Should impact on land value be part of the cost-benefit analysis?

Submissions to the Board of Inquiry hearing of the Kapiti Expressway project have highlighted what seems to be a pretty critical hole in the cost-benefit analysis process: that the impact on land values of transport projects is simply ignored when it comes to assessing whether they stack up or not – that is whether they lead to an economic gain or not. This is pointed out by a Wellington Scoop article which quotes an opponent to the project Dr Christopher Dearden.

Dr Dearden says the following:

“Our objective has been to stop the implementation of a hugely wrong solution to a relatively minor traffic problem for which there has already been an agreed, locally supported and considerably cheaper answer – the Western Link Road. A road which would have added to the country’s assets rather than depleting them…

“We have been caught in a situation which is not of our making. It’s a situation where argument is difficult because the proposed expressway has no economic rationale, no practicality in traffic numbers or need, is not geographically or sustainably justified, and flouts all cultural sensibility. It relies on pure political whim and it’s difficult to mount rational arguments against that.

“We ask you to reject this application, return the Western Link Road to us, and recommend enhancement of the existing State Highway 1. If you do allow this white elephant expressway to go ahead, then … the rest of our lives will be a time of suffering noise, light and pollution damage as well as vibration. So will all the 1400 households which live within 200 metres of the expressway, and there will be enhanced pain from all those factors relentlessly during the next five years while this monster is built. As many have pointed out, all our properties will lose their value and be unsaleable. Ironically, we will make the biggest contribution to the cost of this road that destroys our lives.

I have put the really interesting bit in bold – the likely impact of the project on the value of nearby properties. The great irony of motorway projects is that if it runs through your house then you’re the lucky one as you’ll be bought out – the really bad situation to end up in is if the project runs just over your fence. That way you get no compensation but the value of your property property is likely to decline.

Of course all transport projects have positive and negative impacts, with the positive and negative effects felt by different people in different locations. However I think it’s really problematic that the cost-benefit process ignores a potentially significant impact of transport investment, the impact on land values both in a positive and negative sense, because these impacts may end up being potentially some of the most significant effects of the transport investment. A good cost-benefit analysis should attempt to quantify all likely impacts of an intervention so it just seems weird (or mightily convenient for the motorway builders?) to ignore effects on land values.

What’s rotten about transport – the politics or the profession?

Over the last week or two we’ve highlighted that there’s something really rotten going on about transport planning and policy in New Zealand. Here are the highlights:

  • NZTA deliberately fudge the numbers in a report looking at justifying a $5 billion transport project, by far the most expensive transport project ever proposed in New Zealand.
  • On reviewing several key motorway projects, NZTA find that the projects don’t perform anywhere near as well as projected and in one case don’t stack up at all anymore. Costs for the projects blow out while the expected benefits simply don’t materialise.
  • The staggering revelation that the Kapiti Expressway’s cost benefit ratio is actually 0.2 and that NZTA tried to block the release of this information for well over a year.
  • Traffic volumes all around the world continue to stagnate or go backwards, however more motorway projects than ever continue to be proposed based on the assumption that traffic will grow substantially in the future.

The comments on that last post, written by my good friend Mr Anderson, drifted into an interesting discussion around the extent to which the stupidity of our transport policy and planning can be blamed on politics compared to the transport profession itself. Max had a useful contribution on the debate:

If all you have is a hammer, every problem looks like a nail. If all you have is state highway funding…

…if NZTA decided today that all they wanted to do was PT projects, they couldn’t. They don’t have the power to change our ridiculously straightjacketed funding allocations. Sure, they could try to twist the system a bit to move some percent from one category to another by fudging things. But they (senior NZTA managers) would do this at the peril of all getting sacked, and that’s just talking of working around the edges. Anyone trying to actively change the large-scale settings of the system would quite simply have to break the legislative rules where our Government Policy Statement sets out that we shall spend X on roads and Z (being an oder of magnitude less) on PT.

That doesn’t excuse those who celebrate driving the ambulance off the cliff by taking glee in it – but explains why those who know what is going wrong have so little ability to change it.

In terms of funding allocations, yes it is the politicians we have to blame. The Government Policy Statement, which sets upper and lower limits to the amount that NZTA can spend on transport projects of different types, is basically written by Cabinet and is the way that governments influence what happens in the transport area. The current GPS is a completely horrific document, reminiscent of 1960s transport policy and, if implemented, will waste billions of dollars on unnecessary expenditure on stupid motorways while neglecting growing areas of transport demand such as public transport, walking and cycling. It will also run down our existing transport asset by skimping on maintenance and renewal, leaving the bill to future generations. For all this, the politicians are most definitely at fault, and if only more people voted based on transport matters, hopefully we might see this policy (or the government) change sooner rather than later.

However, there are a number of other areas where I think the profession itself: not just the traffic engineers we hassle so much but also transport planners, transport modellers and everyone else in the general “transport industry”, needs to take a good hard look at themselves. Here are some great examples of really bad transport outcomes which are the result of the profession, rather than the politicians, being useless:

I understand that politicians are setting the funding bands and that they will push for certain projects to be bumped up priority lists – and that the profession needs to work with this situation. However, there’s nothing stopping the profession from waking up to the flat-lining in traffic growth and fixing the future transport models so they accurately reflect this trend. There’s nothing stopping the profession from then highlighting how particular projects don’t actually stack up anymore. The politicians may choose to still proceed with them, but there’ll at least be public knowledge that X project is happening even though an objective analysis of it says that it probably shouldn’t. Or that Y project isn’t happening even though a good analysis of it suggests that it probably should.

Unfortunately, for one reason or another, the profession seems largely unable to do this at the moment. Is it inertia? Is it that politics is more involved in what should be operational matters than I had thought? Is it because there are a few dinosaur transport professionals in influential positions who just need to go and retire? Whatever it is, the transport profession needs to lift its game. There’s a huge amount of money riding on it doing so!

Kapiti Expressway’s BCR is actually 0.2!

A great scoop by Campbell Live tonight showing that the cost-benefit ratio of the Mackays to Peka Peka part of the Kapiti Expressway – a key section of the Wellington Northern Corridor RoNS project – has been recalculated recently as being 0.2. That is, for around $630 million worth of spending we’re only going to get roughly $120 million of benefit. Click the picture below, or here, to watch the video: 

To be honest I’m not surprised that more detailed analysis has shown that this project makes no economic sense. In some respects it is a solution in search of a problem – much like Puhoi-Wellsford. The Wellington region simply isn’t growing in population very much, plus it has a pretty effective existing rail system. There simply isn’t the need for a vastly oversized piece of infrastructure like what is proposed.

However, I think the real story becomes clear when we start putting the pieces of this puzzle together. Recently we’ve found out that NZTA are happy to fudge the numbers on their $5 billion harbour crossing project and that they generally vastly over-estimate the benefits of their motorway projects. One wonders whether they just typically bury reports – like the one obtained by Campbell Live – which don’t give them the answer they’re after and shop around for something more palatable. In any case I think it’s time for some sort of independent investigation into NZTA as clearly they’re doing a rubbish job at assessing the merits of transport projects and there are, literally, billions of dollars at stake to get this right.

The Roadfather

A great little sign spotted at protests against the Kapiti Expressway near Wellington: