder of the post-quake property owner’s group, City Owners Rebuild Entity (Core), says the whole dynamic of central Christchurch has lurched decisively west.

“If you look, all the people-focused amenities are on the west of the city. The new Metro Sports Centre, the museum, the Botanical Gardens, the Arts Centre — all of the things people want close by are on that side.”

Duval says Cathedral Square once told its own story. It was the city’s transport hub and cinema centre. It was the natural place of ceremony and assembly.

Yet under the Government’s blueprint plan, even the civic welcoming function of Cathedral Square is to be shifted over to Victoria Square. The idea is to make that the new bicultural front door to the city, a greeting place developed in partnership with Ngai Tahu.

Duval says because of the square’s threatened loss of post-quake identity, the surrounding blocks reaching down towards Manchester St have become problematic in turn.

The contagion now threatens the Government’s East Frame, its plan to sell off six expensively acquired blocks of land, stretching from the Avon River to Lichfield Street, for inner-city apartments.

Barnaby Bennett a designer and editor is a critic of the proposed convention centre.

7797564

His argument (same link) has similar themes to the cargo cult mentality argument for the Eastern Frame in that what is happening is a result of stress and the need for the governing elite to appear in control.

Bennett says after disasters, the popular view is that it is the communities that can’t cope. There is looting and dysfunction. But as Christchurch found out, the opposite is mostly the case.

… it is instead the elite who fear they have the most to lose economically. “In the quest to appear to be in control, they often make foolish large decisions,” says Bennett.

He says it is the only reason he can see for the convention centre being made so large and taking over such a prime spot.

The Government forced through a purchase of all the properties between the square and the bend of the Avon River. It even decided to build over Gloucester Street without public consultation, saying it might make a nice internal shopping arcade.

I think Eric, Earnest and Barnaby are right and the result will be inner city Christchurch, especially on the east side, will be a sterile, expensive and a slowly built place compared to similar sized cities. Unless a new direction is found, this is a massive missed opportunity. The Canterbury region is New Zealand’s second largest region. Its population is growing much faster than the similar sized Wellington region and is only second to Auckland for population growth in the country. An expensive inner city area will reinforce the Canterbury trend of extreme decentralisation whereby businesses leave the centre and residents leave the city for neighbouring satellite towns and lifestyle blocks.

Guest Post: $1 billion Fletcher/Crown housing development — Christchurch CBD – Part 3

This is part three in a five part series of guest posts on the Christchurch rebuild from reader Brendon Harre. It first appeared on the Making Christchurch blog.

You can read Part 1 and Part 2

Part 3: Is the Fletcher/Crown development exploitative?

Brendon Harre - Chch Part 3 - Henry George Sign

What did Mike Greer mean by “politicking on houses”? If one uses standard urban economic geography analysis to examine this situation we get some understanding of what he might of meant (note I have never met Mike Greer so this is an educated guess). The following graphs show how key variables of a typical city change from the centre to the edge of the city.

Kulish et al (2011) unconstrained

Visually these graphs would depict the following type of city.

Missing Middle

The key point is that house and land prices are typically higher in the city centre and decline towards the edge of the city. For cities it really is all about location, location, location.

Why are centrally located properties worth more than peripheral ones?

  • Centrally located properties are closer to public and private amenities — shops, parks, restaurants, entertainment, customers, employees and places of employment. This is a basic geometric law — the centre of a circle is the point closest to all other points within the circle. Note as cities get bigger they evolve secondary peaks and move from monocentric to polycentric. Also views, sun, proximity to waterfronts and other factors can skew this otherwise simple model but as a general rule the model is quite predictive.

So when one is discussing the property prices of a city you are really talking about a 3D curve. With site prices varying with location –x and y dimensions. But a city can be built in three dimensions –X,Y,Z or ‘out and up’. Businesses and residents choose where to locate themselves based on price, land area, floor area and whether to be more centrally or peripherally located.

The key features of the graphs being how high the central values are, what the median value is and how low the peripheral values are.

Actual land values in Greater Christchurch vary from industrial land in Izone Park and Carter’s Group Iport in Rolleston 20km South of Christchurch. A price list obtained by NBR shows lots being advertised for $125 a square metre up to $160 a square metre (in Rolleston). According to an industrial specialist Greg Mann, the price of similar land closer to the city at Wigram is $300–350 a square metre and at Hornby $225 a square metre. This price rises to around $1000 a square metre for the Crown’s purchases of central city land of the Eastern Frame and $3000 to $3,500 a square metre for land under the proposed convention centre adjacent to Cathedral square.

To reduce median property values to get affordable housing, the whole curve has to move lower, site prices in real terms have to be stable or falling in all locations. Construction costs have to be falling or at least stable for all locations. Then competition from cheaper new builds will cap rising prices of existing property.

There is an argument that cities need a supply vent that can quickly respond to increased demand to prevent excessive increases in land and property prices. That supply vent needs to be some combination of ‘up and out’. Typically affordable housing advocates such as Demographia argue that access to cheaper rural price fringe land through the competition effect keeps more centrally located city land prices lower and therefor median property prices affordable. They argue ‘up’ by itself is not enough to keep the property market stable. This article will focus on the other end of the market, on whether there is competition in the inner city section of the Christchurch property price curve. The underlying question is: does this section of the market need competition too?

Affordable housing has been a stated aim of this government since prior to their first election in 2008. How have their actions in rebuilding Christchurch since the earthquakes of 2010 and 2011 been towards achieving this aim?

The business model of the Fletcher/Crown agreement is that this entity would use it monopolistic control over a large part of the centre of Christchurch to extract the maximum profit possible from both the underlying land and the housing units. In other words to push up the city centre section of the property price curve as high as possible. It is hard to reconcile this monopolistic profit maximising business model against the governments long expressed goal of improving housing affordability.

