Do economists think we should build more infrastructure?

Should we spend more money on infrastructure?

That’s a good question. Recent posts on Transportblog have looked at the case for a greater focus on providing better transport choices in Auckland, the need to start discussing rapid transit provision in smaller but growing cities, and the need for better connections between New Zealand’s cities and towns.

A key theme running throughout those posts is that there are opportunities to spend money better, rather than just spending more money on the whole. There may be a case to spend more, but before we get to that we should see where we can do things more efficiently.

I mention this because I’ve been thinking about a piece that StrongTowns’ Charles Marohn wrote in early January, in which he critiqued arguments for spending more on infrastructure:

Your road have potholes? Commute congested? Know a guy up the street that is underemployed? Want to make the country greener? Macro economists have the perfect response to all of this: infrastructure spending. Lots of it.

Spending on infrastructure is seen as the consequence-free way to boost the economy. It’s the rare thing a pickup-driving blue-collar worker and a tree-hugging PhD candidate can both agree on: America would be better off if we spent a lot more on infrastructure. Just look around! Is there anything more obvious? Economists even have nifty equations with fifty year projections that prove it. Who could be against that?

Sadly, those applying equations from the top of America’s economic ivory towers misunderstand the impact of infrastructure spending on cities, towns and neighborhoods. Whether or not a policy of borrowing money to build infrastructure really works at the national level — and there are really smart people who question whether it does — it’s not without consequence for local governments.

Marohn’s got some valid critiques. I particularly appreciate his argument that cities need to ensure that their investments are financially sustainable as a prerequisite for achieving their other aims:

Economics is a social science that often concerns itself with the well-being of people and things like environmental impacts, social justice and quality of life. These are admirable pursuits that can benefit from economic thinking and the work of economists. There are very good reasons for macro economists to study, quantify and pursue policies aligned with social objectives.

It is also perfectly acceptable for local governments to pursue similar aims. The difference is that local governments face hard financial constraints that the federal government does not. As we say at Strong Towns, financial solvency is a prerequisite for long term prosperity for local governments..

This means that cities have to #DoTheMath. Projects must pencil out, today and into the future. If something is done at a loss for a purely social aim, that’s perfectly acceptable so long as everyone understands that the ongoing revenue must be accounted for from somewhere else. Financial solvency is a prerequisite for local governments in a way that it never will be for the federal government.

However, I also think that Marohn’s being a bit unfair to economists! As I discussed in a post last year, there’s disagreement within the discipline about whether (and how) we should spend more money on infrastructure. And the economists who do make the case for spending more most strongly tend to come at it from a Keynesian perspective – ie spend a bit more during recessions, when there are unemployed people and machines to do the work.

Moreover, economists have researched the economic effects of more infrastructure spending in quite a bit of depth. A range of papers have investigated whether building more roads (etc) leads to increases in economic output (GDP) or increased employment, either at a local or a national level. They have generally found that building more transport infrastructure had strong positive effects in the 50s and 60s, and smaller or even negligible impacts since.

For instance, a literature review on the relevant evidence undertaken by the Ministry of Transport concluded that:

In developed countries that already have a high quality, well-connected transportation infrastructure network, further investment in that infrastructure will not on its own result in economic growth. However, where the potential for economic growth is present, lack of investment can inhibit the potential growth… Evidence for a ‘special role‘ for the effect of transport infrastructure investment on economic growth is limited.

In a similar vein, a 1999 paper by US economist John Fernald investigated the impact of road spending on economic productivity in the US, finally concluding that:

In essence, the evidence suggests that the massive road-building of the 1950’s and 1960’s—which largely reflected construction of the interstate highway network— offered a one-time increase in the level of productivity, rather than a continuing path to prosperity.

There’s less New Zealand-specific evidence, but one paper by three OECD researchers (Balázs Égert, Tomasz Koźluk, and Douglas Sutherland) that I reviewed in a post last year found that in New Zealand over the 1960-2005 period:

  • Road investment had a positive impact on economic growth throughout the period
  • So did rail investment, although the effect was not quite as strong
  • However, motorway investment had a negative impact on economic growth.

Basically, anyone arguing for a systematic policy of building heaps more roads (or infrastructure in general) isn’t taking the economic evidence seriously. At this point, there are unlikely to be abnormally high economic returns from building more infrastructure.

It isn’t hard to understand why. The first bridge, first decent road, or first rail line you build is likely to be transformational, just as the Auckland Harbour Bridge transformed the North Shore. But the third, fourth, or fifth bridge will make an incremental difference, at best. They may even do harm by ‘crowding out’ routine maintenance or pushing up construction costs across the economy. So we need to keep a close eye on how we’re spending our money and what we’re trying to accomplish.

What do you think about the economic returns on infrastructure spending?

Removing the RUB won’t necessarily work as planned

Yesterday Phil Twyford announced that it would be Labour’s policy to abolish Auckland’s Rural Urban Boundary (RUB), as part of a policy to improve housing affordability.

Labour wants the Government to abolish Auckland’s city limits to get people out of cars, caravans, garages and tents.

Labour housing spokesman Phil Twyford said the urban growth boundary had to go because it has fuelled the housing crisis and people would not be forced into bad circumstances if the Government acted.

“The Government should rule out any possibility of an urban growth boundary in Auckland Council’s Unitary Plan if it is serious about fixing the housing crisis,” Twyford said.

“Over 25 years the urban growth boundary hasn’t prevented sprawl, but it has helped drive land and housing costs through the roof. It has contributed to a housing crisis that has allowed speculators to feast off the misery of Generation Rent, and forced thousands of families to live in garages and campgrounds,” Twyford said.

