MoT’s review of capital spending on roads, part 3

This is the second post in a series on the Ministry of Transport’s working paper on New Zealand’s capital spending on roads, which was prepared as an input to the 2015/16 Government Policy Statement (GPS) on Land Transport Funding. It was released to Matt under the Official Information Act just before Christmas. Previous posts:

In the previous post, I took a look at the MoT paper’s findings on the economic efficiency of state highway spending. MoT showed that since 2008 spending on the Roads of National Significance (RoNS) has gone up, while benefit-cost ratios have gone down. As a result, we have almost doubled our spending on state highways without achieving any more economic or social benefits from that spending.

This week, I’ll take a look at a different question: Is it possible to spend our road budget more efficiently? If we chose to build other roads instead, would we get more benefits from them?

The MoT paper examines this issue quite comprehensively, and comes up with an unambiguous “yes”. But before I get into it, it’s worth reviewing the system that the Government is currently using to assess transport investments. Projects are ranked on three criteria:

  • Strategic fit [i.e. is this project trying to do something that the Government cares about?]
  • Effectiveness [i.e. will this project actually do what it’s intended to do?]
  • Benefit and cost appraisal [i.e. will this project deliver more benefits than costs?]

In short, the BCR is only part of the picture. In practice, it’s less important than strategic fit. However, it’s still an important criteria for determining whether we are getting good value out of our transport investments, especially as many of the strategic outcomes that the Government wants are accounted for in a transport cost-benefit analysis.

With that in mind, Section 5.4 of the MoT paper compares BCRs for local road and state highway projects which have committed funding versus those that will probably receive funding or which will remain unfunded.

This analysis, summarised in the chart below, shows that BCRs for state highway projects tend to be lower than BCRs for local road projects whether or not they have committed funding or not. This might be an indication that too much money has been allocated to new state highways – effectively, there are worthy local roads that are going unfunded.

Another worrisome finding is that BCRs for “committed and approved” state highway projects are considerably lower than projects that are merely “probable” or which have not been given funding. This suggests that even within the state highway budget, funding isn’t going to the projects that offer the best returns.

MoT BCR by funding priority chart 1

However, the MoT paper notes that these figures include “significant spending on large strategic projects” – the Auckland Manukau Eastern Transport Initiative (AMETI) in  local roads and the RoNS in state highways. Is it simply the case that a few big funding calls are skewing the results?

Here’s what the chart looks like with those projects removed. As you can see, “committed and approved” state highway projects other than the RoNS also offer a lower return than the “probable and reserve” projects that may or may not get funding. What the hell is going on here?

MoT BCR by funding priority chart 2

Elsewhere in the paper, MoT sums up the situation as follows, with a nod to the idea that traffic forecasts are over-predicting growth:

MoT state highway benefits

It also compares these figures with BCRs for other transport spending, including NZTA-funded PT infrastructure and services and walking and cycling projects, and concludes that:

MoT BCR by activity class summary

In other words, the focus on big state highway projects means that the Government is passing up higher-value spending that serves other modes. Unfortunately, the paper doesn’t offer a lot of additional analysis. But it would be interesting to know how much analysis NZTA or MoT has done on the bus infrastructure projects that are needed to get good transport outcomes in Auckland, such as the Northern Busway extension, the Northwest Busway, extensions of the AMETI busway, and bus interchanges to support Auckland’s New Network.

With all that in mind, how would we be spending money if cost-benefit analysis was the key criteria?

Section 6.2 of the MoT report contains a number of colourful charts to illustrate how we could be doing things differently. Here’s the bit that stuck out for me. It classifies new state highway projects, excluding RoNS, according to their BCR (vertical axis), funding priority (horizontal axis), and total cost (size of bubble).

If BCRs were the key criteria for project funding, the black-coloured bubbles would be de-funded and the red-coloured bubbles funded in their place:

MoT de-prioritised projects 1

MoT de-prioritised projects 2

As you can see, if the Government were focused on getting the highest benefits out of its transport budget, it would have to de-fund most large state highway projects that are currently underway. Yikes.

It’s not clear what conclusions MoT’s drawing from this analysis, as the final paragraphs are entirely blacked out. However, I’d be surprised if they weren’t a bit skeptical of the way that public money is being spent…

Next week: MoT’s analysis of roads spending by region. Preview: Canterbury’s getting a raw deal.

Upcoming seminar: New ideas in economic evaluation

Next Tuesday, the Government Economics Network and Auckland Council are hosting a seminar entitled “Economic evaluation in Auckland – new ideas and challenges“. It’s on a topic that I personally find very interesting – some readers may also be keen:

Estimating the economic impact of transport interventions using the Gross Value Added approach.

Current transport appraisal methods, with their focus on the economic welfare benefits and costs of transport investment, are well grounded in theory and widely used. However, these methods do not provide estimates of extra Gross Domestic Product and extra jobs, nor the spatial distribution of any economic gains and losses. Gross Value Added (GVA) models, have recently applied in the United Kingdom and the United States to account for some of these effects.