Monopolistic suppliers achieve pricing power by restricting the amount supplied to the market in such a way that prices rise. In the real estate game this is called land banking. Typically land bankers exploit the difference between rising demand and inadequate new supply -delayed due to regulatory or infrastructure failure. The suspicion is that Fletchers Christchurch CBD development will price for the top dollar and if it doesn’t achieve that, it will slow construction down, until it receives the desired price. At the time Eastern Frame land was acquired by the Crown (with the threat of compulsory acquisition) many land owners questioned the morality of this “land banking acquisition process”. Many commenting on the Press’s article “Owners riled by eastern frame plan”. Here is a few examples.

Stolenbytheccdu 666 days ago

“Brownlee said the Crown did not stand to profit from on-selling parcels of frame land.” yeah right. The prices they paid for the eastern frame were low. The Government stole that land.
Freethinker 666 days ago

Great to hear Govt will make no profit on land sales so there will be no reason not to disclose the govts purchase and sale price and if there is a profit this can returned to the owners — and father christmas will visit all believers on 25/12 with a sack of goodies!!!

There has been an apartment building boom in many Australasian cities, sites for apartments have doubled in price in the past three years in Sydney, constructions costs are also rising. Vancouver in Canada is facing similar pressures. Is the Fletchers/Crown profit maximising entity trying to capture some of that boom? Australian and Canadian business commentators indicate the key driver of this apartment building and property price boom is off-shore investors. So Mike Greer may be right in that the CBD rebuild is not to service the local Christchurch community in an affordable manner. Instead, it is designed to create unearned capital gains opportunities for those outside of Christchurch. In the first instance the beneficiaries will be the Fletchers/Crown profit sharing partnership, whose priorities are nationally focused, rather than giving back to the Christchurch community. Off-shore property investors with a capital gains business model are a potential second wave of non-community beneficiaries.

The above analysis points towards a deliberate exploitative process, that the government is not interested in its market regulator duty of ensuring the property market provides affordable housing and low property related input costs for business. But the deliberate part may not be true, Gerry Brownlee the Earthquake Recovery minister firmly rejects any ‘conspiracy theory’ accusations of favouritism between the Crown and Fletchers.

Guest Post: $1 billion Fletcher/Crown housing development — Christchurch CBD – Part 2

This is part two in a five part series of guest posts on the Christchurch rebuild from reader Brendon Harre. It first appeared on the Making Christchurch blog.

You can read Part 1 here.

Part 2. The Crown/Fletcher development within the context of the Christchurch rebuild and national economy

This is the hoped for Christchurch after the CBD is successfully developed.

Brendon Harre - Chch Part 2 - Fletcher Impression

To get an impression of where Fletchers intends to build, follow this link for pictures of the Christchurch city environment as it is now in 2015. You will see pictures of a damaged city core. Suburbs close to the centre of city abandoned due to the liquefaction risk. New suburbs being built further out, many in satellite towns like Rolleston and Lincoln.

Before the earthquakes, there were 6000 businesses in the central city, the area bounded by the four avenues, with a daily working population of 51,000. About 7000 residents lived in some 3500 households, mainly in the north-east corner. The hospital – one of the largest in Australasia – remains a big employer and government workers are coming back as damaged governmental buildings are repaired or replaced. However, the private sector commercial rebuild is slow, with many businesses committed to long term leases elsewhere in the city. Many offices have been built outside of Christchurch Central Development Units (CCDU) control east of the city centre on Lincoln Road and Victoria Street.

Brendon Harre - Chch Part 2 - Fletcher Impression 2

Brendon Harre - Chch Part 2 - Fletcher Impression 3

How much has the Crown spent on rebuilding Christchurch? Much less than people realise is chartered accountant Cam Preston’s answer. There was a significant initial amount of support, but since then the Crown has gone about reducing expectations and focusing on national issues rather than local rebuild goals – such as the government getting back into surplus. This has had ramifications for how the Eastern Frame development evolved.

Preston says what also catches his accountant’s eye is the way the Government used the cost share to capitalise as much of the Blueprint spending as possible.

That is, projects were treated not as operating expenditure — cash spending that would affect that year’s surplus calculation — but instead as a capital investment, something that was being bought by the state to produce an eventual financial return.

Once capitalised like this, the provision could be entered in a different column — rolled into the general national debt, the $80b of borrowings, to which no one was paying much attention.

As an accounting trick, Preston says the corporate world does this all the time. An expense becomes an asset. But it has consequences. It builds in assumptions that later have to be realised.

Take the $400m the Government has spent on compulsorily acquiring land for the anchor projects. That is money going out the door in any particular year. But because the land has been booked as a capital asset, it doesn’t come off the surplus figure. Rather it is something new the Crown owns as a positive investment.

Of course the expense will have to be reconciled one day when the anchor project actually gets built. If the Crown simply gives an anchor to the city as a gift — as people seemed to be getting the impression would be the case with the metro sports facility, the convention centre, the green frame — then suddenly that land investment will have zero value. Its purchase price has to be recognised as a cash out-going.

Or even if the Government has to acknowledge a write-down of the booked land value — as it very well might with the East Frame being sold now for apartment blocks having been bought originally at commercial building land prices — then again, ouch, a direct hit on the budget surplus column.

Preston says this is where some of the delays and secrecy that surround the anchor projects start to make more sense. The cost share shuffled a large chunk of the promised core Crown spend — he calculates $3.6b of the $8b non-EQC money — safely out of the surplus spotlight. The question is then when can the Government afford to take the hits involved in parking the expense?

