Every six months the Ministry of Transport produce a monitoring report on how Auckland is performing against the targets the government set for work to start prior to 2020 on the City Rail Link. As a reminder
On 28 June 2013, the Prime Minister announced the Government’s commitment to a joint business case with Auckland Council for the City Rail Link in 2017 and to providing its share of funding for a construction start in 2020.
The Prime Minister also stated that the Government would consider an earlier business case and construction start date if it becomes clear that Auckland’s CBD employment and rail patronage hit thresholds faster than current rates of growth suggest. The two thresholds are:
- an increase in Auckland CBD employment of 25 percent over the February 2012 estimate (the baseline), which is half of the increase to 2021 predicted in the 2012 City Centre Future Access Study ; and
- rail patronage is on track to hit 20 million trips a year well before 2020.
The reports are in August and February each year based on patronage to the end of June and December. So far the reports have been extremely underwhelming, especially in relation to patronage. The first one in December 2013 essentially predicted that Auckland would never make the CRL target. The second one in August 2014 and the third one in February this year predicted that patronage would grow till about 2017 then taper off.
With a new report due soon, I thought it would be worthwhile do give my take on the report if I was writing it for the minister.
We remain unconvinced that CBD employment is a particularly useful measure of the need for the City Rail Link. Even if just as a measure of demand for travel to the CBD, there are many other factors – such as parking costs and availability, public transport offerings – which can and are changing travel demand.
Data on CBD employment is produced annually and isn’t due from Stats NZ until later this year. At this stage we’re not expecting any significant change in employment numbers as research from Colliers International shows that the Auckland city centre continues to experience historically low vacancy rates. They say prime office space has a vacancy rate of just 1.4% compared to a 20 year average of 8.2%.
We do note that a number of new builds are due to be completed in the next year or two and since the last update, a number of very large projects have been announced or made significant progress towards starting construction over the next few years. In addition many of these projects are along the City Rail Link route.
Auckland Transport’s rail patronage data for the year to June 2014 shows patronage of 13,916,822 trips, an increase of 2,481,737 or an increase of 21.7%. This is ahead level needed to reach the target by 2020.
Over the course of the Ministry’s monitoring reports the rate of patronage increases has actually accelerated. We expect that high patronage growth will continue for a number of years yet as the full impacts of rolling out the electric train fleet, the new bus network and integrated fares are rolled out. Extrapolating the trends witnessed in recent years shows – as Auckland Transport have in the chart below – that patronage could hit the 20 million target as early as mid-2017. The chart plots the extrapolations out to 2020 however we expect capacity constraints to prevent patronage rising too much above 20 million trips.
While we expect patronage to reach the 20 million target in advance of 2020, we do see some potential risks to that – although it is worth pointing out none of these risks relate to demand for rail trips. The two biggest risks are:
- Capacity of the rail system – Despite the extra capacity provided by the new electric fleet, there are already reports of capacity constraints emerging. These will be exacerbated by future growth including the changes resulting from the implementation of the new bus network. We recommend that the government urgently enter into discussions with Auckland Council/Transport about the potential of buying additional trains.
- The City Rail Link enabling works – The enabling works will see the main entrance to Britomart closed as part of the works to start building the CRL. It is unknown if this will have any impact on patronage from people looking to avoid the disruption. Conversely it is possible the enabling works may have a positive impact on patronage as a number of other city centre roads will be adjusted to also handle AT moving buses off Albert St during the construction period.
Rail Patronage growth has been strong and remains on track to reach the target needed for an earlier start to the CRL.
Employment has been stymied by a lack of available office space however that looks set to change over the medium term as a number of large developments in the city centre become available.
We believe the government should urgently re-consider it’s timeframes for the project with a look to getting it under-way as soon as possible. The longer it is left the greater the number of people and businesses will be negatively affected by crowded trains and construction disruption.
Yesterday the Treasury released documents related to the government’s budget announced a few months ago. One that has gained a lot of attention is the suggestion from Treasury that the rail network – with exception of Auckland and Wellington – be shut down. The paper can be found here and contains quite a bit of information – although a lot of the actual details such as how much funding Kiwirail want in the future are not shown.