In this presentation, Anthony Byett, outlines the results of NZTA-commissioned research on the development of a GVA model for New Zealand. The research uses 2001 and 2006 census data from the 72 sub-national territories, and applies the model to a proposed additional Waitematā Harbour crossing. Promisingly, the model reveals productivity gains from local agglomeration and points to some productivity gains from wider connectivity as well. However, the building and use of the model also reveals shortcomings with the measurement of effective densities and the ability to reach inferences about regional distribution. Nonetheless, the model did prove insightful in highlighting where the benefits of another harbour crossing will likely lie.

Economic evaluation and Cost Benefit Analysis: Implications for practitioners, government agencies and Auckland Council.

Chris Parker, Auckland Council’s recently appointed Chief Economist, will reflect on recent developments in economic evaluation, including the NZTA research using the Gross Value added approach, and discuss some of the implications for practitioners, government agencies and Auckland Council.

The two speakers promise to be pretty interesting. Anthony Byett has led some pretty interesting work into the productivity of road networks. Chris Parker has just been appointed as the Council’s new Chief Economist following on quite a bit of work in transport appraisal at consultancy NZIER.

The seminar is being held at the Council Chambers in the Auckland Town Hall from 1pm to 2:30pm on Tuesday 17 February. You can RSVP at the GEN website.

MoT’s review of capital spending on roads, part 2

This is the second post in a series on the Ministry of Transport’s working paper on New Zealand’s capital spending on roads, which was prepared as an input to the 2015/16 Government Policy Statement (GPS) on Land Transport Funding. It was released to Matt under the Official Information Act just before Christmas. Previous posts:

As I said last week, MoT’s paper suggests that there are big issues with the land transport budget. Current road spending does not seem to represent good value for money. To their credit, MoT appear to be acknowledging this. However, it doesn’t seem to have percolated up into the investment decisions being made by the Government.

This week, I want to look at what NZTA’s money (the National Land Transport Fund, or NLTF) is being spent on, and how economically efficient that expenditure has been.

Section 4 of the MoT report contains a lot of useful data on past and future spending on roads. Here’s what’s happened to the roads budget over the last 15 years, and what’s expected to happen over the next decade:

MoT spending on new roads 1997-2022 chart

Basically, about a decade ago we started spending a lot more on new or improved roads. A lion’s share of new spending went to state highways, in spite of the fact that local roads carry more traffic. As we have previously discussed at length, this spend-up coincided with a flattening of growth in vehicle kilometres travelled. (It also coincided with an acceleration in price inflation for civil construction.)

In other words, we’ve spent a decade spending increasing amounts of money on roads for which demand is not increasing. And the last three Government Policy Statements plan for state highway spending to increase further.

In order to pay for state highway spending, it’s been necessary to divert money from other activities – local roads, maintenance, PT, and walking and cycling have all taken a hit. The Government has also raised petrol taxes several times. The MoT report offers some analysis of how spending priorities changed between the 2008 GPS and the 2012 GPS.

The following chart compares projected spending ranges for new and improved state highways (the darker uppermost bands) and new and improved local roads (the thinner, lower bands). It shows that funding for state highways – the Roads of National Significance – was raised by around half a billion dollars a year, while local road funding was cut back.

MoT GPS 08 12 road spending comparison

One would hope that the Government’s decision to allocate vast amounts of funds to state highway projects was based on a sound economic rationale. Unfortunately, there is no hard evidence of this in the MoT paper. Section 5 of the MoT paper analyses benefit-cost ratios (BCRs) for road spending. It notes some caveats with the data – BCRs for some projects had to be inferred from “efficiency scores” – but there is enough data to paint a picture.

Here is MoT’s picture. It is not a pretty one:

MoT state highway BCRs 2005-2012

Essentially, MoT finds that average benefit cost ratios for state highway projects declined significantly in 2008/09 and have stayed low ever since. An eyeballing of the graph suggests that BCRs prior to 2008 averaged a bit over 3.5 – meaning that state highway projects were expected to return $3.5 in social benefits for every dollar invested. Since 2008, they have averaged a bit over 2 – meaning that state highway projects now only return $2 in social benefits for every dollar invested.

MoT’s analysis of this graph is entirely blacked out in the released document. Nonetheless, the implications are simple: we have almost doubled our spending on state highways without achieving any more benefits from that spending. BCRs aren’t everything, but it’s really, really hard to understand why the Government would want to spend money so ineffectively.

The answer is that they feel that the Roads of National Significance offer a better “strategic fit” with their overall objectives for the land transport budget. I’m not necessarily opposed to this evaluation approach. In my experience, cost-benefit analysis invariably has some blind spots. Using qualitative “strategic fit” criteria can allow policymakers to take account of broader goals that aren’t well covered in NZTA’s Economic Evaluation Manual.

However, I don’t think that strategic fit should override all other analysis. If you think that a project is important for supporting a productive economy, that’s fair enough. But if an evaluation of the project’s impact on freight costs and agglomeration effects in urban areas results in a low BCR, you should question your prior assumptions about its economic benefits. It’s foolish to think that four-lane divided highways are magical devices for creating economic growth. Economics simply doesn’t work that way.

Next week: Do we have better options for spending the transport budget?