For instance, it was an open secret that Fletcher Living had won the East Frame tender earlier this year. However the official announcement was bafflingly delayed until just the other week — a few days after the June 30 close of the 2014/2015 financial year.

And even then the Government was opaque about any write-downs. Brownlee claimed the Crown would see no loss on the land value. It would get back what it paid, he says.

However Fletcher will be acquiring the land over a decade to do the apartments in stages. And there is a complicated profit sharing arrangement that will not be finalised until the end of this year. Preston says all this looks like a way to keep the land cost tucked away on the right side of the surplus ledger.

For some reason Canterbury finds it hard to negotiate its local interest against national pressures. There is a despondency amongst locals that public bodies or services can be of help. There is much bitterness against all the government institutions involved in the rebuild. Both those representing the Crown — Brownlee, CCDU, CERA and Commissioner appointed Ecan and those representing the local interest — CCC.

Canterbury’s poor record of receiving national public spending for local infrastructure can best be seen in transport funding. The Canterbury and Wellington regions are of similar size, population and economy. Although Canterbury is the faster growing region. Yet somehow Wellington has 150km of passenger rail and, once Transmission Gully is finished, 100km of motorways. Meanwhile, once Christchurch’s Northern and Southern motorways and bypasses are completed it will have something like 30–40 km of motorways and no passenger rail. This being despite Canterbury having some of the easiest conditions for transport infrastructure construction and significant need for it.

MoT regional revenue vs expenditure chart

Peter Nunns from Transportblog said back in March regarding transport spending from 2002/03 to 2011/12.

A few things jump out from the chart. The first is that NZTA’s spent slightly more than it raised from fuel taxes, road user charges, and other sources. The second is that there are some big disparities between revenue and expenditure in some regions. In particular: Auckland and Wellington are getting about 20–25% more in NZTA expenditure than they pay in revenue, while Canterbury is getting only slightly more than half as much expenditure as it pays in revenue.

The newly elected Christchurch City Council have a positive vision for the future of Canterbury in which the Council and the Crown work together to create a much larger and more cohesive region, connecting a successful dense core to affordable more dispersed satellite towns. So far this vision has gained little traction at the national level.

The goal of Canterbury having 2 million people by 2050 may seem grandiose, but there is no doubt that Canterbury is one of New Zealand’s faster growing regions. With the right support, New Zealand could have a second international sized city – comparable to Adelaide. Christchurch is of a size and has the geography that with the right planning policies, infrastructure provision and a competitive/productive construction industry, new developments –homes and businesses could be built very affordably. An affordable growing Christchurch would contribute a lot to rebalancing New Zealand’s economy. Whether this happens or not is reflected in the large degree of uncertainty in Canterbury’s growth projections from Statistics NZ. Which range from either keeping up with Auckland to barely growing at all.

Statistics NZ's 2013-2043 population growth projections

Statistics NZ’s 2013-2043 population growth projections

A growing successful international sized city needs a functional inner city area. Will the Fletcher/Crown development provide this for Christchurch?

Guest Post: $1 billion Fletcher/Crown housing development — Christchurch CBD

This is part one in a five part series of guest posts on the Christchurch rebuild from reader Brendon Harre. It first appeared on the Making Christchurch blog

A case study of how our government approaches urban development.

The Christchurch post-earthquakes rebuild is peaking and construction activity will plateau for a while before tailing off. So this is a good time to review the Christchurch CBD rebuild model.

Five parts:

  1. The $1 billion Fletcher/Crown housing development.
  2. The Crown/Fletcher development within the context of the Christchurch rebuild and national economy.
  3. Is the Fletcher/Crown development exploitative?
  4. Is there another explanation?
  5. Is there another solution?
Part one: The $1 billion Fletcher/Crown housing project

A little over a decade ago in 2002 before I was married, I bought a small two bedroom, single garage townhouse in Kilmore Street in Central Christchurch for $160,000 on a single nurse’s salary. A decade later, after a series of devastating earthquakes in Christchurch, the Crown decided to take control of fourteen hectares of land. Seven hectares of that land, just a few blocks from my old townhouse, is being developed as part of the Eastern Frame development of the CBD rebuild.

So it is with great interest I follow the design/development stage of this process, in which Fletchers has negotiated an exclusive deal with the Crown to develop this large block of prime land. This development will be a mixture of apartments and townhouses. The Eastern Frame is approximately 20% of the inner city core of Christchurch. So the success or otherwise of this development will have a significant impact on New Zealand’s second largest city.

The East Frame is set on a 14 hectare site between Manchester and Madras Streets, and extends from Lichfield Street in the south to immediately north of the Ōtākaro/Avon River. It has easy access to a bus super stop on its west, Latimer Square to its East, the Innovation Precinct and CPIT to its south and the Margaret Mahy Family Playground to its North….

Half of the area will be developed into medium density residential living for approximately 2,200 people….. The other half of the East Frame will form open spaces and streets, including a central park running north to south, with walking and cycling paths, community gardens….

Brendon Harre - Chch Part 1 - East Frame

A simple division of the projected monetary size of development and the number housing units it will create, indicates the average price will be in excess of $800,000. A price that is out of reach from those on a nurse’s salary, in stark contrast to my experiences a little over a decade ago.

Brendon Harre - Chch Part 1 - East Frame 2

The Eastern Frame development is the biggest Government housing project in Christchurch. In combination with two other smaller Government housing projects, this provides more than $1 billion of work for Fletchers. The Eastern Frame project is budgeted to be worth $800 million and when completed it will have nearly a thousand residences. The first homes being planned to be ready in 18 months with the project expected to take 8 or 9 years to complete. The deal between the Crown and Fletcher is a profit sharing contract. This includes upfront payments to the Crown and further payments as sales are made. Simply put, as Fletcher completes and sells residences it shares the profits with the Crown.