The current New Zealand rail network
The paper discusses how Kiwirail have undertook a nine month study into its operations last year and the key findings were
- rail’s high fixed costs are spread across the network and do not materially vary with changes in volumes being transported
- revenue earned from train movements on most parts of the network is interdependent with other parts of the network because most freight movements travel across multiple network segments, and
- as a result of the high fixed costs and interdependence of revenue between the different network segments, it is challenging to reduce costs as fast or to the same extent as a reduction in revenue.
In other words this isn’t just a case where you can trim off a few dead limbs and carry on but that those limbs all combine to contribute to the overall network. For example trains carrying milk powder from Taranaki also use and contribute towards the busy Hamilton to Tauranga section on their way to the port. Just like has happened in the past here and overseas in places like the UK, cutting back the network can do more harm than good. As such it was recommended that one of two main options be pursued.
- retain most of the freight network and rationalise unprofitable services and some lines on the fringes of the network, or
- close most or all of the freight network, with the option of retaining the upper north island section only (Auckland to Hamilton to Tauranga) as this part of the network carries the most freight volumes and covers most of its costs.
Treasury’s preferred option was to close the network and in their argument for doing so they say that over the last 5 years earnings haven’t really changed. They do however note that Kiwirail have been hit by a huge number of external factors which even they suggest the magnitude of and extent of which have been greater than the company could be expected to deal with. These include the Canterbury earthquakes, the Pike river mine explosion, Solid Energy’s financial difficulties, extreme weather events and the Aratere being out of service for a period earlier this year. What’s more the hits keep coming and now it seems the next issue will be looming trouble with the dairy industry.
One aspect the paper does highlight is that Kiwirail are really running a shoestring operation. As part of Treasury looking for ways to reduce funding they note that there is no evidence of “gold-plating” infrastructure or inflating funding requirements. They also highlight the results of an independent assessment by AECOM who say that in comparison to Australian systems, planned spending on infrastructure per kilometre was low. They also couldn’t find opportunities to reduce what was planned without significantly impacting levels of service. This doesn’t surprise me as I frequently get the impression the company is running only on fumes after being institutionally and politically beaten up.
The report claims that shutting the rail network down
During 2014, the Treasury, the Ministry of Transport and NZTA undertook an assessment of the economic and policy considerations for continuing to fund KiwiRail at the levels required. The key findings from this work were:
- if all the freight currently transported on rail was transferred to road, the additional road user charges (RUC) earned by NZTA from the additional trucks on the road would be sufficient to adequately address road capacity and safety issues (resulting from the additional trucks) in most areas
- the estimated environmental and safety benefits from transporting the current volume of freight by rail of ~$10 million and ~$20 million per annum respectively do not outweigh the costs of continuing to fund rail, and
- a national cost benefit analysis estimated the net social cost of continuing to fund rail at the levels sought in this paper at between $55 million and $170 million per annum, which takes into consideration all the costs and benefits associated with funding rail at the levels required (another interpretation is that there is a shortfall in benefits of between $55 million and $170 million per annum at the current levels of funding).
I find it interesting the claim that shifting all rail freight to truck would pay for itself and any capacity and safety upgrades. According to the MoT there are currently around 900 freight trains around the network each week which probably equates to more than 3,000 trucks worth of goods being moved each day. The trucking lobby will be rubbing their hands with glee.
Treasury wanted the government to only provide one more year of funding during which public study would be carried out before what they assume would be a closure of the network. They do say that if the government didn’t agree to that, that they should provide Kiwirail more certainty by way of a three year funding package – something the Ministry of Transport supported. Thankfully the government didn’t agree with Treasury and agreed to keep funding Kiwirail – although only on a two year package.
I personally have no issue with Treasury looking at the issue of whether we should fund something, that is after all a key part of their job. What I do have an issue with is that there doesn’t appear to be a consistency in advice. Where’s the questioning of the RoNS businesses cases – some of which are as low as 0.2, where’s the questioning about why we’re pouring so much money in to new roads when people are travelling less and the assessment of many projects showing major flaws. Then there’s the absurd notion that the rail network should be a profitable business while ignoring the road network elephant in the room. For example the NLTP announced last week shows around $3 billion of funding from outside road taxes to build and operate the network.
In my view Kiwirail should stop being treated like a business and instead the government should stop the madness of the NZTA not being able to fund rail improvements. That would allow rail projects that meet certain requirements e.g. improve safety and/or capacity to compete on a more even playing field. The NZTA should also be required to consider and allowed to build rail projects as part of any other improvements they make to get the best transport network outcome regardless of mode. They are after all the transport agency, not just the road building agency.
An interesting piece on Radio NZ what the CEO of the Ministry of Transport think will be the future of transport in NZ. I agree with some of what he says but in others it seems like he off the mark. You can listen to an interview here
Or listen here
New Zealand had 2,488,008 licensed cars and vans on its roads at the last count three months ago.
However Mr Matthews, who is also Secretary of Transport, said in three decades there will be little point in people owning such vehicles.
“I have to say as a self-confessed petrol head and the owner of five vehicles, the concept of not owning a vehicle is pretty hard for me to swallow.
“But for my grandchildren, I’m sure it won’t be so difficult for them to imagine,” he said.
Mr Matthews told the transport summit he foresees major changes in how people travel, envisioning a future “more tailored to individual needs” and with “more choice”.
“You’ll no longer need to look to see when a bus, train or taxi will be available because there probably won’t be any bus stops or bus timetables, in fact there’ll be no parking as well.
“You’ll probably no longer need to worry about cleaning out the garage to get the car in because you probably won’t own a car.
“It simply won’t make any sense anymore for you to own your own vehicle,” Mr Matthews told the internationally-attended summit.
I agree that in the future people probably won’t own cars however I’m a bit sceptical it will completely happen within 30 years given the pace of change in the car industry, for example the average age of a vehicle in NZ is around 13 years and getting older. The issue of bus stops are an interesting one though as he doesn’t appear to be suggesting that buses themselves will disappear. In my view we’ll still see PT but increasingly it will high quality, high capacity options such as busways and rail (light and heavy) and more dedicated stations rather than small stops. Within that system driverless cars are likely to be quite a useful last mile solution.
Of course if we don’t need carparks or a garage and driveway that also opens up a huge amount of space in urban environments that can be put to better use. In cities like Auckland where space is at such a premium that presents interesting opportunities.
One area I think he’s way off the mark is on the future of freight
He said there needed to be a drive toward significant improvements in the productivity and efficiency of freight supply chains, and he believed freight vehicles would be self-driving.
“These modern road trains will be more flexible, more responsive to market and consumer demands than any of our current train systems can ever be… The rail network outside of Auckland and Wellington, which is shared with commuter services, already effectively provides a separated freight corridor.”
Mr Matthews said these corridors could be transformed into high-speed freight networks.
“Rail may not be the technology of choice in the future for New Zealand… I imagine the space the corridors currently occupy being allocated for a different way of use.
“Imagine platoon trucks not guided by rails, but by a system that allows them to operate safely on narrow concrete pads through these dedicated freight corridors.”
Ripping up the railways and turning them into truckways has been a desire from the trucking industry for decades. Is it really practical for us to spend what would be 10’s of billions to rip up the existing working rail network and replace it with continuous concrete strips strong enough to carry super heavy trucks. Included in that is bound to be a need to duplicate the corridor seeing as most of the rail corridor is single track. We’re then going to have fleets of driverless trucks to run on these truckways in a platoon just like trains and carriages do now. To be honest I’m not quite sure what we gain from this suggestion and if it’s automation that’s desired it would surely be cheaper and easier to upgrade trains to be driverless and then invest in automated systems to quickly load and unload trains at destinations.
The UK consultant who is also quoted in the piece sums up one of the issues quite nicely too.
“Platooning of trucks has been tested, successfully tested quite a few times – it works – technology is not a real problem.
“The problem is acceptability and the problem is liability – acceptability because car drivers don’t want to be associated with large trains of trucks where the person doesn’t appear be in control.”
One thing I will say about the views of the MoT CEO, at least they are starting to look to the future. These comments follow on from a report late last year looking at future demand in which only one of four scenarios would see travel demand increase. They’ve also been doing more work thinking about the future – one piece of which I’ll try to talk about this week.
This is the fourth 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 last two posts, I took a look at MoT’s analysis of benefit-cost ratios (BCRs) for new state highway and local road projects. They’ve found that BCRs for state highway projects have fallen significantly since 2008, meaning that we’re spending more money for road with fewer benefits. Consequently, 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.