Big city, small firms

Urbanists often argue for better cities by appealing to our desire to be happier, healthier, or more environmentally sustainable. Cities, they argue, can improve our well-being in all sorts of ways. There is definitely something to this idea. As I’ve previously written, good urban policies, such as mixed-use developments, denser neighbourhoods, shared spaces, and useful public transport, can make us better off in all sorts of ways.

However, cities are not just places of consumption – they are also sites of production. As an economist, I’m particularly interested in how better cities can create greater economic opportunities for people. In a series of previous posts, I have observed that:

In this post, I want to take a closer look at this issue. Why are cities important to economic growth? What makes them such good places to do business? How do they help people create, adapt, and commercialise ideas?

My starting place, as always, is what we can observe. Here’s my map of the NZ economy. The orange blobs on the map – Auckland, Wellington, and Christchurch – make up less than 1% of New Zealand’s land area, but over half of all economic activity. Businesses and workers, when offered the choice to disperse themselves widely over a wide rural expanse, have chosen instead to agglomerate in a few small areas. This is an immensely important fact.

City share of NZ GDP map v2

Businesses are not doing this because they are irrational – they choose to locate (or start up) in cities because it offers them better chances of success. A good city, it turns out, is a fantastic ecosystem for firms. It offers them the inputs they need – employees, financing, ideas – and provides them with access to a range of customers. In addition, it surrounds them with other firms, who may act as competitors, collaborators, or suppliers.

In his book Triumph of the City, Harvard economist Ed Glaeser looked at how this process once worked in Detroit:

…there was an explosion in automotive entrepreneurship in Detroit in the early 1900s. Detroit seemed to have a budding automotive genius on every street corner. Ford, Ransom Olds, the Dodge brothers, David Dunbar Buick, and the Fisher brothers all worked in the Motor City. Some of these men made cars, but Detroit also had plenty of independent suppliers, like the Fisher Brothers, who could cater to start-ups. Ford was able to open a new company with backing from the Dodge brothers who were making engine and chassis components. They supplied Ford with both financing and parts. (p 48)

Glaeser’s account of Detroit illustrates some important features of successful cities. They are diverse yet connected environments in which ideas can travel. A good city should enable people to learn from each other by placing them in close proximity.

As a result, a city is an especially favourable environment for startups and small, innovative firms. Although Henry Ford’s company went on to dominate the car industry, he had to start somewhere – and was fortunate enough to begin in a city where he could access venture capital, suppliers, and cutting-edge ideas. That would have been hard to do in a small town or out in the countryside.

However, Glaeser’s account of Detroit’s economic rise and fall also suggests that large firms can lose touch with the urban environments that enabled their growth:

The irony and ultimately the tragedy of Detroit is that its small, dynamic firms and independent suppliers gave rise to gigantic, wholly integrated car companies, which then became synonymous with stagnation…

Successful car companies bought up their suppliers, like Fisher Body, and their competitors. By the 1930s, only the most foolhardy and well-financed businessman would have dared take on General Motors or Ford. The intellectually fertile world of independent urban entrepreneurs had been replaced by a few big companies that had everything to lose and little to gain from radical experimentation. (p 49)

Detroit’s economic fall from grace shows that cities need startups and small businesses just as much as small firms need cities. A healthy firm ecosystem is one in which there are a lot of firms competing with each other, selling to each other, and learning from each other.

Big corporations can’t sustain a dynamic urban economy on their own, as often use cities in different ways than small firms. For one thing, they tend to produce a lot of their own inputs to production. For example, a large company may have its own finance department, an in-house legal team, its own building management services, and so on and so forth. As a result, they can choose to do without other urban firms, and, in some cases, exit the city altogether.

Consequently, in the long term a country’s economic success depends on its ability to foster innovation, entrepreneurialism, and the growth of new firms. Good urban policies are essential to this process. A successful city will connect people and puts them in contact with new ideas and new opportunities. An economically dysfunctional city, by contrast, will sever them from each other or maroon them down the end of distant cul-de-sacs.

There is no substitute for an urban firm ecosystem. Governments often try other things, like subsidising agricultural and extractive industries or writing regulations that favour existing large firms. However, these activities all offer limited prospects for future growth. (To say nothing of the fact that the economic record of these policies in New Zealand is dismal.)

A focus on building better cities represents an alternative to the frustrations of economic development policy in New Zealand. Fortunately, we’re lucky enough to have many, many opportunities for building better cities. In Auckland, but also in Wellington, Christchurch, and smaller centres, we can do many things to improve the way our cities function, by:

  • Investing in efficient and useful public transport networks, including rapid transit networks in major cities (CRL now!)
  • Building streets that are safe and inviting for people to walk and cycle on – acknowledging that people, not cars, are the drivers of economic activity
  • Enabling market-led intensification, including the construction of townhouses and apartment buildings in the places where people want to live
  • Creating great public spaces that encourage people to get out and make fortuitous connections with each other.

Cities, small firms, and economic growth – what do you think?

Parking is massively oversupplied in US cities

When people discuss the costs of car-centric transport systems, they tend to tend to talk about congestion, fuel costs, crashes, or, if they’re environmentally-minded, carbon emissions.

