So the long-awaited final report of the Auckland Transport Alignment Project (ATAP) was released yesterday. This is the third “deliverable” from the project, building on the “Foundation Report” in February and the “Interim Report” in June. The Final Report isn’t dramatically different from what was reported in June, although there’s a lot more detail – particularly around the timing of major projects. I’ll get onto that soon. First if you want to watch the announcement from Transport Minister Simon Bridges and Mayor Len Brown you can do so below thanks to Auckland Transport filming it.
Overall, ATAP appears to have landed at a pretty sensible overall strategy for Auckland’s transport system over the next 30 years and see’s the government agree to something fairly close to the council’s Auckland Plan. For example, the report highlights:
We can’t build out of way of congestion
A major expansion of the “strategic public transport network” is required
Auckland’s motorway network is basically now finished (and also that scope for further widening seems quite limited)
The Additional Waitemata Harbour Crossing really isn’t needed for a long time
We need to move to a comprehensive, better pricing system – which ATAP calls “smarter transport pricing”. It suggests it could take a decade to work though the details before it became a reality.
Here’s the strategic approach in a nutshell, it seems very similar to what we’ve seen in existing Auckland plans:
Of particular interest is, of course, the timing of projects – especially what’s “brought forward” into being a first decade priority. The first decade is the key as it’s difficult to project what will happen much more than that – something the report acknowledges. The major projects are summarised in the table and map below:
There are a few interesting things in here:
Northwestern Busway – a project we’ve long been calling for and should have been included as part of the current SH16 works – has been brought forward into the first decade. Remember this was a third decade project in the Auckland Plan.
With the exception of some improvements to the existing rail network, there seems to have been an allergic reaction to the term rail for any new lines. Instead the report uses the phrase Mass Transit instead.
There seems to have been a compromise on isthmus light-rail, with it now being a second decade priority. On the positive side, this project wasn’t officially in any of the plans before ATAP.
The Early Rail Development Plan priorities include Pukekohe electrification and a third-main between Westfield and Wiri. I wonder if this means government is agreeing to fully fund these?
A “mass transit” upgrade of the Northern Busway is now officially in the plans as a longer-term priority. Presumably this means to some sort of rail in the future.
The Additional Waitemata Harbour Crossing project is not seen as required before the third decade (around 2040). Given that NZTA had previously been talking about it needing to be in place by 2030, this is quite a major shift.
The major projects shown above are only those on the ‘strategic networks’ and there are a lot of smaller projects that sit below that. The strategic networks have also been shown in a schematic form too.
The road version shows that while map above looks busy, there’s not a heap of new major roads on the horizon. The black arterial roads should also be AT’s basis for a bus lane network map.
By comparison the strategic PT network shows that a lot of development is needed – and the government has agreed with this, also does it look familiar?
I’m sure we’ll have plenty more posts to come on the details of ATAP as we sift through them over the coming days. But what’s perhaps most interesting is how ATAP has landed at a reasonably good overall approach, even though it seems to have come at the issue from a pretty “old school” predict and provide approach. Firstly, the project objectives are very focused around congestion – even though we know that higher or lower levels of congestion are a pretty poor indicator of whether a city is succeeding or failing. Secondly, the analysis (which is described in much more detail in the “Supporting Information” report) is very demand-led, predict and provide. It is the result of a massive reliance on transport modelling that we know has traditionally not done well, especially in the face of transformative change that projects like Britomart, rail electrification and the Northern Busway.
We would have preferred to see a strategic, top-down, outcomes focused approach that focused on the jobs we might want different parts of the transport system to do. I guess the challenge with this approach is that it would have required all of those involved to actually agree to a vision for the city.
Despite this, ATAP has still landed in broadly the right place – which in a way makes it even stronger. Even if your focus is very old-school, predict and provide etc. the evidence shows that the best solution for Auckland is a major expansion of the public transport network and a shift to managing demand. Of course ATAP isn’t perfect:
There are a lot of major roading projects in there which seem unnecessary if you were to bring in smarter pricing, something the report even acknowledges in this section about the potential impact of autonomous vehicles
This could present opportunities to defer or avoid future investment in additional road capacity
Some of what’s said about arterial roads is quite worrying as there’s a really strong push for those to have more of a movement focus when many of these are also places where we want a lot of development to occur – a balance between place and movement is required
I think some major public transport projects will probably need to be brought forward – if for nothing else, to respond to massive demand
One thing you may have noticed is missing from the report is active modes. This is in part because our transport models are hopeless on active modes and because “the views of central and local government are already well aligned on the priorities and likely level of future funding”. Hopefully that means more initiatives like the Urban Cycleway Fund are expected.
Overall it’s a pretty big step in the right direction, especially in terms of having something the government has signed up to. At the briefing yesterday the representatives from the business and infrastructure lobbies were fairly dismayed at the outcome of the report, perhaps a sign it’s on the right track. They want to more built sooner but have also separately said they don’t want to pay more rates to enable that.
The next challenge is of course how we fund it. ATAP estimates that over the next decade we’ll need to spend $24 billion but based on current budget trends, that will leave a $4 billion funding gap (mostly in the later part of the decade). With leading mayoral candidates promising to cap rate increases, it will make for an interesting few years while this issue is addressed.
But the announcement also raises some questions. For example, congestion pricing is certainly a good idea in principle, but could we put it into practice in Auckland without unintended consequences? And would people in Auckland get on board with it?
So I thought I’d open this up to readers: What do you think the preconditions are for congestion pricing in Auckland? In other words, what would we have to do in order to make the scheme work?
I have my own thoughts on the matter, but rather than putting them forward I thought I’d summarise some of the main things that come up in discussions. I’ve left aside the exact design and technical feasibility of congestion pricing – for now, let’s just assume that it’s going to be possible to implement a GPS-based pricing system that allows for variable tolls between different roads and time periods.
The argument in favour of this view is that congestion is typically very concentrated in peak periods due to bottleneck delay, and that encouraging people to take some trips a bit earlier or a bit later will benefit the overall transport network without imposing large costs on people who re-time journeys to avoid tolls.
2. We need to provide more public transport infrastructure and/or walking and cycling options before implementing congestion pricing.
A second common view is that we need alternative, non-driving transport options in place prior to congestion pricing. Reasonable people could disagree on what would represent enough alternatives, but I’d suggest that a reasonable aspiration would be:
Bus routes that cover most of the city, with reasonable frequency
Spare rapid transit capacity through key pinch points such as the Auckland Harbour Bridge and Panmure Bridge
Cycle lanes running on or parallel to many urban arterials.
The argument in favour of this view is that it is unfair to ask people to pay a toll without giving them options for avoiding it. In that respect, it conflicts a bit with the first view, which holds that people will have the option of re-timing trips to avoid tolls.
3. We need to use the revenue from congestion pricing to improve transport infrastructure and services on busy corridors.
A third view is that we should spend any additional revenues from congestion pricing to build additional transport infrastructure. Some people argue that this should be more roads, while others argue for public transport.
