What are the preconditions for congestion pricing in Auckland?

The inclusion of congestion pricing in the recent Auckland Transport Alignment Project interim report has (helpfully) reignited the public debate on the topic. Transportblog’s authors have been pretty enthusiastic about the idea – see e.g. Stu Donovan’s posts on the topic.

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.

1. We don’t need to do anything else.

Some people argue that congestion pricing will work without any further changes to transport infrastructure or services. Stu, for example, put forward this case the other week.

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.

The first reason seems to have at least some evidence supporting it, but the second evinces an insane disregard for basic economics (induced demand), financial realities, and the laws of geometry.

Leave your views in the comments, or answer the following poll:

What are the preconditions for congestion pricing in Auckland?

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The alternative route

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.

ATAP - Interim Report - Manage Demand

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.

The NZ Herald’s editorial on the topic was tentatively supportive and showed a reasonable understanding of the core principles of congestion pricing:

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.

The Herald’s position is basically in line with NZTA’s existing tolling policy, which states that:

…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:

ATAP - Interim Report - Road Pricing Differences

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.

Lane Capacities

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?

Congestion prices, carbon taxes, and the art of the possible

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.

USA Today describes the results:

[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?

NZTA on motorways solving congestion

Last week the NZTA posted this video on their YouTube channel as part of a series talking about motorway works in Christchurch.

Not sure I could have said it better myself.

What’s causing Upper Harbour Dr congestion

Last week the Upper Harbour Local Board passed a resolution (below) to try and get Auckland Transport to rip out recently installed cycle lanes near the intersection of Upper Harbour Dr (UHD) and Albany Highway. It’s a section of road that I am very familiar with as I use it regularly when I ride to work.

That the Upper Harbour Local Board:

request that Auckland Transport urgently revert to the board with an interim solution regarding the potential to reinstate the second vehicle lane near the intersection between Upper Harbour Drive and Albany Highway, by evaluating options including a shared cycle path and walkway.

The cycle lanes along UHD were installed last year and I’ve previously written about how AT removed the existing broken yellow lines (BYLs) when installing the cycle lanes resulting in locals parking in the cycle lanes. This issue wasn’t unique to UHD but something good came from it with AT agreeing to change their policy and mark BYLs on all cycle lanes.

So what’s the problem this time?

This year UHD has been noticeably more congested this year than it has in the past. On the worst day I’ve seen the slow moving queue was over 2km long* although that’s an extreme – I’ve definitely been thankful to have been on my bike and not caught up in that.

Upper Harbour Drive Congested 3

Drivers and residents have been complaining to the local board about the congestion and all have taken a correlation equals causation position on the matter. In their view the problems all stem from the creation of the cycle lanes. You can see the old layout on the Google Maps image below where for about 200m prior to the intersection there were two lanes, one for each direction.

Upper Harbour Drive old layout

And here’s what it looks like now from Streetview. The cycleway extends to the intersection. You can still see the old lane markings.

Upper Harbour Drive new layout - streetview

Here’s what the local board chair told our friends at Bike Auckland:

Since the upgrade we have had too many complaints to count and have asked the residents for patience. We met with representatives several months ago, but the issue has only worsened. The peak time queue is at pre motorway levels.

The issue is the merge to one lane meaning cars wanting to make a free left onto Albany Highway have to wait. The police have been involved due to driver behaviour with people reported driving up the berm along the footpath etc. it is unsafe. There are corresponding issues on Albany highway with cars driving straight ahead in the right turn lane to jump the queue but that has nothing to do with the cycle lanes – it is the function of the junction as a whole.

It is noted that since the road changes there is significant additional traffic using it from the several hundred new homes in Hobsonville, Whenuapai and beyond. We have substantial delays on all of our arterial roads but this one has been exacerbated by the on road cycle lane.

What we are investigating is whether we can relocate the cycle lane on to the footpath and reinstate the free left. We do not wish to remove the cycle lane. Neither the footpath nor cycle lane is busy at peak times with commuter traffic but is well used at weekends by recreational cyclists. Over time with the many hundreds more homes planned in the surrounding area the delays will get longer and we will need to look at bus priority measures.

I don’t think it is car vs cyclist in this case but getting the most out of what we have with a population growing almost daily.

Even the local Community Constable is blaming the cycle lanes and pushing for the cycle lane to be removed or able to be used by cars.