However, one of the largest costs of auto-dependency is hidden in plain sight: the cost of providing parking spaces. The financial cost of providing parking spaces can be staggering. According to Todd Litman, “most communities have three to six parking spaces per vehicle (one a home, one at the worksite, plus spaces at various destinations such as stores, schools and parks)”. As car parks occupy around 30 m2 apiece, this means 90-180 m2 per car.

In Auckland, where suburban land prices range from around $250/m2 (west and south Auckland) to over $1000/m2 (inner isthmus, lower North Shore), surface parking would cost $22-90,000 per car. That’s more expensive than the cars that occupy those spaces!

mcc-coloured

Buildings are in red. Parks are in green. Everything else is roads and carparking.

Moreover,  land that is devoted solely to cars cannot be put to higher and better uses, such as dwellings, businesses, or public spaces. In a successful city, we would expect the value of those other uses to continue rising, meaning that the opportunity cost of car parking will also rise. Space is expensive in cities, and parking is an inherently inefficient use of land.

This spatial inefficiency is exacerbated by the fact that many cities have ended up with more car parking than is necessary. Eric Jaffe in Citylab reports on some important new research on parking oversupply in US cities:

Some new research reminds us just how oversupplied parking really tends to be in American metro areas: in a word, enormously. Rachel Weinberger and Joshua Karlin-Resnick of Nelson\Nygaard Consulting Associates analyzed parking studies of 27 mixed-use districts across the United States and found “parking was universally oversupplied, in many cases quite significantly.” On average across the cases, parking supply exceeded demand by 65 percent.

[…]

The researchers focused on districts with both residential and retail developments in a variety of settings—17 suburbs, 6 cities, and 4 towns—mostly in New England or California. (Interestingly, a third of the areas were documented as having the impression that local parking was scarce.) By looking at previous parking studies in these areas, as well as satellite imagery via Google Earth, they identified existing parking supplies and peak weekday and weekend demands.

Critically, the researchers also took into account the accepted practice of supplying 15 percent more spaces than necessary—a sort of buffer zone that reduces the congestion caused by drivers circling for spaces.

In all 27 districts, spanning places with 420 spaces to those with 6,600 spaces, Weinberger and Karlin-Resnick found an oversupply of parking over and above the buffer zone. The oversupply ranged from 6 percent up to 253 percent across the study areas (below, the highest over-suppliers). And in the nine areas that had believed parking to be scarce, the oversupply ranged from 6 percent to 82 percent.

us parking oversupply

These are pretty extraordinary findings. An average oversupply of 65% means that two out of every five parking spaces are, essentially, useless. We would never tolerate such waste in any other part of our economy – if, for example, two out of every five meatworks were sitting idle, we would start shutting down the unprofitable ones.

I highly recommend reading the rest of the article, as there are a number of other interesting findings in the research. One in particular stood out:

Interestingly, a third of the areas were documented as having the impression that local parking was scarce.

The researchers found that this was not correct – parking was in fact oversupplied in each one of these areas. Policymakers and businesses in these areas significantly overestimated the amount of parking that was truly required. It’s common to hear retailers complaining about the loss of on-street parking for cycle lanes and bus lanes, but the evidence suggests that we should treat their claims with caution.

The same thought occurred to me when reading the recent Motu paper on the cost of planning regulations. Based on a survey of 16 Auckland-based developers, the authors concluded that:

There were diverse views of the impact of car parking requirements on developments, reflecting differing development types. CBD apartment developers, particularly those developing at the affordable end of the market, prefer to include fewer car parks. They saw car parks as a cost to the development as the market value of a park was less than the cost of including them on the development. In contrast to CBD apartment developers’ views, suburban apartment developers tended to favour offering more car parks.

However, some of the comments from developers made me wonder whether they had also fallen into the trap of overestimating parking requirements:

“The optimal number of car parks in a suburban apartment development targeting the mid to upper end of the market is 2 to 3 per unit with additional common parking for guests”

Now, I haven’t been keeping a close eye on suburban apartment developments, but I’d be extremely surprised if developers were actually building three car parks per unit. If anything, the trend seems to be for fewer car parks. For example, the Merchant Quarter apartments in New Lynn have unbundled parking, while the apartments planned for Alexandra Park will have only one car park apiece.

Do you think Auckland has a parking oversupply? If so, what should we do about it?

We need more choice in transport markets

Via economist Donal Curtin, I ran across the draft report that the Australian Competition Policy Review issued last September. It’s a long and fairly technical document, but the introduction made some good points in accessible language:

Competition policy sits well with the values Australians express in their everyday interactions. We expect markets to be fair and we want prices to be as low as they can reasonably be. We also value choice and responsiveness in market transactions — we want markets to offer us variety and novel, innovative products as well as quality, service and reliability.

These are generally sound principles, and I think it’s worth considering how they might apply to transport policy. The first and most important observation is that New Zealand suffers from a serious dearth of choice in urban transport markets. Unlike most other developed countries, we have failed to invest in high-quality public transport, walking, and cycling alternatives.