It seems a bit perverse to implement a demand management measure (congestion pricing) and then turn around and spend more building infrastructure. However, the argument in favour of this view is that congestion pricing will give us a better indication of which corridors have high economic value – as evidenced by higher tolls – and hence that investment is needed to allow more people to use them.
4. We should “recycle” additional revenue from congestion pricing into lower taxes or rates.
Another view on what to do with the revenue from congestion pricing is that it should be returned to households. In other words, the scheme should be “revenue neutral” on the whole.
There are two main ways to do this:
Lowering income taxes, which will (all else equal) enhance incentives to work while discouraging car commuting at peak times
Distributing money equally to households, through lower uniform charges in the rates bill or AECT-style dividends.
The argument in favour of the first approach is that it will tax “bads” (i.e. excess congestion) while rewarding the “goods” (i.e. working). The second approach doesn’t improve incentives to work – people would get the money regardless of whether they are working or not – but it would ensure that every household had an additional chunk of money that they could choose to save, spend, or use to offset the cost of tolls.
5. We should liberalise residential and business zoning rules alongside implementing congestion pricing.
Separate from what to do with the revenues, another view is that it would be necessary to change our approach to land use planning in order to get the best result from congestion pricing.
The argument in favour of this view is that congestion pricing would influence people’s decisions about where to live and work. In other words, some people may choose to move closer to work to avoid paying tolls, while others would prefer to move further out of town to take advantage of faster drive times. However, zoning rules that, for example, held up intensification around employment centres may prevent this from happening.
6. We don’t need congestion pricing in the first place.
Finally, some people argue that congestion pricing is unnecessary. There seem to be two main reasons why someone may hold this view:
Contrary to popular perceptions, Auckland’s not really congested enough to need congestion pricing
If we just got on and built a lot of roads, like, immediately, traffic would flow smoothly and there would never be any congestion ever again.
Congestion pricing has once again hit the political radar, with the news that the Auckland Transport Alignment Project has recommended it as an option to more efficiently manage the transport network. They find that variable road tolls – highest during peak periods on busy roads and low (or even zero) at off-peak times – are the single most effective intervention to improve traffic flow.
On the whole, it looks like support for the idea is on the rise, which is positive. That suggests that the work that Auckland Council’s consensus building group did a few years back has contributed towards a better public conversation on the issue. That’s good, as it’s a challenging idea to sell to people.
Transport Minister Simon Bridges conceded this week, “we can’t keep building new lanes on highways. We will need a combination of demand-side interventions if we are going to deal with congestion over the next couple of decades”. He prefers the term “demand-side interventions” to taxes, tolls or charges but those are what it means.
Unlike the council, the Government does not advance these for revenue raising but for reducing traffic on the roads. It clearly thinks road rationing is more politically acceptable than revenue raising and the AA agrees. Feedback from members, it says, showed support for tolls as long as people could be convinced it was for congestion benefits, not simply revenue.
However, the Herald’s editorial also exhibits a common misunderstanding about congestion pricing, arguing that free routes must be available as an alternative to tolled routes:
The joint report for the council and the Government this week did not suggest how road travel might be charged. Mr Bridges said one option was to track all traffic with GPS technology which is being trialled in Singapore and Japan. But that implies no roads would be free at times the charge applied. Travel is a basic freedom. We could welcome the chance to pay to use a fast lane when we need one, so long as free lanes remain.
…a road tolling scheme may be established to provide funds for the purposes of one of more of the following activities, namely, the planning, design, supervision, construction, maintenance, or operation of a new road, if the Minister of Transport is satisfied that:
the relevant public road controlling authorities (including the Transport Agency) have carried out adequate consultation on the proposed tolling scheme;
the level of community support for the proposed tolling scheme is sufficient;
if an existing road is included in the scope of the tolling scheme, it is physically and operationally integral to the new road in respect of which the tolling scheme will be applied;
a feasible, untolled, alternative route, is available; and
the proposed tolling scheme is efficient and effective.
However, I think that both NZTA and the Herald are being too hasty in assuming that the untolled alternative route has to run parallel to existing roads. Alternatives can exist in time as well as in space.
Stu Donovan described the maths behind this last week. Transportblog reader Bryce Pearce also dug up a good practical example: apparently Singapore’s road pricing scheme allows people to travel for free most of the day. For example, if you are trying to drive on Lorong 6 Toa Payoh at 8:30am, you’ll have to pay $1. But if you leave an hour earlier or an hour later, you won’t pay anything:
ATAP took a similar approach when choosing how to model congestion charges. As the following diagram shows, the ATAP scheme would increase peak and inter-peak pricing, relative to current fuel taxes, but decrease charges in evening periods. Consequently, people would have options to save money for certain types of trips, for example, by shifting supermarket trips from the afternoon to the evening:
Arguably, being able to travel for free on the same road, at a slightly different time, is even better than being able to travel for free on a different, more circuitous road at the same time.
There are obvious user benefits to the approach of varying tolls by time of day. It allows people to make better choices that respect their individual preferences for time, timeliness, and money.
But there are also important system-wide benefits from variable tolls between different time periods. Because congestion can be quite sensitive to changes in the number of cars on the road at a given time, encouraging even a relatively small number of people to shift the time at which they travel can lead to large benefits.
That’s nicely illustrated in the following graph of Auckland Harbour Bridge traffic volumes. The AHB is essentially free-flowing during the middle of the day, when there are around 1300 vehicles per lane per hour. But it is considerably slower during the evening and morning peaks, when the bridge carries more like 1500-1700 vehicles per lane per hour.
Because the peakiest bits of the peak are relatively short – perhaps 2.5 hours in total across an average weekday – you could improve the performance of the bridge by charging tolls during a few short windows. People could still travel for free (or at any rate a lower price) during the remaining 21.5 hours of the day.
From my perspective, that’s a pretty good alternative for drivers! But what do you think about the issue?
For those who are interested in Brexit, I am currently writing a short paper on the topic that I hope to make available via the Blog.
Right now, however, I want to cover political issues closer to home. Specifically, the release of the ATAP report. What is ATAP? Well, it’s simply a collaboration between Auckland Council, Auckland Transport, and Central Government that is designed to align plans for transport in Auckland. Not a bad idea.
ATAP recently released a report that has breathed fresh life into the road pricing debate. As many of you will know, TransportBlog has over the years expressed qualified support for the idea of road pricing. While we think it’s important to carefully consider 1) distributional impacts; 2) revenue neutrality; and 3) complementary transport investments (of all modes), these issues should not be allowed to scuttle discussion and research into road pricing. The potential benefits of road pricing are simply too large to ignore, IMO.
Not everyone, however, seems happy with ATAP’s recommendation that road pricing be investigated in the Auckland context. In this post I’m going to review statements made by three political parties in response to the ATAP report. In future posts, we hope to cover some of theory behind road pricing in more detail, and consider their implications for road pricing in Auckland.