“Labour’s plan will free up the restrictive land use rules that stop the city growing up and out. It will stop land prices skyrocketing, and put the kibosh on landbankers and speculators.”

There’s no doubt Auckland has a housing crisis at the moment, with house prices increasingly dramatically over the past five years. Rents rose more slowly but the impacts for some families are still alarming. There’s also no doubt that planning restrictions have played their part in creating this crisis – by making it too difficult to build the required number of houses that Auckland has needed.

Addressing regional scale issues like housing and transport was one of the key reasons Auckland Council was amalgamated in the first place and why one of its first tasks was to rewrite the city’s planning rulebook through the Unitary Plan.

But will abolishing the Rural Urban Boundary help? To answer that question it’s important to understand what the boundary is, and what it isn’t. As its name suggests, the RUB is the boundary between land where urbanisation is anticipated and provided for over the next 30 years and land which is intended to remain rural over that time. If you take a look at the map below, it is the black dashed line that separates the yellow-coloured “future urban” zoned land from the brown rural zones:


It’s also important to recognise that the RUB doesn’t exist yet as it’s part of the Unitary Plan being decided by the Independent Hearings Panel. It’s quite a different tool to the old metropolitan urban limit (MUL) that was typically set up against the edge of the existing urban area and made any urban expansion a significant challenge.

The RUB, by contrast, isn’t designed as a permanent boundary. It provides for a substantial amount of greenfield growth – enough to meet 40% of Auckland’s growth over the next 30 years.  The scale of the areas in yellow is highlighted in an Auckland Transport video that looks at the future transport requirements to enable their urbanisation:

The main argument against the RUB is that it creates a scarcity of land where urbanisation is possible, which drives up the price of that land. Over time the high price of land translates into higher house prices and reduced affordability. Fair enough. But what can we actually do about that?

As Auckland Transport’s consultation video above shows, the RUB isn’t simply a line on a map: it’s a plan to provide publicly-funded infrastructure to new urban areas. If you wanted to expand the yellow future urban zoned areas on the map, you’d also have to find the money for additional infrastructure.

In other words, greenfield land is in scarce supply because it’s currently farmland that requires roads, pipes, train stations, parks, schools, hospitals and a myriad of other infrastructure investment to take place before development can actually happen. Making a dent in the housing shortfall by enabling more urban expansion to occur is therefore entirely about speeding up infrastructure, rather than whether or not there is a line on a map.

As we’ve talked about before, the costs of supplying bulk infrastructure to greenfield areas are large. It is time-consuming to investigate, design, consent and build these projects. There’s no quick and cheap way to make a whole heap more greenfield land “development ready”.

In fact, removing the RUB could easily disrupt existing infrastructure plans and slow down overall development. If you take a look at the work that’s been done on transport for future urban growth, the networks are optimised around the location of the RUB. Scattering small developments around the region could force AT and NZTA to react to piecemeal development rather than taking a more strategic approach to infrastructure development.

I suspect that the first thing to get cut due to funding pressure would be the city’s rapid transit plans, which have already been delayed long enough. This would have the perverse effect of putting a damper on the 60-70% of development that’s intended to occur within the existing urban area.

TFUG - Draft Preferred Plan - Northwest

In short, abolishing the RUB isn’t a straightforward proposition. It’s not actually obvious that you could abolish it, as infrastructure plans would simply turn into a de facto RUB.

Ironically, Twyford acknowledges as much in his press release, where he says:

There is a smarter way to manage growth on the city fringes by properly integrating land use with transport and infrastructure planning. There should be more intensive spatial planning of Auckland’s growth areas in the north, north-west and south. Land of special value can be set aside, like the northern coastal strip or Pukekohe’s horticulture soils. Corridors should be acquired and future networks mapped for transport and other infrastructure

Let’s unpack this. First, he says that he’d like to see “intensive spatial planning of Auckland’s growth areas” with “future networks mapped for transport and other infrastructure”. That sounds a lot like the process that Auckland Council and Auckland Transport are currently undergoing for the yellow-coloured future urban land.

Second, he says that “land of special value can be set aside, like the northern coastal strip or Pukekohe’s horticulture soils”. That sounds a lot like some sort of boundary between urban land and non-urban land, which is exactly what the RUB is intended to be. Basically, if you read beyond the headline soundbite, Twyford’s policy starts to sound a lot like Auckland Council’s current policy, just under a different name.

That shouldn’t be a surprise. After all, the current government has been looking at this issue for half a decade now, and they’re pretty critical of restrictions on land supply. If it was a simple matter to abolish the RUB, they probably would have done it by now.

So what could we do differently?

There aren’t necessarily any “magic bullet” solutions to land supply. Greenfield land needs infrastructure to be useful, and infrastructure is expensive and slow to build. Shifting some of those costs onto developers, either through development contributions, targeted rates, or design rules that reduce the need for hard infrastructure (e.g. stormwater pipes) can allow more of it to happen. But the problem is that the developers push back, which limits the gains that can be had in this area.

Consequently, other policies are also needed to enable housing supply. That means relaxing or removing restrictions on building height and density within the urban area. While Tywford and Labour have also said they support this approach, they devoted only a single sentence to it:

Freeing up growth on the fringes needs to go hand in hand with allowing more density – so people can build flats and apartments in parts of the city where people want to live, particularly around town centres and transport routes.

That’s a great aspiration, but to be useful it needs to be backed up by specific policies to limit the use of height limits and other density-killing rules like minimum parking requirements. For example, would Labour lift building height limits throughout the urban area? If so, how high?