This is what lack of choice looks like.

This is what lack of choice looks like in the US, another prominent exception.

In fact, it’s even worse than that: transport policy has actively sought to reduce or block choice and competition in urban transport markets. Late last year, I discussed how Auckland ended up with a motorway network rather than a regional rail network in the 1950s: politicians and planners misrepresented the costs and benefits of the scheme in order to scupper the alternatives. The same story has been repeated, with variations, over and over since then.

But surely more lanes will fix it?

Building more lanes will not give us more choice.

Things are changing – but too slowly. For example, changes to public transport policy and agency mindset are starting to deliver more useful bus networks. In Auckland, extensions of the rapid transit network – Britomart, the Onehunga Line, and the Northern Busway – have been highly successful. It is important to build on these successes, as they are integral to having real transport choices.

These people now have a choice.

These people now have a choice.

The Australian Competition Policy Review carries on:

Access and choice are particularly relevant to vulnerable Australians or those on low incomes, whose day-to-day existence can mean regular interactions with government. They too should enjoy the benefits of choice, where this can reasonably be exercised, and service providers that respond to their needs and preferences. These aspects of competition can be sought even in ‘markets’ where no private sector supplier is present.

This is especially true of transport. Low-income families have the most to gain from better transport choices, as they are in the worst position to afford the costs of owning and operating a car. As I found when looking at the costs of commuting by car and public transport, households could save thousands of dollars a year by cutting back on car ownership and riding the bus to work. (Findings reinforced by a recent study of commuter costs in Australian and NZ cities.)

Cycling is free! (Source)

Cycling is free! (Source)

At the moment, low-income households in Auckland and other large NZ cities disproportionately live in far-flung suburbs with limited transport choices (as I found when writing a research paper on housing and transport costs). Auckland’s New Network will improve service in many historically under-served areas of the city, but this is only a small step. As Luke showed when he looked at walking and cycling in Manukau, post-war suburbs are still pretty grim for everything but cars.

At this point, New Zealand’s transport policies should be oriented around giving people more and better transport choices. If we want transport to raise our quality of life, the best way to do it is to build our “missing modes”. More lanes on the same motorway will not cut it.

What choices would you like to make when travelling?

The pace of transport policy innovation

Economists who study firm performance or countries’ economic development know that the best way to get ahead is often to adapt or adopt proven ideas from elsewhere. Technology transfer has always been a crucial part of innovation.

What’s true for firms is also true for cities. Cities in New Zealand can and should benefit from adopting proven ideas from all around the world. There are a lot of things that we could easily do that would make us much happier and wealthier, including:

  • Investing in the City Rail Link to provide metro-style train frequencies throughout much of Auckland
  • Building more rapid transit to underserved areas such as northwest and southeast Auckland – busways are a proven and cost-effective solution for congestion-free mobility
  • Reclaiming some of our overbuilt road corridors for the movement and use of more people – which means painting more bus lanes, putting in protected cycle lanes everywhere, and fixing our many hazardous and unwalkable intersections.

Fortunately, the evidence shows that we can adopt good urban ideas when we put our minds to it. In a post last December, I reviewed some of the progress that we’ve recently made in public transport network design and delivery in NZ cities. I found, much to my surprise, that Auckland and other big cities are swiftly progressing towards international best practice.

Northern Busway efficiency

Time for an anecdote: I had a couple of American friends staying with me over the holidays. On their first day here, I got them a pair of HOP cards and explained how to get to the city centre and a couple of other destinations on the Mount Eden bus route and the Outer Link. With the aid of Google Maps, it was easy for them to travel to all sorts of places via PT – city centre, War Memorial Museum, Devonport, Balmoral for dumplings, even Takapuna for dinner one night. After a few days, they were praising the usefulness of Auckland’s PT system. That’s real progress.

So: Are there any other innovative policies that we should also be adopting?

A recent London School of Economics report entitled “Accessibility in Cities: Transport and Urban Form” (pdf) highlights the rapid growth of sustainable transport systems in recent decades. It finds that “several sustainable mobility concepts may be at a tipping point globally, as more and more cities are adopting these solutions to enhance their efficiency, competitiveness, social equity and quality of life.”

The following graph, from page 30 of the report, illustrates the rise of innovative new transport policies throughout the world:

LSE global adoption of sustainable transport

It displays several important trends that New Zealand cities need to partake in:

  • First, as I observed when looking at historical changes in Kiwis’ consumption of transport goods and services, vehicle technologies have not changed very much. We still get around on foot or on rubber or steel wheels, powered by fossil fuels, electricity, or the food we eat. We cannot expect that to change.
  • Second, urban passenger rail systems continue to be useful 150 years after they were introduced in London. Cities are still building metro systems for a good reason: they are the most space-efficient way to move lots of people. However, bus rapid transit (BRT), which was pioneered in Brazil in the 1970s, is now almost as popular, due to both its cost-effectiveness and the fact that it can “address the crucial challenge of lock-in presented by urban motorways by converting them to high capacity public transport corridors”.
  • Third, while vehicle technologies haven’t changed, the way we interact with them is changing. In particular, smart cards for paying PT fares and PT web apps are making integrated PT networks much more legible and usable – as my American friends found when visiting Auckland. These innovations will drive growth in PT use, as they open up PT networks for more users and for many more types of trips.
  • Fourth, innovations in street design recognise the need to put pedestrians, not cars, first. This is crucial for a number of reasons. By building roads that are inhospitable to walking or cycling, we have created an entirely preventable public health crisis – diabetes, heart disease, obesity, etc. By failing to recognise that people, not cars, buy things, work, and develop and exchange ideas, we have undermined our economic performance. That’s one of the reason that complete streets and car-free zones are two of the most popular policies on the list.