1. The Government – Simon Bridges
In the past few years I’ve been somewhat critical of the Minister, as evidenced by posts on Bridges’ bridges and subsidies for electric lemons. We’ve also criticized the ineffective mega-motorway projects this Government has promoted, such as the East-West Link and Auckland Waitemata Harbour Crossing.
On the other hand, I’ve really been impressed with Bridges’ comments on road pricing, which have been refreshingly candid, informed, and balanced. Here’s a selection of what Bridges has had to say about the ATAP report in general, and road pricing in particular (source):
In the short term, more roading and public transport may … be necessary,” Mr Bridges told the Herald. “But that alone isn’t enough. We can’t keep building new lanes on highways.
We will need a combination of demand-side interventions if we are going to deal with congestion over the next couple of decades.
When pressed on his Government’s tepid support for road pricing in the past, Bridges made the following comment:
Asked why the change of heart, Mr Bridges said: “It is the evidence. What’s been shown quite clearly here is that a combination of technology, including pricing, can dramatically lessen congestion on the network.”
In the same interview, Bridges noted that (1) road pricing was intended to manage demand, not raise revenue (even if the revenue could be used to accelerate some specific projects) and (2) road pricing would only be introduced over a period of 10 years, if further research found it to be effective. In these comments, Bridges demonstrated:
An awareness that supply-side transport interventions will not, on their own, be a cost-effective way to manage the growth in travel demands Auckland is experiencing;
A willingness to engage with complex issues, and to change his position if doing so is justified by evidence. This is something that is often hard for politicians to do, and I think is something to celebrate when such changes are based on new evidence coming to light;
An acceptance that if road pricing is implemented, then it should be to manage demand – not raise revenue. This is an approach the Blog has supported for many years.; and
An understanding that several years of research and discussion are necessary before road pricing can be implemented.
In short, I thought Bridges’ comments were candid, informed, and balanced. Bravo. The two issues he doesn’t appear to discuss in detail was (1) distributional impacts, although further research would seek to clarify the nature of these impacts and (2) the need for complementary transport investments to manage anticipated demands from road pricing. While there’s still room for improvement, it’s heartening to seem Bridges take a somewhat bold position on an important issue.
2. The Labour Party – Phil Twyford
Now for a different perspective. In response to the ATAP report, Labour Party MP Phil Twyford commented as follows (source):
The Government wants to tax Aucklanders thousands of dollars a year just to use the motorway network … the average Aucklander … would pay new congestion charges of between $185 and $2461 per year.
National has allowed the gridlock on Auckland roads to get steadily worse over the past eight years, leaving Aucklanders to sweat it out daily in traffic jams … Now they want to whack commuters with a massive tax for the privilege of using a road network that they’ve already paid for with their petrol taxes and road user charges.
I feel Twyford is being overly dramatic, and would like to clarify a few relevant issues from my perspective:
The last Labour Government also looked into road pricing; you can still find the reports here. While it ultimately didn’t go anywhere, ATAP is simply a continuation of a debate that started under Labour. In the intervening decade, technology has of course improved considerably.
In a revenue neutral situation, the revenue from road pricing would be used to reduce taxes elsewhere. Or increase welfare payments to low income households. Until we know the precise details of the scheme, we won’t know who wins/loses, or to what degree, so any statements to this effect are simply premature.
As the ATAP report shows, government spending on transport in Auckland has increased to approximately 2.5% of GDP. This is high by historical standards, and more than most OECD countries. In a nutshell? Both Labour and National have spent buttloads on transport in recent decades; the supply side has received plenty of attention.
Transport projects take time to design and construct. Most of the highway projects being completed now were planned under the last Labour Government, even if they have been accelerated under National. Thus, you cannot blame all of today’s problems on National; the transport system reflects decisions made over decades.
The road network is never “paid for”, at least not in the way that Twyford implies. Operating costs, the opportunity cost of land, capital improvements, and externalities, such as congestion, noise, and air pollution, are all examples of costs associated with roads that are incurred continuously over time.
On the other hand, it is true that this Government has spent billions on relatively ineffective road projects, such as Puhoi-Wellsford, SH18-SH1 connection, the East-West Link, and Kirkbridge Rd grade separation. These projects do little for congestion compared to their costs, and is something that Twyford is justified in criticising.
Twyford also had this to say:
Without a massive improvement to the public transport system as a viable alternative to driving on the motorways at peak hours, it would be utterly unfair to charge people thousands of dollars extra a year …
The first thing I want note is that it’s not immediately clear road pricing requires complementary public transport investment. The experience in London and Stockholm, for example, was that road pricing caused a ~20% reduction in vehicle travel but only a small shift to PT. In London’s case buses were the big beneficiary of less congested roads, as you can imagine. Personally, I’d expect road pricing would justify some selective investments in PT, but this shift should not be overplayed. The second thing to note is that the statement is duplicitous. Why? Well, the ATAP report considers how road pricing impacts on the demand for PT, and identifies where PT infrastructure and services may need to be improved. Put simply, the ATAP report does not present road pricing as a standalone solution, but instead considers it as part of a wider transport plan. As it should be.
Some of the issues with Twyford’s argument are highlighted in this Radio New Zealand interview, in which he moderates some of his positions under pressure by the interviewer. Twyford makes an excellent point with respect to the North-western Busway: It does seem to be a clear situation where road pricing might create the need for a project to be accelerated.
One other issue worth considering: In a recent press release, Twyford advocated for removing Auckland’s urban growth boundary and shifting costs on developers (NB: evidence suggests costs will ultimately be paid for by occupants, but that’s besides the point). ATAP shows that even with additional infrastructure investment, Auckland would still experience ongoing congestion. The latter might even worsen without an urban growth boundary. So while getting rid of regulations is well and good, it won’t mean congestion disappears. To put it another way, changing the way we fund transport infrastructure from rates to development taxes doesn’t mean that demand management is not beneficial.
Ultimately, I think Twyford needs to take a longer-term perspective on the issue of road pricing. Rather than trying to assail the Government to shut the conversation down, Twyford should be supporting the need for a 5-10 year investigation that gives serious attention to distributional impacts and complementary transport investments. I really don’t see any reason to get emotional before the details of possible schemes are worked through.
3. The Green Party – Julie-Anne Genter
In this interview Genter advances the Green Party’s position on ATAP’s road pricing proposal and also argues for more investment in public transport before road pricing can be implemented. As noted above, I suspect this issue tends to be over-played, simply because the benefits of road pricing don’t necessarily require huge mode shift, as Stockholm and London demonstrate. There’s also several other reasons to push back on the notion that road pricing is not a priority until public transport is improved.
The first reason is that investment in public transport won’t reduce congestion for those who continue to travel by car. In a city that is growing as fast as Auckland, even massive investment in public transport won’t maintain vehicle demands at present levels. By extension, even with significant public transport investment, there will be many, many vehicle trips that will continue to suffer from congestion. Commercial vehicles being a prime example: Why leave these vehicles sitting in congestion, when they are prepared to pay for faster and more reliable travel? One of the key benefits of road pricing is that it enables commercial vehicles to do their thang. And that generally benefits all of us.