Brownlee said there would be no loss to the Crown in terms of the sale of land to Fletchers. “Excluding the public realm there’s no loss on the land sold, to the Crown.” He would not give financial details and said the public land could eventually pass over to the care of the city council.

….Cera development director Rob Kerr said Fletcher had delivered the most compelling vision on the staged process. “As Fletchers sell more and more property, they’ll be paying us for the land. Depending exactly on how much they sell and how quickly they sell, that’s how much (land) we’ll sell.”…….

Mike Greer, a member of an opposing group who bid for the project was less impressed with this model of urban development and has spoken out about his concerns.

The unsuccessful bidders are putting on a brave face, but builder Mike Greer is more prepared to speak his mind.

Greer is hugely disappointed his bid with Philip Carter and Ngai Tahu failed to be selected by the Canterbury Earthquake Recovery Authority. He said the consortium had a top team including architects Warren and Mahoney and top Australian architect firm Woods Bagot…..

“They (Fletcher) are obviously doing a very good sell job to the Government, aren’t they. “I’m pretty disappointed a local bid didn’t get it. I think it’s pretty sad for Canterbury.” A local bid would have produced something much better, in his view.

“I guess they (Fletcher) offered more for the land than we did, that would be the biggest carrot for the Government, wouldn’t it.”

Greer said their proposal was “taller”, some eight storey apartment buildings, because they were planning for future population growth as well. It comprised 1200 apartments and townhouses in a price range of $300,000 to $1 million. The main part of their project was aimed at middle New Zealanders.

“We wanted to encourage policemen and nurses and all those kinds of people that work in the city to live in the city.”

“I think we would have created something far better for the people of Canterbury than what they are going to get.” “My biggest concern is they go offshore…to sell these as investment properties.” That would be devastating for the city, in his view.

It cost the consortium $600,000 spent to make the bid. “To be honest the whole process was a bit of a shemozzle, an absolute waste of money. I won’t be doing any bids ever again.”

“Our proposal was probably far too fancy for the Government, it looked after the people of Christchurch too much and didn’t provide a massive economic return for the bidder and the Government. Our bid was focused on building something world class.”

“It’s a funny old world this post earthquake world. There’s more politicking on houses than I ever imagined,” Greer said

In part 2 Brendon looks at the Crown/Fletcher development within the context of the Christchurch rebuild and national economy

 

Inside the new Christchuch Bus Interchange

This is a guest post from Anthony McBride in Christchurch on the opening of the new bus interchange a few weeks back

One of the best news for a long time, for me, and I’m sure thousands of others as well, is the (partial) opening of the new Christchurch Bus Interchange…It was a freezing day for Christchurch with the temperature at 8am hovering about 0°C, but driving by the former temporary bus exchange, and into the modern bus interchange, was a really a bit of a moment of excitement, I actually heard some soft wows as we turn into the station, we parked into the tooth, and have the bus doors and sliding doors open, it was a sight of hustle and bustle.

McBride - Christchurch Bus Interchange 1

It’s quite awesome seeing the smiles on people’s faces, including the staff who were handing out chocolates and bus maps for everyone. And hearing announcements echoing over the warm halls on what buses are arriving and the doors which they are due to arrive at.

“O Queenspark, Door 11”

McBride - Christchurch Bus Interchange 2

It has a very airport like feel to it. There are even posts next to tactile paving with buttons on it, where the blind can push the buttons to find out which door it is, and what bus it is.

McBride - Christchurch Bus Interchange 3

And the information boards are great too….
My slight gripe with the information board pictured however….Is that the Platform D is on Plaform C’s side….And platform C is on platform D’s side. It confused me more than twice already, and I would have gotten on the wrong bus if there was not an information board above each door about the destination. (Like in the second picture)

My personal fears about the slowness and dangers of the sawtooth design appears to be incorrect, with the buses backing out taking no more than an extra 20 seconds, and the bus drivers don’t have to worry about any of the public walking into the bus movement area as it is closely monitored, and all buses will be stopped should anyone walk in.

McBride - Christchurch Bus Interchange 4

Looks like a Control Tower…!

McBride - Christchurch Bus Interchange 5

Extra pictures from when I looked around outside the interchange….The new cycling lane is open, the cycling racks are well in the area is well used and there is even some cycling traffic lights!

McBride - Christchurch Bus Interchange 6

McBride - Christchurch Bus Interchange 7

 

“Why economists tend to be in bad odour …” – Cycleways in Christchurch

In an 1879 essay, Francis Walker tried to explain “why economists tend to be in bad odour amongst real people.” Walker, who went on to become the first president of the American Economic Association, argued that it was partly because economists disregard “…the customs and beliefs that tie individuals to their occupations and locations and lead them to act in ways contrary to the predictions of economic theory.”  Frank et al  1999

As some of you may be aware, Christchurch City Council has applied for NZTA funding to develop the network of major cycleways illustrated below.

majcycroutes-may14

This economic appraisal of this investment is discussed in detail in this blog post. The benefit-cost ratio for the $160 million investment was estimated using NZTA’s Economic Evaluation Manual to be 7:1, with the benefits of the project breaking down as follows.

chchcyclemodelbenefits

All well and good.

Until about a week ago when two economists from the University of Canterbury, namely Glenn Boyle and James Hill, released their review of the business case for the major cycleways network. Based on their review, Boyle and Hill conclude the actual BCR is more likely to range from 0.7 – 1.6. They reached this conclusion for the following reasons:

  1. Fuel prices – Rather than the 40% increase in real fuel prices assumed in the business case, Boyle and Hill suggest a more reasonable assumption is constant fuel prices. This reduces the BCR to 6.0.
  2. Time savings – Boyle and Hill calculate the average time saving per vehicle trip and conclude that because it less than 6 seconds, that these benefits should be discounted. This reduces the BCR to 4.6.
  3. Safety benefits – Boyle and Hill argue that the procedure used to calculate safety benefits is designed only for small projects costing less than $5 million. Removing these benefits reduces the BCR to 3.8
  4. Health and environmental benefits – Boyle and Hill argue that the procedure used to calculate health and environmental benefits is designed only for small projects costing less than $5 million. Re-calculating these benefits reduces the BCR to 0.98 – 2.3
  5. Discount rate – the business cases uses a 6% discount rate; Boyle and Hill argue “market realities suggest this is probably too low”. Using a discount rate of 8% reduces the benefits to 0.7-1.6.

Oh dear.

I’ve subsequently reviewed Boyle and Hill’s review. My general conclusion is that while they make some valid points, they miss the mark in the places that matter. This in turn means that their conclusions are at best unsubstantiated and at worst simply wrong.

The key issues I find with their analysis are summarised below.

The first issue relates to their grounds for dismissing time savings. First, Boyle and Hill the divide total (estimated) time savings by the total (forecast) number of vehicle trips in Christchurch so as to calculate the average time saving per vehicle trip. They then reason that because the average time saving per trip is ~6 seconds, then the time saving benefits are too trivial to be included in the business case.

This analysis smacks of the sort of erroneous logical reasoning that one would critique in a first year statistics course.

Consider the statistical distribution of time savings that might result from cycle investment. It’s reasonable to suggest these savings will not be distributed evenly.

More specifically, the time savings will accrue primarily to vehicle trips that occur within specific corridors and at specific times. That’s certainly what the modelling of cycle flows seems to indicate, as shown below. From this map one might expect very small time savings for vehicle trips in areas such as the airport, Brighton, and Banks Peninsula, with larger time savings for vehicle trips travelling in the peak direction on key radial corridors.

Christchurch cycle network demand map

The need to consider the distribution of time saving can be illustrated with a stylised example. Imagine a city where there are 1,000 vehicle trips, and where a proposed cycle investment will save 2 minutes for 50 vehicle trips, while the remaining 950 vehicles trips are unaffected. The average time saving in this city is only 6 seconds per vehicle trip, even if every vehicle trip affected by the investment actually saves 2 minutes.

The takeaway message is that the localised time savings in a large transport network cannot be accurately represented by the average time saving per vehicle trip. The latter metric may indeed obscure what are tangible savings for a small number of vehicle trips.

Or, to put it another way, if Boyle and Hill wanted an even more sensational figure, then they could have averaged time savings over all vehicle trips in New Zealand rather than just Christchurch, and concluded that the project would save less than half a second per trip. But that would be even more ridiculous.

Reductio ad absurdum; QED Boyle and Hill’s dismissal of time savings is unsubstantiated (NB: One could of course analyse the distribution of time savings and consider only those savings that were above a certain minimum threshold, but Boyle and Hill have not done this).

The second issue relates to their choice of an alternative discount rate. The major cycleways project is a transport investment which is seeking funding from NZTA’s land transport programme.

Let’s make this very clear: NZTA specify that a discount rate of 6% is to be used when undertaking economic appraisals of transport investments. It is therefore entirely appropriate for the business case to use a 6% discount rate. If Boyle and Hill have an issue with the discount rate that has been chosen by the NZTA, then they should raise those arguments in an appropriate forum – not pretend it’s an issue associated with the major cycleways project.

At this point it’s worth pausing for a moment and simply noting that if we add back in even 50% of the travel-time savings and use the 6% discount rate stipulated by NZTA, then the BCR for the cycleways project is likely to return to respectability – even if we accept all of their other points. And I don’t …

The third issue relates to their discussion of travel behaviour change. Boyle and Hill question the magnitude of travel behaviour change, but ignore that the business case takes a conservative view of behaviour change when compared with the results of stated preference surveys.

Stated preference surveys in Christchurch suggest that up to 30% of people would be willing to switch to cycling if sufficient safe infrastructure was provided. At present, the Census suggests that around 7% of people in Christchurch cycle to work, while the Household Travel Survey suggests that around 3% of total trips in the Canterbury region are made by bike.

The modelling did not conclude that cycle mode share would increase to 30%. It took a much more conservative view, which is that the cycleways would boost the number of cycling trips by 15-35%, which would imply an increase in mode share of 1-3% to between 5-10%.

A bit of international context would help here. Other cities that have invested in transformative changes to cycling infrastructure have experienced much larger increases in cycling mode share. For example, the Dutch only started investing in safe, quality cycling infrastructure in the 1970s. Today, many Dutch (and Danish and Swedish) cities have cycle mode shares in the range of 20% to 40%. Moreover, more modern cities like Portland have achieved cycling mode shares approaching 10%. QED the travel behaviour change assumptions in the modelling are within the range of what we observe elsewhere.

The fourth issue is that Boyle and Hill have misread the EEM guidance on analysing cycling benefits. They claim that cycling benefits have been estimated using an inappropriate (“simplified”) procedure. However, that’s simply not true. The values used to calculate per-km benefits for cycling are part of the core EEM (Appendix A20, if anyone’s interested). QED it was appropriate for the original business case to include these benefits.

The fifth issue is that Boyle and Hill make non-standard assumptions about fuel prices. They criticise the modelling for assuming that real fuel prices will increase. However, the assumptions in the business case are based on modelling published by MBIE – who are hardly a bunch of peak-oil alarmists. Boyle and Hill’s critique basically boils down to “oil prices are around their historical norm”, therefore we should not assume any future increase in price.

As economists, they should know that past performance may not be a good guide to the future.