Below are some observations I’ve made from travelling through here:

  • Northbound towards the commercial area (over 15k jobs) north/east of Albany Highway is frequently more congested than southbound traffic. In the few times I’ve driven to work I’ve also noticed the left turn off the motorway is normally much more backed up than the right turn.
  • I’ve frequently observed cars simply ignore the cycle lane and try and use it as an extra vehicle lane- ultimately they end up blocking the cycle lane.
  • The footpath is too narrow to be a shared path and widening it wouldn’t be cheap and would lead to poorer outcomes for those on bikes or walking (not many). For one it would likely increase the risk for those like myself who are turning right as we would have to cross the slip lane reach the right turn lane.
  • Returning the road to a three lane configuration would also likely require the removal of the westbound cycle lane.
  • If it’s new development which is causing the issue, then any change is only likely to have short term benefits at best before it’s all congested again.

By now you might be asking, “but didn’t we just build a parallel motorway, why aren’t people using that?” The image below is from Tauhinu Rd which crosses over SH18 at the southern end of UHD. Like UHD it only seems to have become so congested this year.

SH18 Congested - Tauhinu Rd

This changes the question to “why are both of these routes suddenly seem so much more congested than they were last year?”

The answer to that is actually quite simple, and is one of the oldest reasons in the book – roadworks. For some time now Auckland Transport have been working on Albany Highway and since about the middle of last year that work has focused on the southern section which is the one that most affects traffic to and from the commercial area. Those road works are due to finish later this year. That needs to be completed before any assessment is even considered.

It’s also worth pointing out that traffic isn’t always bad. This was taken last week at the same time and day of the week as the first photos. It was also taken the same day as the image above. The road was empty all the way to the intersection. Perhaps the congestion on UHD was being exacerbated by people trying to use UHD as a rat run to avoid the motorway?

Upper Harbour Drive Uncongested

I’ll obviously be watching closely to see how Auckland Transport respond to this request from the local board. It seems to me a case of correlation does not equal causation and if it is decided that the only way to get bike infrastructure is only if it never impacts drivers then it will be a very much longer and more expensive to make any meaningful progress.


* the 2km long queue appeared to be the result of the drivers rubbernecking at the police stopping drivers who travelled through the intersection illegally.

TomTom congestion report (repost)

This is a repost from 2013 in the issues with the TomTom congestion report of which the latest version has been released today.

TomTom have once again released their meaningless congestion index.

TomTom has announced the results of the TomTom Traffic Index 2013, revealing New Zealanders waste up to 93 hours a year stuck in traffic and that Wellingtonian’s experienced the worst traffic delays during peak hours, spending up to an extra 41 minutes in an hour commute. The Index also revealed that traffic congestion on non-highways is worse than main roads.

The regional results of the Index covers 9 major cities across Australia & New Zealand, with Sydney listed as the most congested city in the region, followed by Auckland and Wellington.

  1. Sydney 34%
  2. Auckland 29%
  3. Wellington 28%
  4. Melbourne 27%
  5. Perth 27%
  6. Christchurch 26%
  7. Adelaide 25%
  8. Brisbane 23%
  9. Canberra 17%

According to the TomTom Traffic Index, Friday morning is the least congested time to commute in New Zealand. The most congested commute was found to be Tuesday morning, and Thursday evening.

There were no cities from our region featured in the top 10 most congested global cities. Auckland, Wellington and Christchurch ranked 22nd, 25th and 42nd respectively in the world’s most congested cities list.

The ranking by overall congestion level in 2013 were:

  1. Moscow 74%
  2. Istanbul 62%
  3. Rio de Janeiro 55%
  4. Mexico City 54%
  5. São Paulo 46%
  6. Palermo 39%
  7. Warsaw 39%
  8. Rome 37%
  9. Los Angeles 36%
  10. Dublin 35%

“The TomTom Traffic Index gives us a great insight into the state of our traffic network. By providing an accurate analysis of traffic flow and guiding traffic away from congested areas, TomTom plays a key role in helping to ease congestion, improving the traffic flow for the cities,” said Phil Allen, TomTom Maps and Traffic Licensing, SE Asia and Oceania.

Here’s Auckland

TomTom Auckland 2014

It’s meaningless for a number of reasons including:

1. It measures the difference in speed between free flow and congested periods. That means cities with lots of all day congestion there isn’t as much of a difference between peak and off peak times and therefore they get recorded as having less congestion.