The second issue is that, as noted above, ATAP does consider complementary transport investments to support road pricing. There is probably sufficient time between now and when road pricing is implemented to complete the CRL, extend electrified rail services to Pukekohe, progress extension of the Northern and AMETI busways, and construct key elements of the North-west busway. It may even be possible to implement LRT on Dominion Rd within 10 years. Auckland will within 10 years have a much better bus network with higher frequencies and capacity. Now, I appreciate completing all these projects would require a change in Government priorities, and that it’s important to highlight this need, but such things are kind of what the ATAP process is all about. Of course, if and when PT investments are rolled out, we may find that we can delay implementing road pricing, which is all well and good – but the opportunity to avoid road pricing through PT investment shouldn’t stop us (a priori) from discussing how we might implement road pricing.
Basically, I’m suggesting that the Greens should express conditional support for the idea of road pricing, subject to more detail on the nature and timing of its implementation. I don’t think saying “it’s not a priority we should do other things first” is a sufficiently strong reason to object to the recommendations of the ATAP report, at least at this stage.
All in all I am happy to see the road pricing debate reinvigorated. I’m particularly impressed with comments from Simon Bridges, which are candid, informed, and balanced. Twyford and Genter are justified in highlighting that (1) implementing road pricing will likely require some complementary transport investments and (2) this will likely require the Government place a greater emphasis on public transport than the have in the past.
On the other hand, the positions adopted by both Labour and the Greens come across as overly negative. While I can appreciate this is the general nature of political opposition in New Zealand, I feel that they might want to step back from the political coal face on this particular issue. Road pricing is not a discussion that needs to be rushed, nor should it be shut down. It seems to me that the more reasonable position is to express conditional support, with some specific caveats on where the ATAP research should head.
As something that will take several years to develop, we have the chance to discuss the nitty gritty of road pricing means in the Auckland context without committing to anything. Why fall into hard and fast negative positions before then?
I’m back to a mostly normal post-writing schedule, but mid-week reading will continue as an intermittent feature.
One of the most interesting things I’ve read recently was Jim Newton’s long interview with California Governor Jerry Brown (in UCLA Blueprint). Brown served two terms as governor in the 1970s and 80s, left politics for a while, and ultimately returned to serve another two terms as governor. In the 1970s, he was known as a prescient environmentalist (“Governor Moonbeam”); today, he’s had to address major long-term challenges, including a brush with fiscal meltdown in 2008-2012, responses to climate change, and a poorly functioning housing market. He also inspired the Dead Kennedys’ song California uber alles.
Blueprint: Environmental issues have been very important to you for a very long time. What first captured your attention about this area?
Jerry Brown: The idea that there is an environment that we’re a part of and can’t be separated from, and that this environment can be degraded, impaired and altered in a very negative way, more than aesthetically but actually having to do with the vitality of living things and the whole way living beings all function, that this could be affected by decisions.
That was a rather startling thought to me…. Before the notion of ecology and environment, there was the notion of resource conservation. That’s a very different idea. That’s a partial idea: Let’s protect the forest; let’s protect Yosemite.
BP: And a lot of that was conservation for future use, right?
JB: Conservation, yes, but not just conservation for future use — conservation as applying to a very particular and limited piece of land or river or mountain. The environment is a different concept. Ecology is an encompassing idea. “Eco” comes from the Greek word ekos, “house.”
BP: And climate change is potentially as devastating?
JB: Climate change is slower. The trouble with climate change is that you can pass tipping points, and down the road it is going to be enormously difficult and expensive to change with all the embedded infrastructure. Enormously difficult. Even though today it’s relatively trivial. To de-carbonize the economy, even though it’s massive and would take trillions of dollars, it could be done. But it would take a real mobilization….
And there’s an industry of denial, of manufactured skepticism, all for short-term gain, or because of an ideological fear of more regulation that will curb unfettered market behavior or individual consumption. So people don’t want to believe there’s an absolute out there called the environment, called the climate system. But we know there is. We didn’t make the sun shine today. It was raining for a couple days. We didn’t do that. So what made that? What made that is the whole atmospheric chemistry.
Now, can 7 or 9 billion people, can several billion cars and coal plants affect that? Most of the scientists say yes. And if they can, how are we going to un-affect it? See, that’s the simple-minded thing. Up until 1850 you never had more than a billion people. And what did they do? Run around in their little clothes and with a little bit of gunpowder here and there.
Now we have massive technology. The human impact is multiplied, is unimaginably greater. But the human capacity for wisdom has not improved an iota. So there’s the problem.
One of the reasons I keep a close eye on California is that it’s often at the forefront of change. And while that throws up occasional perversities, like Los Angeles’ car-based sprawl and congestion or the San Francisco housing market, it also tends to develop solutions to those problems.
Speaking of technology and solutions to long-standing problems, The Age transport reporter Adam Carey reports on a pilot programme for road pricing. Transurban, a major Australian toll-road operator, has been gathering data on the behavioural implications of road tolls. They recognise that existing funding sources – principally petrol taxes – will come under pressure as electric vehicles enter the fleet… and, furthermore, that this will offer opportunities to price to manage congestion:
Mr Clarke was one of 1200 motorists in Melbourne who had been recruited, and whose every move behind the wheel was being tracked in a bid to find the best model for a switch to user-pays roads.
The matchbox-sized device plugged beneath Mr Clarke’s steering wheel was a GPS-enabled geolocator, recording his journeys so Transurban could tally up a monthly road user charge.
The charge would be entirely fictional, for the purpose of exploring the best payment model for a system of user-pays roads.
Mr Clarke also had a virtual bank account – or “piggy bank”, as Transurban cutely coins it – with regular statements he could view online and three options for how they would like to pay to drive.
Pay $1 a trip, pay 10c a kilometre, or pay a flat rate each month.
Mr Clarke chose the third option, and was given a notional monthly balance of $92, which bought him the right to drive 926 kilometres. If he exceeded the cap, the charge would double from 10c a kilometre to 20c.
As it happens, Australia’s already got a funding problem – petrol taxes haven’t kept pace with roads spending:
Infrastructure Australia published a major audit of the condition of the nation’s transport networks last year and reached the same conclusion, that Australia is increasingly unable to pay for the infrastructure it needs.
“This deficit will, on a business-as-usual basis, continue to worsen as a growing population and economy increases demand for infrastructure networks,” the federal advisory authority found.
It also found the way roads are paid for is “unfair, unsustainable and inefficient”, because taxpayers pick up most of the bill, rather than the heaviest road users.
It is a time of transition, here and elsewhere. In Idealog magazine, architect Blair Johnston writes about “how higher density is Auckland’s destiny“… and how design must respond in order to enable that.
Every successful city has at some stage experienced this growth and a similar intensification process, including places like Melbourne and Sydney where the lifestyle values are much like our own. The advantage is that we can appropriate these international models – the trees of Brooklyn streets, the construction system of Amsterdam, the vibrant low-rise laneways of Tokyo, the density of Sydney’s Paddington – and adapt them to our local conditions.