This week, I want to take a look at a slightly different issue: Which regions are doing well (or badly) out of road spending? The MoT report includes some in-depth analysis of “regional equity” in NZTA’s expenditures on road maintenance, construction, and public transport over the period from 2002/03 to 2011/12.
Here’s the key chart. It compares the total revenue that NZTA has raised from each region against the amount of money that NZTA has spent in those regions.
A few things jump out from the chart. The first is that NZTA’s spent slightly more than it raised from fuel taxes, road user charges, and other sources. The second is that there are some big disparities between revenue and expenditure in some regions. In particular: Auckland and Wellington are getting about 20-25% more in NZTA expenditure than they pay in revenue, while Canterbury is getting only slightly more than half as much expenditure as it pays in revenue.
Here’s a summary table of which regions are doing well and badly out of NZTA’s funding criteria:
This can’t be explained by a few major projects or funding calls in one or two years. MoT’s analysis of spending over time shows that “where regions either received significantly more in expenditure or significantly less in expenditure, that accumulation was fairly constant over time. Differences are not due to changes in single years.” In other words, the regions that got less spending in 2002 were also likely to get less expenditure in 2012.
The MoT report goes on to take a look at some potential explanations for disparity in spending, such as differences in population, GDP, vehicle kilometres travelled (VKT), etc. Unfortunately, it’s difficult to draw robust conclusions from their analysis as there is likely to be endogeneity, or simultaneous causation, between these variables. (Perhaps MoT should consider using an instrumental variable approach to control for this?)
Here’s one view of the issue, which compares NZTA expenditure with regional population. It tells a similar story – Auckland, the Waikato, and Northland attract more funding than their share of the population would imply, while Canterbury gets less.
One thing that MoT didn’t cover, unfortunately, is the relationship between projected future population growth and spending. It’s reasonable to spend more to enable future growth rather than pouring money into declining regions. This could help to explain the high level of spending in Auckland and the Waikato, which are picked to grow faster than NZ as a whole. However, it doesn’t explain the low level of spending in Canterbury, which is expected to be the second-fastest growing region in the country over the next three decades, or the high level of spending in Wellington, which is not expected to grow rapidly.
Statistics NZ’s 2013-2043 population growth projections
Lastly, it’s also instructive to look at the relationship between NZTA’s regional expenditure and the share of national VKT travelled in those regions. This is a useful measure because VKT per capita varies considerably between regions. According to MoT’s data, people drive less in Auckland (10% less than the national average) and Wellington (almost 25% less than the national average). While major urban areas require fewer roads per capita, they may need more spending on public transport infrastructure and services. Canterbury, by contrast, is pretty close to the national average in terms of VKT per capita.
As you can see, this comparison continues to show that Auckland and Wellington are over-funded relative to their driving behaviour, while Canterbury is under-funded.
Because so much of NZTA’s expenditure consists of road spending, this suggests that recent Governments may have misunderstood the needs of New Zealand’s major urban areas. In effect, they have spent a lot of money on roads in cities where public transport, walking and cycling are growing rapidly. Motorway extensions at the edge of town – e.g. Puhoi to Warkworth and Transmission Gully – are not especially useful for meeting transport needs in urban areas. They may be useful in regions like the Waikato where people and freight travel longer distances, but cities are different.
The data also suggests that Christchurch is getting under-funded. As the data series stops in 2012, it’s difficult to tell whether this trend has reversed since the 2011 Canterbury Earthquake, which damaged a fair chunk of the city’s infrastructure. The earthquakes also created space for residents and the city council to push for innovative ideas like a frequent bus network and a network of major cycleways. It would be great to see the region pushing on ahead with these ideas, but past under-funding makes me wonder whether there are institutional barriers to funding projects in Christchurch.
What do you make of MoT’s data on regional transport spending?
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.
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?
Elsewhere in the paper, MoT sums up the situation as follows, with a nod to the idea that traffic forecasts are over-predicting growth:
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:
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:
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.
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:
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.
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:
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?
All the way back in June 2014, Matt asked the Ministry of Transport if he could see some of the background research that informed the 2015/2016 Government Policy Statement on Land Transport Funding. They were slow in responding to his Official Information Act request, but the information has gradually trickled out. Two days before Christmas, MoT sent him a long, very interesting working paper on New Zealand’s capital spending on roads.