2. It doesn’t take into account the speeds at which roads most efficiently move traffic – which is not in free flow conditions. This is something picked up on in research conducted for the NZTA by Ian Wallis and Associates

Various definitions of congestion were reviewed and it was found that the concept of congestion is surprisingly ill-defined. A definition commonly used by economists treats all interactions between vehicles as congestion, while a common engineering definition is based on levels of service and recognises congestion only when the road is operating near or in excess of capacity. A definition of congestion based on the road capacity (ie the maximum sustainable flow) was adopted. The costs of congestion on this basis are derived from the difference between the observed travel times and estimated travel times when the road is operating at capacity.

The graph below shows the engineering definition mentioned above.


3. It doesn’t represent all trips on the transport network. We know that even though only about 10% of all trips to work (which excludes trips for education) are made via PT, it still represents a lot of people. For trips to the City Centre more than half of the people arrive by means other than a private vehicle and many of the PT users arrive via the train, ferry or a bus that has travelled along bus lanes. The people on those services or walking/cycling are doing so often completely free of congestion and so their experience isn’t counted.

4. The data only comes from people with a TomTom device and who have obviously had it on. Many people making the same trip on a daily basis or running a regular errand like going to a supermarket are likely to simply leave their GPS systems off. That is likely to distort the overall figures as they may use routes that have less congestion on them than the route the GPS would select.

5. It can disproportionately impact on smaller cities. As an example if you’re in a larger city and have a 45 minute commute however congestion delays you by 30 minutes that equates to a 67% congestion rate however if you are in a smaller city and you’re commute is only 15 minutes and you get delayed by 15 minutes that’s a 100% delay despite the hold up being half of what the bigger city experienced.

It’s starting to get a bit old now however there’s a good piece on the issues with the methodology in this piece from Reuters, some of which is covered above.

Lastly in the email I received about it they also mentioned this

Of the 138 countries surveyed for the Traffic Index, a global average congestion rate of 26% was recorded, placing New Zealand above the average with a rate of 28%. To put things in perspective, Wellington and Auckland even beat out New York City (39th) in the global rankings, a thriving metropolis of 8.4 million.

So we have worse congestion than New York, a city where the majority get around by methods other than a car and who in recent years has been reclaiming road space for pedestrians, cyclists and buses. Perhaps we should do more of that.

Lastly if we really want to move people around then then the Congestion Free Network would allow people to do that completely free of congestion giving some real choice.

CFN 2030A

Building a better city: Policies and perspectives (part 1 of 2)

This is the first half of a two-part series of posts. It summarises a few ideas that have been banging around the back of my head for a while – basically, an attempt to answer the question: “What can economics do for cities?” In this part, I discuss a couple of important concepts: agglomeration economies, which underpin cities’ existence and ongoing success, and the potential role of pricing mechanisms for managing urban ills.

What do cities do?

Cities mean different things to different people. They are places to work, places to play, places to invest, places to consume, places to conduct politics, places to realise one’s individuality, places to blend into the crowd. (And many, many more things beside.)

In fact, one of the features of a successful city is that it can mean different things to different people, and attract and retain them for different reasons. Cities exist because they are efficient and diverse.

Economists use the term agglomeration economies to describe the advantages of urban scale and density. If you operate a business, locating in a city will allow you to access more workers, more customers, and more new ideas. But even if not, an urban location still offers advantages – more restaurants and retailers, a larger dating pool, better access to education and healthcare, and more choices about how to work, live, and get around.

New research from the Netherlands finds that agglomeration economies in both production and consumption are important, albeit to a different extent in different cities. Furthermore, ignoring agglomeration economies is a risky proposition for cities:

As history has shown (see, for example, what happened to Detroit or the decline in the population of Amsterdam and Rotterdam referred to above), current successes provide no guarantees for the future. This is what Gibrat’s law tells us, growth is independent of current size. Future growth is therefore largely independent of past success. The chances for policymakers that try to row against the tide are small. A successful policy requires to ‘go with the flow’. Large investments in infrastructure in a declining city do not satisfy any real demand but lead to large financial burdens for the local population, making these cities even less attractive. However, policy can make a difference in growing cities. In order to remain on the short list of hot spots, policymakers in these cities have two margins to work on.

  • First, the city has to be attractive for innovative entrepreneurs and enterprises to locate their business.
  • Second, the city has to be an attractive choice for high-educated top talent as a place to live in.

In other words, urban success is a dynamic process. Cities can’t stand still – they must be capable of attracting new people and generating new ideas and opportunities. Simply identifying some things that people like about a city and then freezing them in amber is a recipe for long-term urban failure.