Boyle and Hill argue that crude oil futures quotes are expecting current prices will persist, although I understand these contracts 1) typically extend out only for the next decade or so, and 2) the liquidity is fairly low in more distant future years. In contrast, NZTA stipulates a 30 year evaluation period for similar transport projects. Moreover, unless Boyle and Hill have an alternative (forward-looking) model of fuel prices, as well as evidence that their model is more accurate than MBIE’s, then their objection to the fuel price assumptions used in the business case is somewhat vacuous.

If, as it seems, Boyle and Hill’s real target is NZTA’s evaluation methods, then their critique of the cycleways is at the very least misplaced. Christchurch is proposing to invest a decent amount in cycleways, but that expenditure is dwarfed by state highway spending. If, for example, Boyle and Hill applied the same attention to the $11 billion RoNS’ programme, then they’d find some projects which start out with BCRs less than 1.0, even with more uncertain agglomeration / wider economic impact benefits included from the outset.

MoT state highway BCRs 2005-2012

 

A serious investigation would have at least considered this wider transport investment context, before honing in on the cycleways project as perhaps a case study. And even then it’s a relatively non-representative (and unimportant) choice of case study.

So where does this leave us?

Well, if the aim of Boyle and Hill was to create clickbait for anti-cycling neanderthals, then they can rest happy in the knowledge that they have done their job exceptionally well.

However, if they wanted to foster more informed public debate on the merits of the major cycleways project, or the business cases for transport investment in general, then they have clearly and demonstrably failed. It’s especially unfortunate their review comes across as a deliberately sensationalist hatchet job with largely unsubstantiated and/or incorrect conclusions. By extension, their review does not – as they claim – call into doubt the key finding of the original business case, i.e. the investment in major cycleways represents a relatively effective transport investment. For these reason I wouldn’t expect their review to hold much sway with Christchurch City Council and/or the NZTA.

Postscript: While Boyle and Hill’s review is, in my opinion, “in bad odour”, it is encouraging that the business cases for transport investment are receiving more attention from the wider economics profession in New Zealand. I’d certainly encourage Boyle and Hill to pursue this new found interest further, and would welcome them scrutinising the business cases for RoNS projects, many of which cost in the billions of dollars and start with BCRs less than 2.0. That’s really where the real money is being spent, and it’s where the economic evidence is the weakest.

Sunday reading 18 January 2015

Every week we read more than we can write about on the blog. To avoid letting good commentary and research fall by the wayside, we’re going to publish weekly excerpts from what we’ve been reading.

Urban kchoze, “Prince Charles’ 10 Principles of of urbanism: typical example of what’s wrong with urbanists/architects“:

In a way, the true descendants of traditional cities aren’t the mummified European cities of Paris and London where all is done to maintain buildings and neighborhoods as they were in the early 20th century, but Japanese cities. Yes, Japanese cities are resolutely modern in terms of buildings, but the traditional process of city-building is still alive in Japan, while it has been replaced by planner fiat in Europe and North America. The people who built the cities people love would have likely been more than happy to have our modern technology to allow for taller buildings with more varied materials. Likewise, though the Japanese use modern materials and technologies, they still use them in a way that is more in line with the traditional process of incremental city-building.

Alan Davies, “What would it take to build a tram network the size of Melbourne’s?“, Crikey:

The US has over 45 operating streetcar and light rail systems but none of them are anywhere near as large as Melbourne’s tram system. Melbourne has the largest extant urban streetcar network in the world with 249 kilometres of double track and 487 trams.

Cost

If Melbourne’s tram network had been removed in the 1950s and 60s like similar systems in Sydney, Brisbane, Adelaide, Perth and many regional centres were, it would be astronomically expensive to build something like it today from scratch. The cost of rolling stock alone would be in the region of $3 Billion (1).

Based on the actual $1.6 Billion it cost to build the newly opened 13 km Gold Coast G:link line, a network the size of Melbourne’s could have an all-up cost in the region of $30 Billion.

Or if we extrapolate from the estimated $2.2 Billion it’s taking to build Sydney’s new 12 km CBD and South Eastern Light Rail system, the all-up cost could be in the region of $45 Billion.

James Dann, “They paved paradise etc etc“, Rebuilding Christchurch:

Yesterday, Georgina Stylianou revealed that the earthquake recovery minister Gerry Brownlee had used his “special powers” to fast-track a car parking building for Phillip Carter, the brother of the Speaker of the House, National MP David Carter. This was followed by a chorus of down-on-their-luck property developers piping in that they too needed more car parks, and that could the government please build some for them.

The sad, bizarre situation in Christchurch right now is that there are more people lobbying for the rights of cars to sit motionless than there are trying to house human beings.

Lindsay Cohen, “Seattle dog’s rush hour ride: on the bus, by herself, weekly“, Komo News:

SEATTLE — Public transit in Seattle has gone to the dogs.

Commuters in Belltown report seeing a Black Labrador riding the bus alone in recent weeks. The 2-year old has been spotted roaming the aisles, hopping onto seats next to strangers, and even doing her part to clean the bus — by licking her surroundings.

“All the bus drivers know her. She sits here just like a person does,” said commuter Tiona Rainwater, as she rode the bus through downtown Monday. “She makes everybody happy. How could you not love this thing?”

Anna Maria Barry-Jester, Why The Rules Of The Road Aren’t Enough To Prevent People From Dying, FiveThirtyEight:

On how speed limits in the US were set

Here’s how speed limits are established in most states, according to Federal Highway Administration research: Traffic engineers conduct a study to measure the average speed motor vehicles move along a road. The speed limit is then set at the 85th percentile. From then on, 85 percent of drivers would be traveling under the speed limit and 15 percent would be breaking the law. Sometimes other factors2 are taken into consideration, but in most places, speed limits are largely determined by the speed most people feel safe traveling. Some states, including Louisiana and Michigan, go so far as to call limits determined by this method “rational speed limits,” stating that achieving compliance is possible only if the speed limits are reasonable.