The first Auckland-specific factor to consider is our climate, and our love affair with the outdoors. And that does make development in this part of the world somewhat distinctive. All buildings in Auckland require good orientation and cross ventilation; in short, ample natural light and the ability to open windows. It may sound obvious, but it’s surprising how often this is forgotten in building developments. Creating sustainable apartments should begin with a north-facing aspect and supply of fresh air from both sides of the building. No arguments.
Johnston goes on to identify four other ways in which design must be tailored to the Auckland context, in response to our desire for privacy in our private spaces; our need for usable public spaces; our demand for flexibility in our living spaces; and the affordability challenge.
The truth is that four- and five-storey buildings provide a comfortable threshold of density; we can use land more efficiently than cellular homes, while still creating great streets and vibrant public places. Extrapolated out, this makes for better environments and cities everyone wants to live in. In New Zealand, our personal living spaces are integral to our social construct – we entertain, relax, work and live in our homes. We need to ensure that the apartments we develop are appropriate to these living conditions, to our climate, to cultural expectations and to budgets.
Lastly, I highly recommend reading lawyer Andrew Geddis’ summary of Parliament’s 2014 election review (on Pundit). As local body elections are coming up, we must consider how our democratic processes work, and how they don’t. The election review is a good place to start.
The Committee started where recent Justice and Electoral Committee inquiry reports always start – lamenting the continued decline in voter participation. Sure, the 2014 turnout was up a small tick from 2011 … but at 72.1% of those eligible to enroll it still was the second lowest since universal suffrage was brought in in 1893. In particular, the voting rate of younger electors is dire – less than 65% of eligible 25-29 year-olds cast ballots (and for those on the Māori roll, the figure is even worse at just over 50%).
[Incidentally, if you want to understand why the policies offered and pursued by New Zealand’s political parties look the way they do, the graph of turnout-by-age-group on page 13 of the Committee’s report will take you a long way toward doing so … but that’s a topic for another post!]
The Committee was united in thinking this declining turnout, especially amongst younger voters, is a real problem. It mirrored previous Committee reports in saying so. So what to do about it?
Unfortunately, as Geddis notes, the Parliamentary committee didn’t reach any agreement on concrete actions to overcome the youth turnout problem:
…compulsory civics classes for the youth seems to be the only solution going. Because the majority of the Committee weren’t having a bar of any more radical proposals for combating the decline in voting, such as lowering voting age to 16 (“a major change to the electoral system, requiring broad public consultation and a high level of political consensus”) or making voting compulsory (“if such a move were contemplated, the public must be consulted and a high level of political consensus achieved before any such change is implemented”).
[…] Note also that the pilot test of online voting in this year’s local body elections has been canned, meaning we won’t have even a practice run at it until 2019 at earliest – and no full roll-out for local body elections before 2022. I suspect that MPs won’t be comfortable setting it loose on parliamentary elections until they’ve seen it working without a hitch at the local level … meaning that it could well be another decade before our smartphones or tablets or neural implants begin to replace pen and paper ballots at the local school hall.
That’s it for the week. Post any other articles of interest in the comments!
If you ask an economist about transport policy, it’s a certainty that they will mention congestion pricing at some point. It’s easy to see why. Currently, we manage our roads like a Soviet supermarket: access is rationed by queues rather than prices. As a result, we get inefficient outcomes.
The New Zealand transport system?
The theoretical and empirical case for congestion pricing is strong. In places where it has been implemented, such as London and Stockholm, it has increased vehicle speeds, improved accessibility, cut pollution, and improved safety. Not bad.
Because congestion pricing works, it tends to become quite popular once people can see the results. Although a majority of Londoners and Stockholmians opposed tolls at the outset, around 70% of residents in both cities now support them. But all of this raises a question: why haven’t more cities implemented congestion pricing?
I was thinking about this when reading a pair of articles that David Roberts (Vox) recently wrote about carbon taxes – and why they may not necessarily be the best policy for preventing climate change. Many of the points that he raises are also relevant to a discussion of congestion pricing.
In the first article, Roberts discusses the benefits of carbon taxes (efficiency) and the problems associated with applying them to complex markets. He argues that:
Believing a single tool will accomplish everything requires seeing the economy as a frictionless machine, a spreadsheet, not what it is: a path-dependent accretion of past decisions and sunk costs, to be tweaked and unwound.
As a result, it may make more sense to intervene more directly in specific markets – say, by regulating coal-fired power plants out of existence or subsidising alternatives. The equivalent in the transport space would be to manage congestion by cobbling together a raft of policies that look unrelated at first glance – e.g. transformative investments in rapid transit and cycling, bus lanes or high-occupancy-toll lanes on more roads, and higher parking prices.
In the second article, Roberts addresses a more challenging issue: politics and the art of the possible. He argues that carbon taxes are seldom effective in practice due to several factors that make implementing them and raising the tax to an effective level a risky proposition. These include concerns about distributional impacts, or the degree to which poor people will bear the impact, and low willingness to pay to avoid harms. Both of these factors seem potentially relevant to congestion pricing as well.
Roberts points out that many of the policy recommendations made for carbon taxes are economically sensible but respond poorly to political constraints. For example:
Many conventional economists, along with some of the few conservatives who take climate policy seriously, favor a “tax shift”: using the carbon tax revenue to reduce other taxes, preferably “distortionary” taxes like payroll or income.
The idea is that you double your impact: You get less of what you don’t want (carbon) and more of what you do want (work) — more efficient markets on both sides. Harvard economist Greg Mankiw is a big proponent of this perspective, as is Bob Inglis, one of the few conservatives actively working on climate change policy.
The main thing to note about tax-shift schemes is that they address few of the political barriers facing carbon pricing.
A carbon/income tax swap would be doubly regressive — raising a regressive tax to lower a progressive one. Reducing payroll taxes might have a net progressive effect, but it is very difficult to imagine the politics working.
In the past, I’ve taken a similar view on congestion charges. I’ve argued that we shouldn’t raise money from tolls. Rather, the revenues should be distributed back to households, and especially low-income households who might be most adversely affected.
But, Roberts suggests, offering to return the revenues will not necessarily make carbon taxes (or congestion pricing, I suspect) popular with the public. Instead, a more popular approach might be to tax something bad – e.g. carbon emissions or road congestion – and reinvest the revenues in something good, like renewable energy or better transport choice:
On the 2014 National Surveys on Energy and Environment, a carbon tax with no specified revenue use polled poorly. But things changed when different uses of the revenue were offered alongside the tax.
[A] different picture emerges when survey participants are asked about three possible uses of the tax revenue. If used to fund programs for renewable power like solar and wind, 60% back the tax overall, including 51% of Republicans, 54% of Independents and 70% of Democrats.