Lifting building height limits and density controls would have some immediate benefits for housing supply. For one thing, the transport networks and water pipes have mostly already been built, meaning that there’s no lag time waiting for the infrastructure providers. For another, it would make the housing market a hell of a lot more competitive by opening up lots of new development opportunities in the places that people most want to be.

This would also have the benefit of allowing people to avoid the high transport costs associated with sprawling development patterns. Even given Auckland’s dispersed employment patterns, the further out from the centre people live, the further they need to travel to work. This map from a Ministry of Transport analysis of the 2013 census data which shows how far people travel to get to work based on where they live:

This trend is repeated around the world, with more spread out cities requiring a greater amount of travel and, consequently, a higher proportion of income being spent on transport. In some cases this can end up outweighing any savings in housing costs. If we’re going to lift restrictions on housing construction, it makes sense to prioritise lifting the ones that also pose a barrier to efficient travel patterns.

Our insane traffic projections

Many times in the last few years we have highlighted a ‘flat-lining’ or at least slowing of growth in car travel across New Zealand. The same trends have been seen in many overseas cities and countries – with the slowing in the UK dating back at least 20 years now. Yet for some bizarre reason this change hasn’t filtered through to those making projections about future traffic growth. In the UK we have seen projection after projection forecasting significant growth – even though consistently it doesn’t happen.

The same process has happened in Washington state, where the Department of Transportation has ignored the flat-lining of traffic growth and continued to forecast significant increases – despite all evidence suggesting they need to change:

Lance Wiggs has picked up on a recent report released by Treasury that looks into the evidence behind the key elements of the transport sector. Towards the end of the report Treasury analyses some projections of future transport demand prepared by NZTA and NZIER. Let’s let Lance pick up the story here:

This line records use of a certain item by New Zealand population since 2000. Where do you think it will be in say 20 years time?

The statistic went up, and then down, and so the best estimate to me would be a flat or downward trend. But rather strangely the authors of this chart determined that all of their estimates would be up, and that the lowest change would be a substantial increase. Here it is, with my added red line eyeball trend:

The chart, of course, is estimated vehicle use in New Zealand, expressed in millions of kilometres travelled. It’s sourced from the “ National Long-Term Land Transport Demand Model, NZIER and NZTA (2013)”, and that’s a critical model as it feeds into all sorts of cost-benefit analysis and policy for transport in New Zealand.

The data is sourced from this report, which appears to make the same mistakes as transport modelling projections in the UK and Washington state have done for the past 20 years – by refusing to believe that anything ever changes about how people travel. Even though evidence to the contrary is absolutely everywhere. Similar bizarre conclusions are made about future levels of public transport use. Back to Lance:

The bias towards cars is also reflected in this chart of forecast public transport statistics – which doesn’t pass the giggle test either. Witness the trend and the projections below (the red is my version of the trend-line):

So for some unfathomable reason the growth in the use of public transport is forecast to immediately and dramatically fall, while the growth in the use of cars will immediately and dramatically rise. It’s ludicrous.

What’s interesting is that a footnote in the Treasury paper notes that these projected trends are completely at odds with what has been happening in recent years. It says:

We note that, although the NZIER / NZTA model predicts a gradual decline in the future, the public transport share of passenger kilometres has shown a steady growth trend over the past decade. This may merit further monitoring and consideration as time progresses.

It seems that at least the public transport projections are a little bit too insane for even Treasury to believe.

In any other area of government activity or a business if the computer models were projecting the complete opposite of what’s happening, what’s been happening for quite some time and what’s happening in cities and countries all over the world, we’d chuck the models out and start again. Yet for some reason we keep believing these illogical outputs and use them to determine where and how to spend billions of dollars of public money. It’s quite disgraceful really.

Transport Spending: what’s the point?

As a country we spend a lot of money on transport, at three levels: central government, local government and personally. In the 2012 budget, around $3.8 billion of expenditure on transport by central government was proposed. Further to that, transport is generally the biggest item of expenditure for local government – the Auckland Council spends over half its money (more than half your rates bill) on transport each year. Plus we obviously spend a lot of money ourselves: paying for petrol, buying cars, fixing cars, registering and warranting cars, paying for parking, paying for insurance, bus fares and so forth.

Obviously at an individual level we pay because we need to get around. Plus we need stuff to get around as well, so that we can get that stuff ourselves. I’m not going to go into the amount we pay for transport individually much in this post – except perhaps to point out that transport costs that are worn by individuals clearly varies and the impact of different transport decisions we make, especially different funding priorities, has an impact on the amount we may need to pay at an individual level. For example, if the public transport system is good enough for one member of a family to rely on for every day commuting, then maybe that family only needs to own one car instead of two (or three) – and therefore they avoid the need for a massive expense in owning, fueling and maintaining that car.

So why do we spend a heap of money (by my reckoning, only social development, health and education would be funded more by central government) on transport? At a high level, it’s so that we can achieve benefits to society that cannot be achieve if there was no public agency managing the revenue collection, planning and implementation of transport improvements (though crazy libertarians will always disagree with this). Each government of the day tends to outline what its broad goals are at a general level, with policies designed to help achieve those goals. The current government wants to focus mostly on boosting the country’s economic performance and productivity. The Auckland Council wants to make Auckland the world’s most liveable city.

Where it becomes really interesting is the next step down – how does transport policy and spending help to actually achieve these broad levels goals? This obviously requires specifying a number of transport goals that contribute to achieving the over-arching vision – whether it be the government’s vision or the Council’s vision. The government thinks that spending big money on reducing traffic congestion on the roading network – particularly parts of the network that are busy freight routes (or, by the look of it, busy during holiday weekends) will make a huge difference to economic performance. The Council’s vision also focuses on reducing congestion, but suggests that this is likely to be best achieved through the creation of an outstanding public transport system and better integration of the transport system.

Occasionally, the two visions conflict – something which doesn’t please the government at all:

Given the cost and the forecast increase in congestion, despite this substantial investment there are fundamental questions over value for money and whether the right mix and timing of projects has been chosen to address forecast travel patterns. A priority for the Auckland Council, potential funders and infrastructure users is to reconsider the proposed projects and undertake the strategic review to determine whether individually, and as a package, they are the right projects to address the long-term transport challenges facing Auckland.

This view is consistent with the official Government response to the Auckland Council, released in July, which noted “… the Government also remains to be convinced that the programme as a whole represents the right mix of projects and will provide value for money. To improve the prospects for alignment on transport policy, the Government encourages the Council to review the proposed projects to ensure the transport strategy is optimised to address forecast congestion under the likely land use pattern”.

I actually strongly agree the Council needs to undertake such a piece of work, but the outcomes of the review might end up being the complete opposite of what the government thinks – the removal of a large number of pointless and eye-wateringly expensive roading projects.

But all of these plans are based on an assumption that reducing traffic congestion will actually lead to better economic growth and/or better liveability. Those are actually assumptions worth testing – as did an article in Atlantic Cities a few months back, which looked at the link between congestion and economic performance. The results will surprise some:The article explains the relationship, which actually shows that per capita GDP is higher where there’s more congestion:

…regional GDP and traffic congestion are tied to a common moderating variable – the presence of a vibrant, economically-productive city. And as city economies grow, so too does the demand for travel. People travel for work and meetings, for shopping and recreation. They produce and demand goods and services, which further increases travel demand. And when the streets become congested and driving inconvenient, people move to more accessible areas, rebuild at higher densities, travel shorter distances, and shift travel modes.

Stated another way, people adapt to congested environments. Because cities provide greater access to job opportunities than do rural areas, as well as wages that are more than 30 percent higher than their non-metropolitan counterparts they have a powerful economic incentive to do so.

Economic development is also intricately related to the density of employment – agglomeration benefits as they are commonly known. Putting more people in close proximity will inevitably lead to more congestion, but the negatives of that congestion (if there actually are any) are seemingly more than outweighed by the benefits of density.

Well what about Council’s assertion that reducing congestion will lead to improved liveability? Well just yesterday Mercer released their 2012 list of the world’s most liveable cities – with Auckland doing really well at number three (for the fourth year running). Let’s take a look at the top 10:

  1. Vienna
  2. Zurich
  3. Auckland
  4. Munich
  5. Vancouver
  6. Dusseldorf
  7. Frankfurt
  8. Geneva
  9. Copenhagen
  10. Berne & Sydney

The bulk of these cites are dense European cities, which generally have quite a lot of congestion due to their limited road network in the inner areas (although obviously they tend to have pretty good transport choices). Other cities that do well include Vancouver, which decided to not build any motorways in its inner areas, and Copenhagen which is famous for being the world’s best city for cycling.

Perhaps what I’m really getting at with this post is highlighting that perhaps we’re focusing on the wrong thing in trying to achieve the ultimate goals of investing in transport? In both achieving stronger economic growth and better liveability, what if relieving congestion actually doesn’t help much? What if it actually undermines our efforts? What if it uses up a whole heap of money that could be better used on transport interventions which actually would assist in achieving the high level visions of both Central Government and Auckland Council (like encouraging greater employment densities or encouraging greater transport choices or reducing the amount of money we need to personally spend on transport so we can spend it more usefully elsewhere)?

For some reason an assumption has been made that reducing congestion will magically result in these strategic outcomes and therefore we need to focus on transport spending almost exclusively on the reduction of congestion. Well I’m calling bullshit on that assumption. And as there’s billions of dollars at stake here, we need to do better, quickly.

Treasury’s interesting position on road pricing

The National State of Infrastructure Report was released by Treasury’s Infrastructure Unit a few weeks back, and makes for some quite interesting and amusing reading in relation to transport. I’ll leave what’s said about transport in Auckland to another post (basically it seems like they’re suggesting Auckland needs a whole pile more motorway but aren’t quite sure where they’ll go), but perhaps one of the most amusing parts of the document is in relation to road pricing.

One would think that Treasury, being a bunch of purist neoliberal economists, would love the concept of road pricing. And on the one hands it seems they do:

There is near consensus among economists that managing demand and optimising our transport networks through some form of more targeted road pricing should be part of the transport programme for Auckland, especially considering the forecast increase in congestion over the medium/long term. However, road users are deeply suspicious of road pricing, especially in the form of tolls and cordon fees, such as used in Singapore and London. In fact, managing demand on our roads using road pricing seems to be an issue with the widest gap between economists and the motoring public. This is despite the large scale of road pricing tools that we already have – Fuel Excise Duty (FED) and Road User Charges (RUC) – although these do not accurately reflect all the full costs imposed on road users. For example, motorists pay the same regardless of whether they travel at peak times or off-peak. Implementing a more comprehensive and detailed road pricing regime would have a number of key benefits.