Lastly, the LSE report finds that policy changes, not new technologies, are key to developing efficient and productive urban transport systems. For one thing, the availability of new technology does not guarantee consumer uptake – as I found when looking at the slow rate at which people are buying hybrid and electric cars.

By contrast, local and central governments can achieve change much more rapidly by implementing policies or making investments that have been successful elsewhere. This can clearly be seen in the rapid pace at which cities have bought into many sustainable transport innovations. If our transport policies are going to meet our need for better, more prosperous cities, they must be outward-looking and forward-looking. We can’t just double down on 1950s-era ideas that have failed us time and time again.

Do you think that New Zealand can raise the pace at which it adopts good ideas?

Will people choose to buy new vehicle technologies?

Last year we started to take a look at an emerging technology that some claim will revolutionise urban transport – driverless cars. My view is that they aren’t all they’re cracked up to be – if we wanted to, we could easily get the purported benefits by investing in existing, proven technology:

While driverless cars (or hoverboards for that matter) sound exciting, we can’t afford to pin all of our hopes on them. The pragmatic, proven way forward for transport in a big city is the same as it’s always been: Give people good transport choices by investing in efficient rapid transit networks, frequent bus services, and safe walking and cycling options.

If we want a safer, more efficient, and more environmentally friendly transport system, we can achieve it now by making smart policy changes. We don’t have to wait.

But, for the sake of argument, let’s say that we did want to wait for driverless cars to solve our self-imposed problems. How long would it take, exactly?

The wait would be a function of three factors:

  • First, how long it takes until driverless cars are proven and widely available for purchase in New Zealand. Most people agree that the technology is improving and may be ready for wide deployment sometime in the next decade. (Obviously, regulatory barriers could slow uptake as well.)
  • Second, how long it will take the New Zealand vehicle fleet to turn over – i.e. how long until the cars that’s currently on the road is scrapped and replaced. At the moment, the average NZ vehicle is around 13 years old, meaning that we’d expect it to take at least 13 years for half of the fleet to be renewed. Full replacement of every car on the road could take 25-40 years – a quick glimpse at Trademe shows that people are still buying and selling cars built in the early 1980s.
  • Third, and possibly most importantly, how rapidly driverless cars gain market share. Even after the introduction of driverless cars, most people will continue buying self-drive cars, which will dramatically slow the transition to a driverless fleet.

People have spent a lot of time thinking about the first two points, but I haven’t seen any commentary on the third one. Fortunately, we can draw upon some real-world data to get a sense of how rapidly consumers take up new vehicle technologies. Over the last decade, hybrid and electric cars have become commonly available, with cumulative global sales figures in the millions. While they tend to be more expensive to purchase, they offer savings on fuel costs and improvements in environmental performance.

So: How have consumers responded to recent technological transformations?

In short, they have hardly noticed. People are not rushing to give up their petrol (and self-driving) vehicles, even though there are now viable alternatives. A recent study from the US has found that hybrid vehicles’ market share has stayed low, even though car-makers have introduced many more new models. Over a decade after the Toyota Prius first arrived on the market, hybrids account for only one in every thirty new car sales in the US:

hybrid-car-market-share

Source: IHS/Polk

Obviously, uptake of hybrid and electric vehicles has been faster in some places than others. However, a 2013 New York Times article on new vehicle technologies found that alternative vehicles have failed to capture a majority of the market even in the most favourable environments:

SANTA MONICA, Calif. — It would seem to be a good time to own an electric car in Santa Monica. From the charging stations dotted around town to the dedicated public parking spaces — all provided at no cost by the city — Santa Monica has rolled out the welcome mat for electric cars.

But even here, in this wealthy, environmentally conscious city of 90,000 west of Los Angeles, only a core group of owners has switched from traditional gasoline-powered cars.

Less than 4 percent of registered cars run only on battery power, according to an analysis by the industry researcher Edmunds.com of data from R.L. Polk, which records vehicle registrations nationwide. Hybrids, which run on some combination of gasoline and battery power, account for 15.5 percent, the data says, but many of those are traditional hybrids, which do not require a plug-in cord for recharging.

In other words, after a decade, over 80% of Santa Monica’s car fleet is still composed of conventional petrol cars. And that’s about as good as it gets anywhere in the US, which is on the leading edge of many new trends in vehicle technologies.