A smaller majority supports a tax if the revenue is returned to them via a rebate check. While 56% overall favor this idea, support ranges from 43% for Republicans to 52% for Independents and 65% for Democrats.
The third option — using the tax revenue to reduce the massive U.S. fiscal deficit — is not popular with any political group. It is opposed by the majority in each.
The same seems to hold true in the case of congestion pricing. In their excellent textbook on transport economics, Kenneth Small and Erik Verhoef cite surveys that find that people prefer toll revenues to be either reinvested in better road infrastructure or used to improve public transport.
This points to a paradox. The best way to get people to support such a scheme may in fact be to promise to put some tolls in place (albeit tolls that they can avoid by making different choices about how and when to travel) and then spend the revenues on giving them more transport choices.
Incidentally, I would stress the word choice in that sentence. There’s a reason why people want carbon tax revenue to be put towards renewable energy projects: it promises to give them options to avoid the tax altogether. In New Zealand, where 80% of electricity is generated from renewable sources, even a high carbon tax would have a small impact on households’ power bills. People in other countries would like to be in that same happy similar position.
The same is likely to be true for transport. If we implement congestion pricing, it might make sense to pair that with investments in public transport, walking, and cycling to allow more people to avoid the tolls. That will be more likely to lead to a win-win situation: People who value being able to drive on uncongested roads will get to pay a small price to do so, while everybody else will get to choose whether to pay the toll or travel differently.
What do you think about the politics of congestion pricing?
As I briefly mentioned last week, I think road pricing is a discussion that’s only going to increase in Auckland in the future. Len Brown has been talking about it for some time and Mayoral Candidate Phil Goff has already said he supports some form of road charging. We also know that road pricing is being considered as part of the ATAP process. With this post I wanted to look into it a bit more.
At a high level there are two main goals in the push behind road pricing. One is a desire to manage demand for roads thereby improving their efficiency, which can deliver a mix of benefits such as reducing congestion and potentially the need for expensive and increasingly contentious projects. In this situation the aim is to use road pricing tools to change individuals behaviour. The second main goal is a desire to use road pricing as tool to supplement fuel taxes and/or raise additional money which can then be fed back to spend on more transport projects. In this situation the aim is to collect as much money as cheaply as possible.
The ATAP process is looking at road pricing from a demand management point of view while the mayor’s Consensus Building Group and subsequent Long Term Plan discussion were examples of a revenue gathering focus. In the recent discussion the tool of choice for revenue gathering has been motorway tolling where people are charged for entering the motorway but there are other solutions too:
Cordon pricing charges people for driving past a certain point and Auckland with it’s natural and man-made boundaries is almost uniquely set up for that.
A slightly more advanced version and like what happens in London is an area charge whereby there is a cordon inside of which are a number of checkpoints to pick up trips made within the cordon.
Cordons can have significant boundary effects, in the example above those living in the inner suburbs, the ones who might have the most alternative options, pay nothing for driving within the area but those further out will pay for travelling over a line.
The area charging is a little fairer on the boundary effects due to the scattered checkpoints to pick up on inter-area travel but as we also know, congestion isn’t limited to the city centre and a central area charge won’t stop Manukau from clogging up.
One of the problems with all of these technologies is they can be very expensive to install with multiple sites needing to be set up and maintained to capture the details of all passing vehicles. As a result, collection costs are normally quite high. In the case of the Northern Gateway Toll Road collection costs usually eat up 25-30% of the toll collected and reports indicate similar levels would be expected in these situations. In addition to just how revenue is collected there is also the issue of just how much is charged. Flat tolls can still leave roads busy and congested at peak times.
The holy grail of road pricing these days appears to be to use GPS to deliver dynamic road pricing. With it, people can be charged for how far they travel, where they travel, when they travel and just how busy the roads they travel on are. If the roads you want to travel on are busy then it will cost you more to join in and travel at the same time.
Interestingly some places are already starting to look at using GPS based road pricing to better manage their road systems. Singapore has been at the forefront of road pricing and was one of the first cities to implement it. They currently use a network of around 80 gantries located around the city that record passing vehicles.
An ERP gantry in Singapore
Just over a month ago, Singapore announced it had awarded a tender to replace their current gantry set-up with a GPS based one in 2020. The new system will cost about NZ $600 million and the cost and difficulty of maintaining the current system was listed as one of the reasons for doing so.
This next-generation ERP system will allow for more flexibility in managing traffic congestion through distance-based road pricing, where motorists are charged according to the distance travelled on congested roads, which would be fairer to motorists. It will also be able to overcome the constraints of physical gantries, which are costly and take up land space. In addition, off-peak car users can look forward to new policies which LTA is considering, which may allow them to pay only for using their vehicles for short periods rather than the whole day, or for using them only on uncongested roads. A new On-Board Unit (OBU) will replace the existing In-Vehicle Unit (IU), which can also be used to deliver additional services to motorists. For example, LTA will be able to disseminate traffic advisories through the OBU. The OBU can also be used to pay for parking, checkpoint tolls, and usage of off-peak cars electronically.
In my view, if we’re going to go to the cost and trouble of implementing a road pricing solution – and on the surface at least there seems a valid case to do so – it seems we might a swell skip the gantry phase and move straight to a GPS solution
Another interesting recent system is OReGO in Oregon. While not time of use pricing, it does introduce distance based pricing using a small device that plugs in most relatively modern vehicles. The basic version only charges based on distance and rebates users for the amount of fuel taxes they would have paid however 3rd parties offer GPS tracking and other features. It wouldn’t be a stretch to have versions in the future which enable time of day pricing.
One of the challenges of road pricing is whether it’s only needed in Auckland of if the solution is something that needs to be rolled out to the entire country. OReGO also gives an idea as to how GPS based road pricing could be implemented in NZ – this is also based on a post by Stu back in 2011.
People can get approved GPS tracking devices from AT/NZTA or third parties to install in their cars. These devices record time/distance/location, for which users pay differential rates.
Users that sign up to the time-of-use pricing scheme would then be exempt from fuel taxes (there would need to be some verification and/or refund process).
People who did not want to participate in the scheme would remain with the current system. So fuel taxes would operate alongside the GPS scheme but prices would be adjusted over time to encourage the use of GPS tracking.
A voluntary system might not have the immediate impacts on congestion as turning on motorway tolls but ultimately it’s an approach that be required to get public buy in.
What are your thoughts on road pricing and would you sign up it (for those times you’re not on PT or walking/cycling).
Starting this week I’m trying out a new feature: a midweek post rounding up some new articles on transport and urbanism. (Time for writing more substantive posts has been a bit tight lately.) The themes will be familiar to regular readers.
Let’s start with congestion pricing – a perennial topic of fascination for economists. Congestion pricing is mainly seen as a policy to improve the efficiency of road networks by “pricing in” the cost of delay that motorists impose on each other. But, based on London’s experience with a cordon charge, it may also improve road safety for all users. Charles Komanoff at Streetsblog NYC reports on some new data:
Evidence keeps mounting that congestion pricing can catalyze major reductions in traffic crashes. A year ago I reported on research that vehicle crashes in central London fell as much as 40 percent since the 2003 startup of London’s congestion charge. The same researchers are now expressing the safety dividend in terms of falling per-mile crash rates, and the figures are even more impressive.