I get the feeling there’s some interesting politics behind this section. Interesting because we’re in a rather bizarre situation of Auckland Council – with a ‘left-leaning’ Mayor, being keen to investigate revenue mechanisms which include road pricing while there’s a centre-right government who are running away from the idea utterly terrified. This gets reflected even more in the next paragraph:

On the other hand, public reaction to the general concept of targeted road pricing is usually negative, often coming from a fairness perspective. Cordon pricing in London has been seen as being very effective at pricing poorer people from the suburbs off the roads, while enabling richer central city dwellers to move around more freely. The high cost of bringing a car into the city may deprive lower-income people of important options, particularly when public transport does not provide the flexibility that a car can provide. A further concern is often a lack of trust that government will use the revenue raised for the purposes advised.

I’m not sure whether we see too many “lower income” people driving their cars into the CBD these days, due to the cost of parking. So that’s perhaps a bit of a red herring issue in terms of a road pricing scheme structured as a cordon around the CBD. It’s probably a more reasonable concern for wider schemes.

 Considering this discord, it is often difficult to know where to start and how to progress the debate in a positive manner. Fundamentally, the challenge is to understand how the current network is being used and determine whether this use is as effective and efficient as it can be. Knowing this demand, and ensuring the network is being used as optimally as possible, provides clarity and robustness around what future investment will be required and when.

Oh the pain! This is just so hard!

I think that if road pricing was proposed as analternativeto existing transport revenue sources – rather than in addition to them – most of the opposition to it would disappear. If people had the choice between a road pricing scheme that varied the amount they paid by time of day or particular road used while significantly reducing petrol taxes or rates, we could have an interesting discussion around how it compares to these other transport funding mechanisms and whether it would deliver better transport outcomes while raising the same amount of revenue.

The big problem in all the debates about road pricing is that it’s always put forward as a revenue raising tool, when it fact it’s actually a market-based demand management tool which prices the roads to ensure a better match between demand and supply: just like we price bread, computers and Ferraris to get the most efficient outcomes. Of course there will be the potential for adverse social impacts of a road pricing scheme, but that’s just the same as the adverse effects of current rating schemes or the unfairness of someone having to pay the same to use the roads when they only drive around at the weekend as someone who makes long trips during peak times and helps contribute to the traffic jams around Auckland.

I’m not quite sure why Treasury don’t understand this. Or maybe they do, but it’s politics getting in the way?

National Infrastructure Plan

The government has today released its second National Infrastructure Plan, outlining its expenditure (and the principles behind it) on infrastructure such as transport, electricity, telcommunications, water and social infrastructure over the next four years. In terms of transport, as far as I can see there’s absolutely nothing new in the plan – but it provides an interesting and useful collation of information. It also provides a helpful insight into the vision and goal of future infrastructure investment, as well as an analysis of the strengths and weaknesses of existing infrastructure and the framework around its development.

Overall, putting aside the contradictions between what the plan says and what many of the government’s actual decisions about investment are, I think the plan is pretty good – at least in how it relates to transport. For example, the challenges of infrastructure investment are well highlighted (even if I don’t necessarily agree with all of them):

  1. Infrastructure investment is well analysed at the project level but there is insufficient consideration of how assets function as a
    network or address potential changes in demand.
  2. New Zealand’s infrastructure is vulnerable to outages, including through natural hazards, and we have insufficient knowledge of network resilience at a national level.
  3. The volatile nature of infrastructure funding creates a lack of certainty and continuity for infrastructure providers. There is insufficient use of the tools available to generate revenue and manage demand.
  4. The performance of infrastructure assets is not transparent. It is not always clear who is accountable for decisions.
  5. The regulatory environment does not support long term infrastructure development and contributes to unnecessary costs and uncertainty.
  6. Poor coordination between different infrastructure providers leads to suboptimal outcomes. Decisions over land use and
    infrastructure investment could be better integrated.

I would have also added to this list the difficulties of not knowing what the price of oil will be in 10-20 years time, or knowing exactly what the impacts of climate change will be – but one can’t have too high expectations of this particular government I suppose.

One useful thing that is highlighted very strongly is the overwhelmingly dominant role that Auckland plays in the country’s population growth over the next 30 years: I know it may be wishful thinking (especially when you consider the government’s attitude towards Auckland in recent times), but I am hopeful they may realise Auckland requires some fundamentally different thinking to the rest of the country when it comes to infrastructure provision. With 60% of the country’s population growth over the next 30 years Auckland probably does need a step-change in its infrastructure provision – it simply won’t be possible to fit 60% more cars on our roads, for example.

Digging into the real meat of the plan, there are a series of “Guiding Principles” for the provision of infrastructure. These are investment analysis, resiliency, funding mechanisms, accountability and performance, regulation and coordination. For each, the plan provides an analysis of the existing situation and a desired future direction. Here’s what’s said about investment analysis – the process of working out whether a particular piece of infrastructure is “worth it”:

I generally agree with what’s said above, that we need to do better when it comes to assessing which projects make best economic sense. It’s interesting that the plan suggests erring on the side of over-investment rather than under-investment, that seems to me as a fairly risky strategy of potentially spending a lot of money on something that’s not actually necessary. Maybe this is the “RoNS clause”?

Another of the guiding principles that I’m glad has been included is the need for better coordination, in particular better interaction between transport decisions and land-use planning. Though I do worry that when the government says this, what they really mean is “we need to open up land for urban sprawl to support our motorways”: I like the idea of regional infrastructure plans. I guess Auckland’s spatial plan will be something of the sorts – although once again it remains to be seen how different the government’s spatial plan vision is to Auckland’s.