Over the next four weeks, I’m going to review some of the key findings from the paper. To briefly summarise: there are big issues with the land transport budget. The paper suggests that current road spending may represent a massive misallocation of capital. 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.
The first things that jump out from the report are the demand forecasts being used to predict the need for more roads. As we have been observing for years, overall vehicle kilometres travelled (VKT) in New Zealand have been flat for almost a decade. (In line with trends throughout the developed world and in almost every US state.) Here are MoT’s estimates of VKT on state highways (yellow line) and local roads (green line) since 2001:
It is reasonable to assume that the eight-year-old trend of flat traffic volumes will continue, at least in the near term. But MoT’s paper suggests that the government’s not making that assumption. They commissioned consultancy NZIER to forecast future traffic growth over the period covered by the 2015/16 GPS. Here are their results:
These forecasts are a bit laughable. The paper offers no explanation for why we should expect the trend of the last eight years to immediately reverse itself. Fortunately, MoT seems to be aware that NZIER’s forecasts are unreliable. In order to demonstrate that, they ran NZIER’s forecasting model backwards, using data from previous years. They found that the model did not match past data very well – often a sign of a poorly-designed model:
As we discussed last year, since 2006 MoT’s own forecasts for future VKT have all proven too optimistic in the long run. However, unlike NZIER’s model, they have often picked short-term trends accurately:
[Note: The paper contains a number of other charts summarising various forecasts – I’ve only excerpted a few of the more interesting ones. It’s well worth taking a look at the rest.]
What does all this mean? I had two very different reactions – one technical and one policy-focused.
First, from a technical perspective, what is going on with NZIER’s forecasts? I’m not familiar with their models, other than the vague statement in the MoT paper that they were based on projections for population and economic growth. However, it seems like they may be based on careless use of regression models, including:
- Omitted variable bias – it seems like NZIER may have assumed that traffic grows in proportion to one or two variables – e.g. population and economic growth. In doing so, they may have excluded other important variables, such as the structure of the economy, the location of projected population growth, and the impact of technology (e.g. online shopping, smartphones, video calling).
- Model mis-specification – NZIER may have assumed a positive, linear relationship between (say) income levels and per-capita VKT. However, the actual relationship may be more complicated. It might actually be true that people drive more until they reach a certain income level, and then start driving less.
- Inappropriate assumptions about causality – Regression models measure the degree to which two variables are correlated. Establishing that there is a causal relationship is much more difficult. NZIER may have (wrongly) assumed that a past relationship must necessarily hold true in the future. And they probably haven’t explicitly accounted for the impact of investment decisions in shaping demand.
But that’s all just economic mumbo-jumbo. Ultimately, I’m more worried about the implications of these forecasts for investment decisions. Are bad forecasts being used to justify a road-heavy investment programme? If NZIER’s forecasts are being sensibly discounted (and ignored) by transport agencies, I’m not that worried about them. Economists (myself included) make ludicrous statements on a regular basis, usually to little effect.
But if they are being taken seriously, New Zealand’s taxpayers should be concerned. If policymakers and planners are basing major investment decisions on the NZIER forecasts, they may misallocate scarce funds to roads that will not be needed. That is money that could be better spent on other things, such as bringing New Zealand’s underdeveloped public transport and walking and cycling options up to scratch, building new schools and hospitals, or rebuilding Christchurch.
Next week: What’s happened to BCRs for new state highway projects?
Simon Bridges has released the final version of the 2015/16 – 2024/25 Government Policy Statement (GPS) following on from the draft version earlier this year. The GPS is effectively the top dog when it comes to transport funding and policy as in the words of the minister:
The Government Policy Statement on land transport (the GPS) sets out the Government’s strategic and policy goals for land transport, as well as the funding direction necessary to achieve them. It guides not only an investment of $3.4 to $4.4 billion per annum from central government, but around $1.0 billion a year from local government.
The GPSs relationship to other key planning documents is shown below.
Very little has changed from the draft version we saw with the Ministry of Transport saying some of the changes are:
- The upper ranges of funding available for public transport have increased, so up to $115 million more will be available for public transport projects between 2015/16 and 2024/25. This takes the potential spending on public transport to a total of $4.585 billion.