The researchers — economists associated with the Management School at Lancaster University in northern England — compared crashes within and near the London charging zone against 20 other U.K. cities, before and after 2003. Their conclusion: Since the onset of congestion charging, crashes in central London fell at a faster rate than the decrease in traffic volumes. As important as the reduction in traffic has been for safety, at least as much improvement is due to the lower crash frequency per mile driven.
In short, driving in the London charging zone isn’t just smoother and more predictable, it’s safer. And safer for cyclists as well as drivers, with the number of people on bikes expanding considerably as car volumes have fallen.
And on that note, a reminder that the best way to improve the safety of cycling is to increase the number of cyclists on the road (or better yet, cycleway):
But that’s the big smoke. It couldn’t happen here, in small, rural New Zealand, could it?
Maybe not. “Town Proper”, an urban design and transport blog, points out that we often get it wrong when thinking about the rural-urban balance in our society. (Riffing off a post I wrote a while back.) We tend to “mistake want as demand“:
Purportedly New Zealanders value open space, ball games and big houses. That does not hold up to our litmus test though. As reported above, most of New Zealanders have chosen to forgo big houses, large and open (private) spaces in exchange for the vitality of a denser area.
It is not like there is a critical shortage of open land in New Zealand – you can easily buy a dozen or so hectares with a big house for below Auckland’s average house price. Rather, people do not want to live there.
When you have multiple wants, you must make a choice as to the prioritization of your wants. It seems that while New Zealanders might want the rural lifestyle they have decided to choose the urban lifestyle over it. This is where so many commentators make a mistake, they confuse wants for demand. Demand is when you not only have the want for something, but also the ability (and the willingness to expend that ability) to obtain it.
There is little demand to live in rural areas (only 20% of Kiwis live in rural areas, and most of them in “rural centers”), why? I propose that generally Kiwis value the advantages of an urban area above the disadvantages.
Indeed. When planning cities, it’s important to take into account people’s needs and the real choices that they face, not just a hypothetical idealised notion of how people should live.
Which brings us to California. The land of technological disruption is steadfastly refusing to allow its housing market to change. And so demand for urban space – particularly the dense, connected urban space of San Francisco – is colliding with scarcity. TechCrunch’s Kim-Mai Cutler puts the issue in historical perspective: “A Long Game“:
I believe we’re hitting another major juncture, although I don’t know when it will deteriorate to the point that it forces real reform. California’s fragmented, post-war suburban model, which was created for a more even wage distribution in a mass industrial economy, is clearly becoming more dysfunctional by the year for a knowledge-and-services economy with a wider level of income stratification.
Not only are we not building enough housing overall, we have scarce sources of funding for supporting those on the lower-earning ends of a rapidly widening income spectrum. So we end up politicizing and extracting funds out of new construction even though we are 40 years deep into a largely self-imposed housing shortage.
There are a couple of disturbing trends showing up in the data. If you look across the state’s workforce, Californians born in 1990 are on average spending 50 percent of their income on housing. That’s way above the 30-percent-of-income level that is generally considered to be the threshold of whether housing is affordable or not in public policy conversations.
This is troubling because commute time is one of the strongest predictive factors in determining a child’s chances of climbing from the lowest income quintile to the highest-earning one. That morning and evening time between parents and children that is taken up by commuting is invaluable for bonding and child development.
The data on the length of commutes is incredibly important. As I found when I looked at Auckland’s commuting patterns, lower-income households can access lower rents by living further out, but the gains tend to be erased by added commuting costs. If there are also additional social costs from long commutes, it reinforces the importance of giving people the option to live closer in.
The following map shows existing street trees in Frankton Central. Viewed in terms of ecological function, Frankton Central’s street trees represent an incomplete system with gaps. Although the mapping of street trees points towards a substantial number of trees in the Frankton, these have only limited impact on the experience of green in the wider area.
There are a number of streets with sporadic tree canopies as seen in the map above. The green network created by street trees varies widely in quality. Both ends of Commerce St have thriving street tree corridors that give those areas a distinct character. The interesting trees contribute an artistic flair to the retail part of Commerce St.
There are new plantings throughout the town, particularly in south-eastern streets, but the ecological, architectural, and urban quality benefits of these trees are not yet evident. The current town green network has gaps and there are sections of the Frankton that do not have any real trees.
It would be interesting to see some similar maps for different parts of Auckland. I wonder if Auckland Transport maintains a database of street trees in its road reserves?
Two weeks ago John Key confirmed that the government would cover half of the costs of the City Rail Link and allow for main works to start in 2018. Immediately questions began about how the Auckland Council would cover its share of the expected $2.5 billion cost. Equally quickly Mayor Len Brown was once again raising the issue of road tolling, suggesting it was needed to pay for it.
The government confirmed yesterday it would pay about half the cost of the project, allowing work on part of the project involving a tunnelling machine to begin earlier in 2018.
Mayor Len Brown believes he has the backing of most Aucklanders to introduce higher road taxes and impose tolls to pay for the city’s half of the bill.
But Mr Brown told Morning Report road tolls were part of a range of transport funding options, and in the long term could not be overlooked.
“We know that we don’t have enough money through rates and borrowings, even if we sold things like the airport shares or the port shares, it’s still not enough.
“It is a critical issue with the growth of the city with the transport investment needs that we have and the City Rail Link in the end, with the $65 billion we’ve got to spend over the next 30 years, is only a small part of it.”
Mr Brown said he could not see any other way of raising extra revenue than with a motorway toll.
Quite why Len is suddenly raising the issue of road tolls again is odd for a few reasons.
Long Term Plan
Last year the council spent a lot of effort discussing the Long Term Plan – the 10-year budget. As part of that process they presented Aucklanders with a binary choice of either a programme of works that would build:
a basic version funded out of rate rises of 3.5% but that built very little over the coming decades.
almost every transport project ever dreamed up requiring lots of additional funding and still saw congestion predicted to get worse than it is today. To pay for the up to $12 billion extra that would be needed the council proposed either:
road pricing on motorways
a combination of additional rates increases and regional fuel taxes
The important thing though is that both versions of the transport plan included the funding for the City Rail Link. That means the project was never subject to the alternative funding options like Len is suggesting now.
To realise either of funding options for the Auckland Plan option it would have required government approval and that didn’t happen. So instead the council ended up implementing a three-year interim transport levy of $99 for households and $159 for businesses with the money from it earmarked primarily for PT, walking and cycling projects. There is absolutely no reason why the transport levy couldn’t be continued in to the future which is enough to effectively fund a sensible middle option of something between the two original LTP transport plans.