If we look at transport infrastructure in a bit more detail, some of the contradictions between the vision and principles of the Plan, compared to what the government’s doing on the ground, start to become a bit more obvious. That is, despite a desire to ensure investment thinks long-term, provides value-for-money and is resilient to change, we see the vast bulk of new transport funding going into building new motorways – a very narrow part of the transport portfolio. A case study included in the plan, regarding transport demand, perhaps unintentionally provides a useful insight into the reason behind this bizarre contradiction: So despite the fact that traffic levels have been pretty constant for the past few years, there’s an expectation they will rise consistently over the next 20 years. And then we don’t see a ‘lower growth path’ option to show what might happen if petrol prices continue to rise, just a higher growth path. One does wonder what assumptions these projections are based upon, and how the Ministry of Transport can explain traffic trends in the past few years.

The document also says some fairly ‘stock standard’ stuff about Auckland:

The government is supporting Auckland in the development of a spatial plan because it recognises the potential of the
plan to address some of the coordination issues in Auckland’s transport sector and to provide greater coordination of land
use decisions with transport investment.

To facilitate economic growth, Auckland will need large scale investment in key projects. The government will work with the region to analyse and evaluate future large projects to ensure that appropriate investment decisions are made and that the infrastructure is built at the best time to achieve optimum uptake and value. Currently the Auckland CBD Rail loop and an additional harbour crossing are topical, however, as the spatial plan is developed other projects may become apparent. Projects such as these will also need to be considered in the context of other infrastructure priorities for the region and the period over which they will be required.

And it sees an unusually (for this government) important role for public transport:

Increased public transport reliability and patronage will be supported through investment in public transport in major urban areas, where analysis suggests it is most needed. Specific examples are bus ways, park and ride facilities, bus lanes, bus priority information systems and integrated ticketing systems.

To ensure that the strategies for the Auckland and Wellington metrorail networks are well-aligned with other regional priorities, the government has clarified governance arrangements and is pursuing a metrorail operating model, whereby regions have greater autonomy and responsibility over these operations. The model is predicated on regions taking responsibility for the standard of service they wish metrorail to deliver. The government will then signal the role that it expects metrorail to play in the overall network’s ability to move people efficiently and will support local government in its decision making.

It is interesting that a couple of years ago the government was keen on basically taking over urban rail operations, but now it has pulled back significantly.

Response to the Infrastructure Plan from opposition parties is unsurprisingly critical – although not necessarily saying that it’s a poor plan, but rather saying that it simply re-announces projects already announced (which is a fair point) or that it has good goals, but they’re contradicted by many of the government’s actions. Which is essentially what I think of the Plan. It’d be fine (with a few amendments), if only the government actually listened to it themselves when making big transport funding decisions.

The Problem with KiwiRail

There has been a lot of talk in recent days about how some railway lines might be under threat of closure because KiwiRail is not generating enough business along them to make them viable. It probably didn’t help that the National Infrastructure Plan’s fairly mixed words on KiwiRail’s future came out on the same day that KiwiRail reported worse than hoped for financial results. I think a lot of people have put the two together to theorise that the end of lines such as the Gisborne-Napier Line, the northern Wairarapa Line and the Stratford to Okahukura Line (which hasn’t been used for a few months now due to damage it suffered during a derailment) might be drawing near. The government hasn’t exactly been providing much reassurance, and I do at least partially agree with the Labour Party when they say that the government’s heart just doesn’t seem to be in KiwiRail.

Let’s look at the bigger picture for a minute, before I get into what I think the problem is here. The National Infrastructure Plan certainly says that most investment in the rail network should be focused on lines that are the most commercially viable – which makes logical sense. What’s said in the tract I quote below actually sounds fairly promising in some respects:

The Government wants to set KiwiRail on a path towards commercial independence and long-term viability. For that reason, any financial support for it will focus on helping it catch up on deferred capital expenditure in those parts of the rail network where rail offers the greatest comparative advantage to other transport modes, based on undistorted price signals. This is likely to be in the transport of bulk goods, and imports and exports to and from major ports, where rail offers a vitally important alternative to road transport. This will relieve congestion and provide a greener and more cost-effective transport solution for some users.

In terms of future capital expenditure, it’s a little more mixed:

Subject to policy decisions about the size of the rail network and level of service the Government wishes to support, it is possible that KiwiRail will undertake further capital expenditure. For example, the current locomotive and wagon fleet is old (average age is 30 years for locomotives and 25 years for wagons) and prone to structural failure, and thus allows little or no room for revenue growth. In addition, a new interisland rail ferry is likely to be needed by 2016 to replace the ageing vessel Arahura. This may cost up to $250 million to purchase, or long-term leasing arrangements will need to be put in place.

There’s something a bit strange here though. We don’t generally say things like “subject to policy decisions about the size of the state highway network….”, or “it is possible that NZTA will undertake further capital expenditure on the state highway network…”, so why are we saying this about the rail network? After all, the rail network and the state highway network are both critical pieces of infrastructure that I think deserve to be treated in similar ways.

Yes, there are very very few inter-city passenger trains meaning that the rail network (outside urban areas) is almost exclusively used for freight purposes, but that doesn’t mean things have to be that way, or that they will always be that way. For all we know, in a decade’s time petrol could be $8 a litre, we will be electrifying inter-city railway lines around the country and thinking about catching electric trains to cities around New Zealand when we want to visit them. Just as we have a critical network of power lines, roads, telecommunications and so forth, the rail network is simply that: infrastructure. In the longer term I would imagine a whole pile of different companies operating freight services on the rail network, competing against each other for business potentially and so forth. The government would, and should, still own the rail network and all the organisation that goes on behind the scenes – but in terms of the actual trains that run along it who knows what the future ownership structure might be.