Todd Niall,  Knowledge gap in Auckland rail saga, Radio NZ:

The gap, in this case, is a knowledge gap. The gap between what we see being played out in public, and what is going on behind closed doors, between the Auckland Council, and the Government and its agencies.

The reminder of the significance of knowledge gaps was the Government’s announcement in June 2013 that it would commit to sharing the cost from 2020 of a project it had publicly poo-poohed.

This was widely regarded as a sudden and unexpected change of tack by the Government. It wasn’t.

Paul Little, Trees, not cars, make a liveable city, NZ Herald

Although no one has actually been seen embracing them, the stand of six 80-year-old pohutukawa on Great North Rd near the SH16 interchange works could use a hug right now. Auckland Transport has approved their removal to widen a road we don’t need.

Hugs would also be welcomed by a lot of Aucklanders who have recently begun to see all too plainly what a hellish plan is being put in place between here and the Waterview connection (cost $1.4 billion). The pillars and overpasses can now be seen to be on a scale so colossal they appear not to be made with humans in mind at all.

One of a few images from a 1937 plan for London by Sir Charles Bressey on how to accommodate more vehicles in London

Sir Charles Bressey 1937 London Plan

Chris Barton, The Best Urban Design of 2014, Metro:

It was a year of winning forms and some massive fails. Chris Barton picks his favourite urban design developments — and hands out the wooden spoons.

And finally, Councillor George Wood sent us a fun game to play via twitter. Fortunately, I passed the test:

Quiz: Can you name these cities just by looking at their subway maps? [Wonkblog]

Is New Zealand getting public transport right?

Increasingly, the answer is yes – although we certainly can’t rest on our laurels yet. Read on if you want to know how and why…

I recently read Paul Mees’ excellent book Transport for Suburbia, which argues that high-quality, useful public transport services can be provided even in the low to medium density cities of Australia and New Zealand. Reader Warren S gave a glowing review of the book earlier this year.

Mees, who did his initial research on Auckland in the 1990s, was quite scathing about the decades of planning failures that led to the city having an underutilised and not especially useful public transport network. The user experience has suffered, he argued, due both to decades of underinvestment and a refusal to plan an integrated bus network that would be useful throughout the growing city.

The key to any good public transport network, Mees argued, is that it must function as a network. A 2010 NZTA research report (pdf) that he co-authored identified two key principles of network structure.

First, the network should be stable throughout the day, as shown on the right hand side of the diagram. In other words, the bus lines that are running in the peak should be running in the middle of the day, in evenings, and on weekends. This has important benefits for users, because it gives them a lot of certainty. For example, a working mother who rides the bus to work doesn’t have to worry that she won’t be able to make it home in the middle of the day in case of a medical emergency. The bus will always be running down the same streets.

Mees principles of network design

Second, frequent connective services are essential if public transport is going to serve a diverse range of trips. As Jarrett Walker says, frequency is freedom: when you know that you’ll never have to wait long for a bus (or to transfer between services), then it’s really convenient to choose to take the bus. The following diagram is somewhat difficult to read at first, but it depicts how much more mobility is enabled by a frequent connective network. This is really, really good for users, because it gives them many more choices about where to travel and how to get there.

Mees Squarevill example

Based on the best practice from overseas, Mees argued that New Zealand needed to make some crucial changes in three main areas. As the table below shows, we’re actually well underway (or finished with) most of these changes! Moreover, we’re seeing the benefits of many of these changes already, meaning that they will be easy to build upon and hard to reverse.

Of course, we’re not yet in the promised land of PT, and the devil is often in the details. While Auckland’s New Network represents a real improvement in the quality and usefulness of the city’s PT offering, Mees points out that there are many elements of network design that will require fine-tuning. That means things like rolling out bus lanes on more routes, getting bus stops in the right place, and making connection points between frequent routes comfortable and easy to use – all of which requires on-the-ground knowledge.

Paul Mees’ recommendation Are we doing it in Auckland?
1  Appropriate institutions and public processes:
Establish a public agency to plan the network across the whole urban region. Auckland Transport is doing this – it seems to be earning more bouquets than brick-bats in the process
Redirect private-sector competition into producing best-value tenders for the delivery of part, or all, of a publicly planned system. Done – changes to PT contracting under the last two governments have given transport agencies back control of network planning
Use well-designed public education and consultation programmes to manage changes. Done – AT’s consultation on the Southern New Network was praised
Provide a simple fare system that avoids the imposition of penalties for transfers. HOP cards have given us integrated ticketing; integrated fares are (hopefully) up next
2  Network structure:
Provide a simple and stable network of lines throughout the day. In progress – that’s the goal of the New Network
Base mode choice for different lines in the network on required capacity, comfort and speed. In progress – CRL and more busways planned in AT’s capital programme
Consider locations for suburban interchanges on the basis of predicted travel patterns and efficient vehicle operations. In progress – Panmure Station successfully implemented, Otahuhu to follow
3  Network operations
Simplicity and directness:
Organise the network on the principle of ‘one section – one line’. Done in New Network
Avoid deviations in the physical routes chosen for bus services. Done in New Network
Provide pendulum lines through key activity centres and interchanges. Done in New Network
Speed and reliability:
Aim for travel speeds comparable to, or faster than, door-to-door travel times that can be achieved by car. Already done on selected routes – e.g. the Northern Busway and some isthmus routes
Provide on-road signal and traffic-lane priority to allow buses to meet connections. In progress – e.g. with the quick win on Fanshawe St – but not fast enough
Aim to have vehicles stopping only as required to pick up and drop off passengers. Already standard practice
Frequency:
Establish ’forget-the-timetable’ headways (10 minutes or less) in key travel corridors. Key principle in New Network, although that aims for 15 minute frequencies as a minimum
Set up integrated timetables outside high-frequency areas. Key principle in New Network
Location of stops and access to services:
Carefully plan the location of stops to minimise the number of stops and ensure their optimal location in relation to major trip attractors, intersecting lines and pedestrian accessways. Hopefully underway as part of New Network route design… AT’s been doing some work on new bus shelter designs
Locate stops in car-free precincts close to important destinations, to give public transport a significant competitive advantage. We haven’t yet started to think about this – perhaps time to get started?
Change current access to ‘trunk’ services from ‘park-and-ride’ facilities to access by walking, bicycle, or feeder bus, in order to cater for long-term growth in patronage. More could be done
Ensure that walking distances between services in interchanges are very short: preferably no more than 10 metres.
Marketing for first-time and occasional users:
Create a simple line structure that makes the network easy to understand. Done in New Network – have you seen the maps?
Use maps, on-line information, vehicle livery and on-board displays to reinforce understanding of the line layout and transfer opportunities. Some bus routes (e.g. Northern Express, Link Buses) have branded livery; real-time information is improving but still spotty