Just coming back to the CRL, the council’s own LTP documents show the project already has funding budgeted for it over the next decade. It includes the expected contribution from the government – which the council correctly assumed would be on board by then.
click to enlarge
As you know the Auckland Transport Alignment Project (ATAP) is currently going on and is reviewing options and timings for future transport projects in Auckland (the CRL and East-West link sat outside of this). In the Terms of Reference it specifically mentions road pricing, saying they will consider (I’ve underlined the important part)
all land transport interventions, including roads, rail, public transport, personal mobility services, walking, cycling, technology, network optimisation and demand management (including pricing for demand management purposes)
In other words, as part of the process they’re looking at what impact road pricing could have but not as a revenue gathering tool like Len wants but as a demand management one. The distinction between the two are important and would likely lead to quite different looking systems. As the name implies a demand management tool is really about trying to optimise the use of transport networks we have by using road pricing to keep roads from becoming congested. We’ve long suggested that if implemented it should be introduced in a revenue neutral way, lowering rates by the amount raised from the road pricing. In our view doing it this way would separate a potentially very useful tool from the more politically fraught issue of raising more money as by tying the two together it’s more likely neither will happen.
Perhaps the biggest benefit of road pricing is that it changes the question from how much traffic do we need to accommodate to how much do we want to accommodate. With it, it will almost certainly change the priority of many projects and it would kill off many projects altogether. For example, spending billions to widen or duplicate a motorway because an (unreliable) traffic model says vehicle volumes will increase in the future likely becomes a thing of the past. Every silly project that is no longer needed means a less extra funding that needs to be raised, easing pressure on Aucklanders and the government.
Of course to really implement road pricing we really need a much more complete range of good quality alternative options but if we know we’re going to do it in the future it should allow us to prioritise what is needed before that happens.
In conclusion, the council’s plans have the CRL clearly in the budget even if we had stuck with the no additional funding option. As such it seems that Len was perhaps trying to reignite the debate about road tolls from last year in a bit to push once again for a more build everything approach. But given the ATAP process is well under-way it seems the best option right now is to wait and see what comes from that. The only other option for why he would suggest it is perhaps to keep the idea in the government’s head so they know the issue hasn’t gone away.
Back in June, Stuff published a report on regional airfares, focusing on the way that prices are affected by major events such as concerts and sports competitions. Now, I’m no airline economist, but I’ve got a general interest in transport pricing so I figured that it would be worth taking a look at the topic.
The point of the article seems to be that airplane tickets are higher during periods of high demand. That doesn’t seem too weird, but this guy in Nelson is absolutely ropeable at the thought:
Nelson man Steffan Eden is furious about Air NZ’s fares from Nelson to Auckland and return for the weekend of March 5 and 6 when Madonna will give her first New Zealand concert at the Vector Arena.
Fares that the previous weekend cost $79 are twice that at $159 on the weekend of the concert, an $89 fare rises to $169; and a $129 fare becomes $209…
“Look at the fares the weekends before and after the concert, they’re normal fares. Then on the concert weekend they’re virtually double. It’s quite blatant.”
Eden said the same thing happened when he wanted to go to the Cricket World Cup match between New Zealand and England on February 20. “I wanted to take my kids but didn’t in the end because of the cost,” he said.
The man quoted in the article seems to argue that these jumps up in fares are due to uncompetitive or discriminatory practices by Air NZ. By contrast, the airline says that the price increases are just due to cheaper tickets selling out faster:
An Air New Zealand statement said it has been experiencing high demand for flights into and out of Nelson that weekend due to both the New Zealand Masters Hockey Tournament which is being held in Nelson from February 28 to March 5 and the Madonna concert in Auckland.
“As you will appreciate, where there are major events on flights tend to sell out well in advance, with the cheaper fares selling out the fastest, so booking as early as possible is recommended.”
Now, as an economist I’m always wary of the potential for companies with few immediate competitors to exercise market power over their customers. But in this particular case, I don’t think that’s happening. What we are seeing is the normal, and in fact beneficial, working of supply and demand.
Let’s start with the supply side. Air NZ doesn’t have an infinite budget for airplanes and staff. It faces constraints. If it wanted to run more services between Nelson and Auckland on particular weekends of high demand, it would have to either:
Pull airplanes off other regional routes, which would potentially satisfy Nelson’s demand but would in turn lead to similar stories about how unfair Air NZ was being to Napier or Timaru or what-have-you, or
Buy extra airplanes and hire extra staff that would sit idle most of the time and fly only during a few periods of exceptionally high demand. This is superficially appealing, but it would mean an across-the-board increase in fares to pay for a bunch of empty planes.
This isn’t really related, but it’s an interesting picture (Source)
So that’s the supply side. What about demand?
Air NZ has observed, correctly, that demand for flights is not constant over time. Simply put, more people want to fly at some time periods than during others. Airlines can respond to this in a few different ways. The first would be to keep prices constant, regardless of demand. This would turn air travel into a first-come-first served game, which is great if you always buy tickets months in advance but terrible if you have to take a last-minute trip for work or a medical emergency.
The second approach, which Air NZ may be using, is to charge higher prices during periods of higher demand. This may seem less fair, but it’s actually better for (almost) everyone. It means that airlines aren’t constantly booking out flights well in advance or misallocating resources in a futile attempt to give everyone a cheap flight. Travellers also benefit – they get a choice between paying more to travel at their preferred time or finding a cheaper fare at an off-peak time.
I fly for work on a semi-regular basis so I’ve noticed some of the patterns over time. Between 4-6pm, departure gates fill up with suit-wearing men and women headed home from their meetings in time for dinner. Not surprisingly, prices are highest at this time. Later on, prices drop, planes get a bit emptier, and the suits get replaced with casual clothes. By the end of the night, most of the people who want to get home have gotten there, and for a price that they’re willing to pay.
Occasionally, this means that somebody decides not to go to a Madonna concert. But that’s not a flaw with supply and demand – that’s how it’s supposed to work! If the man quoted in the Stuff article didn’t go, it’s only because someone who valued being there more bought the ticket instead.
Finally, I have to ask: Why are people outraged when the principles of supply and demand are applied to airfares? Perhaps it’s because we routinely ignore those principles everywhere else in our transport system.
As numerous economists have observed, we manage our roads like a Soviet supermarket. The price to use roads is set at a single, low value – i.e. NZ’s comparatively low petrol taxes – and thus people queue up for ages to drive on them every morning and evening. The same thing happens with parking, where we have regulated to make it abundant and free and ended up in a situation where people can never get enough parking.
In economic terms, there is no difference between this:
They are both situations in which scarce resources, including people’s time, are misallocated due to poorly-functioning price signals. So rather than asking “why don’t we price air travel as inefficiently as roads?”, we should ask “why don’t we price roads as efficiently as we price airfares?”
A failure to price roads efficiently badly distorts our supply decisions. We are forever pouring more asphalt and concrete that accommodates a few more slowly-moving cars at peak times and sits idle much of the rest of the time. By contrast, congestion pricing would allow us to avoid many of these expenditures by giving people an incentive to travel differently.
What do you think about airfares – and transport pricing in general?