The picture isn’t much different outside of the US. Research on vehicle fleets in 19 countries shows that there are only two countries where hybrids and electric vehicles account for more than 1% of vehicle fleets. Norway (largely electric cars) and the Netherlands (mostly hybrids) were far and away the leaders in uptake, due to extraordinarily generous subsidies for buyers. Everywhere else lagged far behind:

In short, people don’t seem to be rushing out to buy new vehicle technologies. Although we all have the option to buy electric now, few people do in practice. It is very likely that driverless cars, when or if they become readily available, will follow a similar pattern. Initially, at least, they will be costlier and seem riskier than self-drive cars. Current rates of uptake for hybrid and electric cars suggest that it could take half a century or more for petrol cars to vanish from the road. Why should the transition to driverless cars be any faster?

All in all, recent market realities should encourage caution about driverless cars. Slow rates of uptake for new vehicle technologies mean that they aren’t going to solve our problems any time soon. A 2014 London School of Economics report on the state of urban mobility (pdf) described the dilemma of vehicle technology innovation well. They noted:

Regarding the development of new transport technologies, key actors (above all the automotive sector) have failed to convert technological progress into substantive improvements in energy efficiency and vehicle emissions or more broadly transform modes of accessibility in cities.

The clear implication is that if we want better transport outcomes, we must implement better transport policies. The data shows that waiting on new technologies is not a sensible option. If we want to lower the road toll, we must invest in safe roads, including protected cycle infrastructure. If we want a workable solution to congestion, we must build rapid transit infrastructure, bus lanes and walking and cycling improvements to give people the choice to avoid it.

There is no realistic alternative – so why don’t we get on with it?

The geometry of urban labour markets

Every half-decade, Census data gives us an interesting and detailed insight into how New Zealanders are travelling. Back in August, the Ministry of Transport published a comprehensive analysis of journey to work patterns in Auckland (ably summarised by Matt here).

Here’s one of the key maps from the report. It shows average distance travelled to work for all suburbs in Auckland. Blue means shorter trips, red means longer trips. As you can see, average commutes get a lot longer if you live further from the city centre:

Trip Length residential 2013(I’ve used the same data to take a look at issues like housing and transport costs and greenhouse gas emissions from commutes in NZ’s large cities. It’s definitely a rich source of insight into how we live.)

The Census journey to work data presents a conundrum. Auckland is not a monocentric city in which all employment is concentrated in the centre. It is in fact highly polycentric, with employment dispersed throughout a number of locations. The map below, which I put together quickly using Statistics NZ’s Business Demography employment data, shows this. There are certainly many jobs in the city centre – around 15% of the total – but employment is spread around the entire Auckland region.

Auckland_employment_by_AU_2014

Given this, why aren’t people in outlying areas simply commuting to the nearest jobs, and skipping the long average commutes across town? Why aren’t the residents of Browns Bay commuting to Albany, the residents of Glen Eden to Henderson, and Howickians to East Tamaki? Auckland’s employment has long since decentralised – so why haven’t our travel patterns decentralised as well?

To answer these questions, we must consider the dynamics of urban labour markets. Here’s an illuminating graphic from Alain Bertaud’s recent talk in Auckland, which I reviewed here. It shows four different models for urban labour market, ranging from a totally monocentric city (all jobs in the centre) to a totally dispersed city (all jobs randomly dispersed). Auckland is clearly what Bertaud calls a “composite” city. It has a strong and growing city centre, but also a lot of jobs spread around other metropolitan centres, industrial parks, local shops, etc.

In a composite city, people do not simply commute to the nearest offices – they will actually travel to jobs all throughout the city. The “urban village” idyll simply doesn’t happen in real life. There are three big reasons for this:

  • First and foremost, labour markets are dynamic. Even if people start out working near where they live, this happy state of affairs doesn’t necessarily continue. Companies go out of business, workers get offered better jobs elsewhere, and people change careers. This happened to me earlier this year – a job change saw me swap my short commute from Mount Eden to the city centre for a longer commute to Takapuna.
  • Second, most households include multiple workers, who may have jobs in very different places. If you’re a baggage handler at the airport married to an accountant who works in Newmarket, it’s not going to be possible to live anywhere that offers you both a five-minute commute.
  • Third, people don’t necessarily want to live right next to their jobs. While commute costs are an important determinant of household location choices, we also consider a range of other factors, such as proximity to beaches and parks, school zoning, the location of family and friends, and so on and so forth.

Bertaud urban structure graph

Because labour markets are dynamic and people’s location choices are influenced by a range of factors, average commute distances tend to follow the location of the average job in the city. In other words, if you live in a neighbourhood that is ten kilometres away from the average job, you’d expect your neighbours to commute ten kilometres, on average. Some of your neighbours will have shorter commutes to local jobs, while others will travel longer distances to jobs on the far side of the city.

With that in mind, I’ve calculated the weighted average location of jobs in the Auckland region using Statistics NZ’s Business Demography employment data for 19 high-level industries. (Without going into the details, you can think about the method as follows: Let’s say that one individual industry has 200 jobs in Albany and 100 jobs in Takapuna. Then the weighted average job would be located two-thirds of the way from Takapuna to Albany. That’s what I did, except I was working with data on over 400 Auckland suburbs.)