1. Incentives and prices matter, so it’s important to get them right

We need change, but we don’t necessarily need change at all cost. Most development is good, but some has deleterious side-effects. A new factory may contaminate local air and water quality. A coal-fired power plant will damage our climate. A new subdivision may pump traffic onto congested roads. A new retailer may attract more people to park on already-crowded streets.

Policy responses to these challenges can heavy-handed and inefficient. While negative (and positive!) spillovers are abundant in cities, some cures may be worse than the disease. A good example is minimum parking requirements, or MPRs, which require new developments to provide a defined minimum amount of parking. The aim of this policy is to prevent parking from spilling over onto neighbouring streets and properties.

Unfortunately, MPRs tend to be both inefficient and ineffective. They are inefficient because (a) there is usually poor evidence for choosing minimum ratios, meaning that many businesses and households are compelled to purchase more parking than they need and (b) they tend to be more costly than alternative approaches to parking management. Furthermore, they are often ineffective, as people continue to complain about a lack of parking even in places where MPRs have led to a major oversupply.

Better pricing is often a better alternative to blunt policy instruments. As any economist will tell you, if you want less of something, put up the price! This approach is applicable to a wide range of policy areas, especially in cities. For example:

There are several important advantages to using prices, rather than regulations or construction, to discourage negative spillovers. First, pricing respects people’s ability to make good choices. If we had a carbon tax, it wouldn’t prevent someone from burning petrol or farming cows. But it would make them pay the full social cost of those choices.

Second, prices can change in response to new information. AT’s new parking policy is a good example of this – they will monitor demand for on-street parking and tweak the prices up if occupancy is too high. This reduces the risk of screwing things up due to forecasting errors.

Third, and most importantly, prices provide governments, businesses, and households better information, which can enable them to make better decisions. Over time, this will result in significant dynamic efficiencies. For example, congestion pricing will help transport agencies plan infrastructure upgrades. Rather than having to guess whether people will value expanded roads – which frequently leads to errors – they will be able to measure the actual value that people place on travel.

Tomorrow: Part 2.

Now that’s a traffic jam

Think Auckland has a congestion problem, take a look at these images from China a few days ago on the Beijing-Hong Kong-Macao Expressway. It’s the result of people heading home at the end of a week long national holiday.

China Congestion

China Congestion 2

The bottleneck kind of reminds me of this image from Sydney – and which is equally appropriate for another road based harbour crossing



Transport CBA, housing supply, and the spatial equilibrium

In comments to a recent post I wrote reviewing recommendations from the Australian Productivity Commission’s review of public infrastructure investment, reader Brendon Harre raised an important question about transport cost-benefit analysis (CBA). He commented that:

“the benefits of providing a grid of urban transport options (without mode bias) in advance of development in order to keep land, commercial and residential property affordable is not measured”

This is an important issue that’s worth careful consideration. As a best guess, I think that Brendon’s point isn’t quite true. In a roundabout way, transport CBA does capture benefits associated with enabling development. However, the modelling tools available might over- or under-estimate the magnitude of those benefits in some cases.

Let’s start by reviewing how transport CBA works in New Zealand. Here are the key steps:

  1. A transport agency or council comes up with a land use forecast – i.e. a rough idea of where people are going to live and work in the future.
  2. The transport agency then identifies two (or more) futures scenarios for the transport network in the area. For example, they may consider one scenario in which no new roads were built, and one in which a new highway is built at the edge of town.
  3. The agency then models the transport network under the fixed land use forecast and multiple transport network scenarios.
  4. Based on the modelling, it then calculates how travel times (and vehicle operating costs, emissions, etc) differ between the scenario. It sums up the reductions in travel times (etc), multiplies them by the average value of time, and then uses the resulting dollar value as the numerator in a benefit-cost ratio (BCR).

This procedure obviously bears little relationship to what we observe in practice. In reality, there is significant endogeneity between the availability of infrastructure and land use outcomes. In other words, if you build it, they will come, and vice versa. You can’t assume that land use will remain fixed if transport options change!

Another way of saying this is that rather than “banking” travel time savings from wider or faster roads, people tend to “re-invest” them into other things, such as living in a larger or cheaper house in a different location. (Or re-scheduling trips from off-peak times, shifting modes from PT, walking or cycling, etc.) Public transport is different, as it doesn’t get congested, but the principle is somewhat the same – speeding up journeys allows people to travel more.