Moreover, this is not just an Auckland phenomenon – other New Zealand cities are eagerly embracing the principles of PT network design. Wellington and Dunedin are at work applying the same set of principles to their public transport networks. This week, Christchurch’s own frequent connective network went live – a significant milestone for a city that’s still rebuilding following the earthquakes.

chc-network-map

In short, there has been a quiet revolution in public transport planning in New Zealand. Many regional transport agencies (and central government) have looked at best practice from overseas and gotten on with implementing it. Paul Mees might have torn his hair out when studying the mess that had been made of PT planning by the 1990s – but things are now turning around. Long may it continue!

Today is NZ Transit Upgrade Day

Well for Christchurch Bus and for Auckland Rail users it is. Christchurch is launching its New Bus Network today:

CHCH new Network

PDF here. We are very keen to hear back from users about they think of this. In fact we’ed be very keen to run a guest post or two from interested PT users in Christchurch. Here’s what Christchurch Metro say about it:

Our city has changed, and so must we.  Public transport is a valuable asset to a modern, vibrant city. It helps to keep us, and our economy, moving, and so this new network has been developed to cover our emerging city.  The core of the new network features five high-frequency, direct services running across town.

Also today the new Auckland Rail timetables, especially for the Eastern and Southern lines in Auckland begin, as Matt described last month here:

Dec 8 2014 rail changes

This means the beginning of an all EMU service on the Eastern Line, and the beginning of our much more legible and frequent turn-up-and-go Metro-style rail Rapid Transit running pattern. This is the next step in the great upgrade of rail services for Auckland that is already being met with enthusiasm by Auckland travellers. Early next year the Southern Line with get its Electric Trains, followed by the Western Line towards the end, which will also come with frequency increases. Next year will also see the beginning of the roll out of the radical upgrade of the Bus system that is the New Network. Today will also see the beginning of regular use of electric six car sets on the network.

Again we are keen to hear from users how the new services are going.

Cycling: the benefits of complete networks

A group of New Zealand researchers recently published an excellent paper on the costs and benefits of investing in a complete cycle network and safe street design. Their paper, which is available online, found that:

the benefits of all the intervention policies outweighed the harms, between 6 and 24 times. However, there were order-of-magnitude differences in estimated net benefits among policies. A universal approach to bicycle-friendly infrastructure will likely be required to achieve sufficient growth in bicycle commuting to meet strategic goals.

Our findings suggest that the most effective approach would involve physical segregation on arterial roads (with intersection treatments) and low speed, bicycle-friendly local streets.

We estimate that these changes would bring large benefits to public health over the coming decades, in the tens of dollars for every dollar spent on infrastructure. The greatest benefits accrue from reduced all-cause mortality due to population-level physical inactivity.

The researchers employed a system dynamics modelling approach that incorporated feedback loops between infrastructure provision and street design, people’s travel behaviours, and actual and perceived safety.

As a transport economist, I found their methodology incredibly interesting. It illustrates how you often need complex modelling tools to quantify things that are intuitively quite simple. In this case, the fact that if you make every street safe to cycle on, people will choose to get on their bikes.

Macmillan et al (2014) causal loop diagram

Feedback loops in cycle networks (Source: MacMillan et al, 2014)

Importantly, the researchers found that a larger, more ambitious programme of cycle upgrades will deliver a higher benefit-cost ratio than a smaller programme. This is what economists sometimes call the “complete network” effect – in effect, the more places you can get to easily and safely on a bicycle, the more likely you will be to cycle. (This is also why Facebook has so many users: You have to have an account because everybody else also has an account!)

Right now, Auckland’s obviously not doing too well when it comes to complete cycle networks. If you look at Auckland Transport’s online cycle maps, you’ll see some streets with strips of green paint down the side, and many more that you could in theory cycle on (if you were especially bold).

However, we’re lucky enough to have a local example of a city that is rolling out an ambitious complete cycle network. Since the 2011 Canterbury Earthquakes, Christchurch has planned a network of 13 major cycleways that will extend throughout the city, a re-jig of its city centre street network, and a new street design manual that will deliver better on-road cycle facilities. (Disclaimer: I have previously worked on the An Accessible City project as a consultant.) And they’re planning on getting it done over the next five years.

Christchurch Major Cycleways

Will Christchurch “go Dutch”?

It’s going to be interesting to watch Christchurch over the next few years. I expect they’ll provide a good example for a lot of other New Zealand cities.