The following map plots a centre point for each of the 19 industries. It shows that the average job is located in the Auckland isthmus. The average job in “blue collar” industries like manufacturing and warehousing tend to be located much further south – a result of the concentration of those industries in places like Mount Wellington, East Tamaki, and near the Auckland Airport. “White collar” industries like finance and insurance and professional services, on the other hand, are much further north, as they tend to be more centralised in the city centre and, to a lesser extent, in metropolitan centres like Newmarket and Takapuna.

If we look back to the first map, from the Ministry of Transport’s analysis of Census journey to work data, we can see that the geographic centres of Auckland industries fit within the blue swathe of relatively low average commute distances down the middle of the isthmus.

Auckland_employment_centre_industry_2014

In other words, centrality still matters even in a decentralised city! In a dynamic labour market, it is beneficial to live near the average job because it will tend to minimise expected commute distances over time as you change between jobs. That’s one of the reasons why prices are so high in the most central areas of Auckland: people seem to be paying a premium to be closer to the average job.

Of course, the data in the last map also shows that workers with different skills may have different optimal locations. If you expect to work in a “blue collar” industry, living further south might be a better strategy for minimising your expected commute distances. On the other hand, living further north might be better if you’re expecting to work in office jobs. However, labour markets are dynamic in another way as well – people may retrain or change industries throughout the course of their lives, and children may aspire to different professions than their parents. If that’s the case, living closer to the centre still offers more flexibility.

Sunday reading 11 January 2015

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

McKenzie Funk, “The Wreck of the Kulluk“, New York Times:

The Arctic was a long-term investment — Shell would not start production on such a big project in such a distant place until at least a decade after it found oil — but the future is always getting closer, and by 2010 the company was anxious. It took out ads in newspapers, hoping to pressure the Obama administration into opening the Arctic. One pictured a little girl reading in bed, a figurine of a polar bear next to the lamp on her nightstand. “What sort of world will this little girl grow up in?” it asked. If “we’re going to keep the lights on for her, we will need to look at every possible energy source. . . . Let’s go.”

Even with permission, getting to the oil would not be easy. The Alaskan Arctic has no deepwater port. The closest is in the Aleutian Islands at Dutch Harbor, a thousand miles to the south through the Bering Strait. In the Inupiat whaling villages dotting the Chukchi coast, only a handful of airstrips are long enough for anything other than a prop plane. There are few roads; human residents get around in summer by boat, foot or all-terrain vehicle. Shell was trying the logistical equivalent of a mission to the moon.

The Economist, “Nimble Opposition: A new study confirms suspicions about what drives planning decisions“:

Local opposition to new housing developments is common across Britain. It has long been argued that such opposition—NIMBYism to its critics—is linked to home ownership. Homeowners, unlike distant landlords, vote in local elections and receive planning consultations in their postboxes. They lose out from development in multiple ways. Loss of green space reduces their quality of life and increased supply of housing suppresses prices. Landlords managing diversified portfolios are less exposed to the value of one property. The idea that planning decisions are driven by the desire of homeowners to maximise house prices is known as the “home-voter hypothesis”.

On October 24th the Institute for Government, a think-tank, released a study supporting this theory with data. It looked at English local planning authorities (LAs) between 2001 and 2011 and found that for every additional ten percentage points in the proportion of homes that are owner-occupied, 1.2 percentage points were knocked off growth in the housing stock. Average growth was 8.8%, so the effect was marked. The authors are cautious about making a causal claim, but the correlation was observed after controlling for the number of planning applications and the amount of available land. A rough calculation suggests that, without the NIMBY effect, one million more homes would have been built during the period.

Brad Plumer, “Driving in the US has been declining for years. Will cheap gas change that?“, Vox:

The key concept here is price elasticity — how much the demand for gasoline changes in response to changes in price. The EIA estimates that, in the very short run, Americans’ demand for gasoline is fairly inelastic. The price of gas would have to fall 25 to 50 percent for US driving to rise by just 1 percent. (That is, the elasticity is -0.02 to -0.04.) …

Driving is on the downswing for a few reasons: 1) The US population is getting older, and retirees tend to drive less. 2) More and more young people are moving to cities, where there are better transit options. 3) It’s become much harder for teenagers to acquire drivers’ licenses. 4) Young people may be driving less for cultural reasons (possibly they prefer to hang out with their friends on Facebook than piling into a car and driving around aimlessly).

That may explain why American driving habits today seem to be less responsive to changes in gas prices than they were in the 1990s. Back then, the EIA estimates, it only took a 12 percent drop in gas prices to boost driving by 1 percent (elasticity was -0.08). Nowadays it takes a 25 to 50 percent drop.

Emily Badger, “Why no one likes indoor malls any more“, Wonkblog:

The mall that’s dying is, in fact, a specific kind of mall: It’s enclosed, with an anonymous, windowless exterior, wrapped in yards of parking, located off a highway interchange. It’s the kind of place where you easily lose track of time and all connection to the outside world, where you could once go to experience air conditioning if you didn’t have it at home…

The death of old-fashioned indoor malls is also the rebirth of shopping hubs that feel more like Main Street.