Economists call this phenomenon “induced traffic”. I’ve previously discussed this phenomenon from a slightly different angle, focusing on the implications of induced traffic for how we manage and invest in road networks. I’ve argued that we should stop telling ourselves the lie that increased road capacity will ever “fix” congestion and accept that all we can do is give people alternatives to participating in congestion and implement congestion pricing to free up the roads.

However, I think it’s also worth considering what induced traffic means from a housing supply perspective. It’s useful to start by thinking about how individuals might respond to the opportunities created by new transport infrastructure. Let’s use the City Rail Link as an example, as we’ve got a good idea of what it will do for travel times:


Suppose I’m currently living in Morningside (I’m not, but it’s a simpler example) and facing the following costs for transport and housing:

  • Rent of $250 a week, assuming I’m flatting
  • Public transport fares of $30 a week, as a single journey to Britomart costs $3 with a HOP card
  • Travel time costs of around $130 per week, assuming that I value my commute time at around $20 per hour. It currently takes around 40 minutes to travel from Morningside to midtown by train, including the walk at the end.

Now let’s consider what will happen when CRL is done. My travel time will be cut dramatically – after CRL, it will only take 15 minutes to commute from Morningside. This is a big saving in travel time. Under these assumptions, CRL will make me better off by around $80 a week (i.e. ~4 hours saved * $20/hour).

However, I’ve also got the option to live further west in search of cheaper housing. Let’s say I choose to move to Henderson, where I pay a bit more in train fares (around $4.80 per trip) and save a bit of travel time relative to my old location. This only makes sense to do if it enables me to save at least $80 in rents for a similar dwelling. Otherwise, moving further out has made me worse off than simply staying in place and “banking” the travel time savings.

What we learn from this example is that the perceived benefits from relocating following the construction of new transport infrastructure, including lower housing costs or better quality housing, should be roughly equal to the added travel time cost of doing so. Economists describe this concept as the “spatial equilibrium” – i.e. people trade off housing and transport costs. As I found when looking at housing and commute costs in NZ cities, we can observe this trend empirically.

(That being said, there are reasons to think that moving further out in pursuit of cheaper housing is not necessarily a great idea. In The Happy City, Charles Montgomery argues that people overestimate the benefits they get from a bigger house, and underestimate the misery of longer commutes. But let’s set aside the impact of cognitive biases for the moment…)

The upshot of this is that, the standard approach to transport CBA actually seems to capture many of the benefits of new housing supply following transport infrastructure development. This sounds perverse – didn’t I say that transport models didn’t reflect reality very well? – but it makes sense when you think about how individuals make decisions about where to live and how to get around.

However, there are two caveats to this point. The first is that individuals don’t internalise all the costs (or benefits) of their location choices – there are externalities. If one location is better at generating positive spillovers in production or consumption (“agglomeration”), cheaper to serve with publicly-funded infrastructure, or responsible for fewer greenhouse gas emissions, it might be better to build infrastructure that will encourage people to live there. This is captured imperfectly in transport CBA at present – but it doesn’t have much of an impact on housing supply.

A second, more subtle issue is that our capital budget may be too constrained to deliver enough transport capacity to enable a sufficient supply of housing. For example, we may be pursuing a costly and land-intensive approach to supplying peak transport capacity that results in diminishing returns from investments. If that’s the case, we need to ask whether we have cheaper opportunities to add capacity to the transport network. (Or, alternatively, start raising taxes, which is always a popular option.)

What do you think about the spatial equilibrium in our cities?

Public transport and congestion in Wellington

Last week, I took a look at some new research from the Netherlands that estimated the benefits of public transport for car travel times based on data from 13 “natural experiments” – public transport strikes. The Dutch researchers found that PT provided significant congestion reduction benefits – around €95 million per annum, equal to 47% of PT fare subsidies.

While the data was specific to Rotterdam, I’d expect to find similar results in most other cities with half-decent public transport networks. The whole thing got me wondering: Is there any similar evidence from New Zealand?

Fortunately for PT users and drivers, but unfortunately for researchers, potential PT strikes have mostly been averted over the last few years. However, Wellington did experience a “natural experiment” of sorts back in June 2013, when a major storm washed out the Hutt Valley railway line:

Source: NZTA

Source: NZTA

The Hutt Valley rail line was out for six days, including four working days. During that period, things got pretty ugly on the roads, as the motorway into downtown Wellington didn’t have enough capacity to accommodate people who ordinarily commuted in by train.