The problem that we have at the moment is that the infrastructure side of KiwiRail is bundled up with what is essentially “just another freight company”. Because of this, KiwiRail has the completely unreasonable task of being asked to use the money it makes from its freight business to both pay for the delivery of that freight business but also to maintain and develop the core infrastructure of the rail network. The first part is fair enough, and as far as I know KiwiRail do a pretty damn good job of ensuring that their income covers the job of delivering their business. The problem is that they are also required to spend huge amounts of money on looking after the railway network. That would be like asking the trucking industry to build and fund the road network – completely unreasonable and impossible!

When KiwiRail was bought back by the government in 2008, ONTRACK (which was the trading name for the government’s ownership of the tracks and associated infrastructure) was effectively subsumed into the freight business that had previously been Toll and was now KiwiRail. In hindsight I think that was a mistake, and (here’s for a fairly controversial thought) I think that ONTRACK and NZTA should have been brought together into one agency – perhaps known as “Transport New Zealand” or something like that. By putting ONTRACK into the same agency as NZTA there would have been proper recognition of the railway network as part of the transport network, not just the rights-of-way used by a particular freight company (in this case KiwiRail).

There are a number of other advantages that would arise from having ONTRACK merged with NZTA. The most obvious one to me is that we’d finally have an agency capable of planning, funding and constructing critical urban rail projects such as the CBD Rail Tunnel, rail to the airport and so forth. In our cities railways act very similarly to motorways, so it seems crazy that we have a very capable agency (NZTA) doing excellent long-term planning, designations when necessary, construction and so forth of motorways – but when it comes to ever doing anything about urban railways you need to get about 20 different agencies together, develop funding systems that we’ve never seen before and so forth. Having one agency responsible for delivering both the state highway network and the railway network would also mean that motorway projects would effectively compete against railway projects for funding – we could assess whether the CBD Rail Tunnel or the Holiday Highway is a better use of that $1.4 billion. This is how you end up with the best decisions being made, when all types of projects have “equal access” to funding and are chosen on merit.

Another advantage would be that the railways would no longer be expected to “make a profit”, just as the state highways aren’t expected to do so. There would be recognition that together, the railways and the state highways form a critical part of New Zealand’s infrastructure. In the meanwhile, KiwiRail would be able to get on with the job of actually trying to make a profit without being lumped with the unfair cost of having to fix 20 years of neglect of the rail system while trying to run a competitive freight business.

I have heard some public transport advocates worry that if rail was part of NZTA it would be ignored and sidelined. I don’t actually think that’s the case. I really think that NZTA wants to do public transport – I mean heck they are keen on extending the northern busway to Orewa even though it’s probably about priority number 3257948728529 on the list of needed public transport projects in Auckland. Why are they wanting to do this? Because it’s the only public transport project that they can actually do. NZTA are pretty damn good at weighing up which projects are most necessary (when they are left to do it by the politicians), and I think that it’s pretty clear important railway projects in Auckland – for example – would rise to the top of their list.

Oh, and NZTA have money. No other transport agency in the country seems to have any money but NZTA have buckets and buckets of it. So we might actually be able to improve the rail network if ONTRACK was a part of NZTA instead of KiwiRail.

The National Infrastructure Plan

The government has today released their “National Infrastructure Plan“, which details the state of various infrastructure around the country as well as giving some guidance about where investment in infrastructure is likely to occur over the next 5-7 years. It’s not the “big bang” plan that looks 20 years into the future that I somewhat expected it to be, but in a way I think that might be a good thing. With significant changes happening in the world over the next few years – such as effects of climate change and peak oil really beginning to be felt – it’s probably a good thing that we don’t get locked into a 20 year plan that ends up being outdated before its implementation has even begun.

The “vision” section right at the start of this Plan has this to say about transport infrastructure:

Our roads, railways, ports, airports and telecommunications systems will offer New Zealanders greater choice about how we connect with each other and with the world. Our ports and airports will be competitive and accessible, and we will enjoy affordable ultra-fast broadband, opening up trade opportunities and enabling all New Zealanders to participate in society and the economic future of the country.

A variety of transport options will make New Zealand an easy and safe country to move around in and visit. The full social cost of each transport mode will be transparent and priced accordingly, enabling people and firms to make the best choice about how they move themselves, their goods and their ideas.

I like the mention that the full social costs of each transport mode will be made transparent and priced accordingly. Hopefully this will be a step away from the blinkered thinking that often leads to roads being funded ahead of other transport modes, because those wider social effects are not taken into account. As I have said many times before, transport is not just about getting people from A to B, it’s about doing so in such a way that ensures A, B and everywhere in between is a nice place to live, work and play.

In terms of particular priorities, somewhat unsurprisingly it is the roads of National (Party?) significance that are highlighted. This is somewhat frustrating considering that the very same OECD study that is often referred to as the justification for investing in infrastructure specifically shows that investing in motorways doesn’t generate growth – whereas investing in local roads or railways does. Here’s the graph: (see my original post for some further explanation of what this graph means).

It is a bit odd to see the Infrastructure Plan give such a high priority to a second Waitemata Harbour crossing, as the harbour bridge’s traffic flows have been pretty static over the past five years, and peak hour flows fairly steady since the mid 1990s. While it is probably inevitable that Auckland needs another harbour crossing at some point in the future, this need does need to be traded off against other important transport projects such as the CBD rail tunnel, rail to the airport, providing some rapid transit out to the eastern suburbs of Botany, Flat Bush etc. and so forth. I’m not quite sure whether duplicating a bridge with stable traffic volumes is really the highest priority compared to these other projects personally.