The Ministry of Transport (among others) very cleverly observed that this was a great opportunity to learn something about the impact of PT networks on road congestion. During the rail outage, they surveyed around 1,000 Wellington commuters about their travel experiences. According to their report, they found that:

  • The closure of the Hutt Valley rail line put significant pressure on the road network. Delays for commuters were most severe on the Monday following the storm. Traffic on State Highway 2 was severely congested, with morning peak hour conditions lasting two hours longer than usual
    • 80 percent of Wellington commuters from the Hutt Valley and Wairarapa experienced a longer than usual trip
    • 32 percent of them experienced delays of over an hour
  • the severity of commuter delays lessened over the week, with the number of commuters from the Hutt Valley and Wairarapa experiencing delays of over an hour halving by Wednesday 26 June

Essentially, what happened was that a bunch of people who ordinarily caught the train from the Hutt Valley couldn’t do that due to the storm damage. A quick eyeballing of MoT’s graph of daily rail patronage suggests that around 4,000 people had to make other travel arrangements:

Wellington storm daily train patronage

Almost half of the rail commuters from the Hutt Valley opted to drive instead, while the remainder chose to take replacement buses or to stay at home instead. This had a serious impact on motorway traffic, as shown on this graph of hourly southbound traffic volumes. On a normal day (the green or blue lines), traffic volumes peak at around 7-8am, and fall off sharply after that.

By contrast, on Monday 24 June, when the rail line was out, people were still travelling in (slowly) until almost 11am. That’s some serious congestion:

Wellington storm hourly vehicle flows

Based on survey data, MoT estimated that the storm damage increased average travel times during the morning peak by 0.329 hours (20 minutes) on Friday 21 June, 0.309 hours (18.5 minutes) on Monday 24 June, and 0.230 hours (14 minutes) on Wednesday 26 June. It then used those estimates of average delay for people travelling at peak time to estimate the added cost of congestion that arose as a result of the Hutt Valley rail line outage:

Wellington storm cost of increased travel time

In short, a four-day breakdown in part of Wellington’s public transport network cost morning peak travellers around $2.66 million in lost time. If we assume that there was a similar level of delay during the afternoon peak, when people are commuting out of downtown Wellington, the total cost would be roughly double that – $5.32 million.

This can give us a rough estimate of the value of public transport for congestion relief in Wellington. Extrapolated out over a full year (i.e. 250 working days), these results suggest that the Hutt Valley rail line saves drivers the equivalent of around $330 million in travel time (i.e. $5.32m / 4 days * 250 working days).

That is a very large number. According to an Auckland Transport report comparing Auckland and Wellington rail performance, Wellington’s overall rail network only cost $81.2 million to operate in 2013. 56% of operating costs were covered by fares, meaning that the total public subsidy for the network is around $36 million per annum.

On the back of these figures, it looks like Wellington’s drivers are getting a fantastic return from using some fuel taxes to pay for PT rather than more roads. The travel time savings associated with the Hutt Valley line alone are nine times as large as the operating subsidy for the entire Wellington rail network.

There are two caveats worth applying to these figures, one practical and one methodological.

First, it’s likely that the value of rail for congestion relief is unusually high in Wellington due to the shape of the city. Here’s a map of Wellington’s population density and infrastructure in 2001 and 2013 (from my analysis of urban population density). Dormitory suburbs extend linearly up the Hutt Valley and towards Porirua and the Kapiti Coast. Everyone travelling from those places to downtown Wellington are funnelled through a single transport corridor running along the shoreline of the harbour:

Wellington density 01-13 v2

In Wellington, losing the rail line means pushing everyone onto a single road. (Unlike Rotterdam, cycling isn’t especially viable due to the lack of safe infrastructure on this route.) In other cities, there tend to be a greater range of alternative routes, which spreads around the traffic impacts.

Second, these results aren’t as robust as the Rotterdam study, due to their use of survey data rather than quantitative measures of traffic flow and speed. They’re not likely to be totally wrong, but it’s likely that people over- or under-estimated commute times, or that the survey wasn’t representative of all travellers (which could invalidate MoT’s extrapolation to all morning peak travellers).

However, the increasing availability of real-time data on traffic speeds from GPS devices means that the next time this happens, it will be possible to measure the impacts in much greater detail and with greater precision. The Rotterdam study offers some good methodological insight into how best to do that – it looks at transport outcomes at specific locations over a long period of time, and controls for seasonal and weekday effects that may influence transport outcomes.

Lastly, it would be really interesting to see some similar analysis done for Auckland. I’m sure that there have been a number of full or partial rail network outages, either due to bad weather or scheduled track upgrades. Perhaps it would be worth taking a look at congestion on those days.