Perhaps the most promising aspect of the whole Infrastructure Plan is what is said about the need for greater integration between urban development and transport infrastructure investment:

The performance of our cities: infrastructure planning and urban form

Major infrastructure projects, especially transport projects, can have a significant impact on the location and form of economic activity in our cities: they tend to shape urban development, guiding or influencing households and firms to make particular locational choices. In this way, the decisions made about where, when and what infrastructure is constructed, whether it is significant transport investment or social infrastructure investment such as schools and hospitals, can have a significant influence on the future anatomy of a city, locking in patterns of demand for generations. The anatomy of a city can then be a significant influence on the city’s resilience – hindering or helping its adaption to changing environmental, demographic and economic conditions.

While the Government is concerned about the co-ordination and delivery of infrastructure that responds to existing problems, investments also need to be able to anticipate future needs, particularly in a rapidly-growing urban centre like Auckland. This means central and local government need to think about how to ensure the right strategic, or ‘shaping’, infrastructure is delivered at the right time and in the right place, to ensure maximum productivity and social welfare gains over the longer term. In terms of transport, this means giving thought to those projects that will produce the most desired pattern of household and firm location, reduce aggregate travel times, facilitate connectivity, and offer long-term economic, environmental and population health benefits.

Work that the Government is currently undertaking as part of phase two of the resource management reforms, drawing on previous work undertaken by the Ministry for the Environment, Department of Building and Housing, and Department of Internal Affairs, touches on these issues.

Auckland has New Zealand’s largest urban infrastructure aspirations. These include the Waterview Connection, the new Waitemata Harbour crossing, a CBD rail tunnel and an airport rail link. It is clear that it will not be feasible for Auckland or New Zealand to fund all these multibillion-dollar projects at the same time. The projects will need to be scoped, prioritised and phased to ensure that steady progress can be maintained while simultaneously ensuring that work continues on improving the infrastructure and networks that already exist. This will require the region to reach clear conclusions about how it wants Auckland to grow, and the balance it wants to strike between improving existing capacity and adding new capacity to the network.

That is about the best argument yet I’ve heard in favour of the CBD Rail Tunnel: that is strategically fits with the growth plans for Auckland, which involve intensification around the rail corridors (at least for now).

In terms of what the Infrastructure Plan says specifically about rail and roads it’s a bit of a more depressing picture. As per usual there’s tonnes of money available for roading, whereas for rail – while the plan recognises that Auckland has aspirations for projects like the CBD  rail tunnel etc. – the plans are much vaguer. Here’s what’s said about rail capital requirements:

Future capital requirements

Subject to policy decisions about the size of the rail network and level of service the Government wishes to support, it is possible that KiwiRail will undertake further capital expenditure. For example, the current locomotive and wagon fleet is old (average age is 30 years for locomotives and 25 years for wagons) and prone to structural failure, and thus allows little or no room for revenue growth. In addition, a new interisland rail ferry is likely to be needed by 2016 to replace the ageing vessel Arahura. This may cost up to $250 million to purchase, or long-term leasing arrangements will need to be put in place.

Demand for further investment in the Wellington and Auckland metro rail systems will also continue, although this is driven by passenger demand and the investment plans of local government, rather than KiwiRail as the national rail operator. Beyond the projects already approved and under way, regions have significant aspirations for the ongoing development of their metro passenger rail systems, which would require expenditure of billions of dollars over the next 20 years:

1) Auckland is planning for an inner-city underground passenger rail loop connecting the Britomart Transport centre and the North Auckland Line near Mt Eden station, a rail link to the airport, a rail line connecting Avondale and Southdown, and a rail tunnel under the Waitemata Harbour to the North Shore.
2) Wellington is planning for the purchase of further electric trains, and ongoing improvements to rail corridors, stations and park and ride facilities, including the provision of ‘feeder’ shuttle services.
3) Christchurch is investigating the possibility of introducing commuter rail, and a commuter service between Hamilton and Auckland is also being investigated.

I must say it does seem quite strange to me that KiwiRail’s role in developing the rail networks in Auckland and Wellington is minimised by this plan. I had always thought of KiwiRail as the “rail equivalent” of NZTA, and certainly NZTA are very very much involved in planning, constructing and managing Auckland’s motorway network.

Overall, while the details of the Infrastructure Plan are extremely, but not surprisingly, roads focused, I think there is a bit of hope in some of the more strategic parts. In particular the need to align urban growth with transport infrastructure is excellent – and should prove to be a boost for rail projects like the CBD tunnel. Surely this is what “strategic fit” should mean, as opposed to “whether or not the transport minister likes this project” as seems to be the case at the moment. If Auckland was planned to sprawl to Whangarei then the Puhoi-Wellsford road would probably be a good strategic choice. But it’s not, over the past 10 years Auckland’s growth strategies have sought for it to intensify around the rail corridors, and even if that strategy is coming to an end, it’s fairly likely the changes will not deviate too much from what’s being going on over the past decade.

It’ll be interesting to see how this Infrastructure Plan works moving forwards, and how much weight it ends up having. As I have said above, there are some good bits to it and some bad bits. I suppose that I’m trying to be positive in what I can find in there that would support sensible, sustainable thinking about transport infrastructure. It’s there, if you look hard enough!

(Final note: if this post seems oddly disjointed it is because I wrote one almost twice as long but WordPress ate it. Argh!)