- The objectives set down in the final GPS 2015 have been amended to ensure they are clearer and more well-defined. A new ‘efficiency’ objective has been added, while the ‘demand’ objective has been clarified so it refers to access to social and economic opportunities.
- A definition of major metropolitan areas (reflecting the Statistics New Zealand definition) has been added, clarifying those areas which are eligible for funding under the Regional Improvements activity class.
- The Auckland Transport Package (announced by the Government in 2013), Accelerated Regional Roading Package (announced in August 2014) and the Urban Cycleways Package (announced in September 2014) have been referenced throughout GPS 2015. While funding for these will be provided in addition to funding for activity classes, the packages will be considered and undertaken in a way consistent with other projects funded under the GPS.
- The role that technology and innovation can play in managing network access and capacity has been reflected throughout the document, including the new crosscutting reporting line which will ensure technology investments (and the returns on these investments) will be transparently recorded.
In other words there’s been some tweaking around the edges but no significant change. That means there is still some massive hypocrisy and double standards contained within the document. As a quick example, while noting that vehicle travel has basically flat-lined and will “remain more muted than in previous economic cycles“, the maximum possible funding for state highways increases by 4%. By comparison almost all talk in the document about improving PT services comes with the caveat of “if justified by demand“. Simplified you could say PT investment has to justify its existence but road investment doesn’t.
Related, the maximum possible funding for PT increases by 3.5% per annum and the MoT say “This rate of increase reflects current and projected patronage growth“. Of course that level of projected patronage growth only exists because of the level of funding being made available limiting services. If Auckland Transport had more funding they could roll out the new network much faster and of course by doing so we would see stronger patronage growth much sooner.
One of the key things about the GPS is the funding ranges it sets. These funding ranges are meant to give the NZTA some (small) amount of flexibility when setting the National Land Transport Programme (NLTP) which sets out the projects that are likely to be funded. The NZTA could theoretically use the maximum funding ranges in some categories at the expense of others however overall the exact amounts selected tends to be closer to the midpoint between the upper and lower figures.
And using the mid-point between the two figures, this graph highlights where the money is going over the next decade.
In terms of the maximum extra $115m possible for PT, for the next three years the difference between the draft and the final version over the next 4 years are compared to the draft are just $5 million in 2016/17 and $10 million in 2017/18.
In addition to the table above the GPS also lists the funding outside of the categories above, in other words money the government is paying directly for transport projects such as the governments $100m Urban Cycleway funding that they announced in the lead up to the election. One of the things that’s odd about that particular funding stream is it seems to be broken up into state highways and local roads elements which is something that hadn’t been mentioned before.
Overall the direction of transport policy has changed little since 2008/09 and the focus remains on building massive state highway projects – most with low value outcomes – while the areas of the transport system that are seeing the most growth get ignored.
We have long criticised the Ministry of Transport as being horribly outdated in their thinking on transport matters. It’s always difficult to know the extent to which the Ministry is just reflecting the government’s political direction or whether they truly believe what they’re saying, but in more recent times there have been a few signs that the Ministry might be getting its act together. For example, their Briefing to the Incoming Minister highlighted some important changing transport trends, particularly when looking at future funding issues.
It seems like some of the more interesting advice in the “BIM” might have come out of the Ministry’s “Strategic Policy Programme“, which has recently published information on projects in three key areas:
I’ll look to get to all these documents in a few posts over the coming days and weeks, but for now focus on the “Future Demand” work, which seems to have highlighted the uncertainty around the future of transport that comes through in the BIM more strongly than it has before. The summary highlights the key issue:
The road network is worth more than $60 billion and costs more than $1 billion a year to maintain. We are planning to invest $10 billion over the next ten years to change the shape of the network to improve its quality and capacity.
This would be relatively straightforward if we knew how demand would change. The challenge we face, however, is there have recently been changes to the patterns of demand for personal travel.
From 1980 to 2004 we saw annual increase in demand in the order of three percent per year. This highlighted the importance of tackling congestion and improving safety and gave us assurance revenue would grow to cover the costs of a growing network. From 2005 to 2013 total demand only grew by 0.25 percent per year.
We now face an uncertain future. We cannot be certain demand will return to pre-2005 levels of growth nor can we be certain it will remain flat. This means we can no longer rely on traditional forecasting models alone to help us to decide how to invest.
Importantly, the Ministry acknowledges a systematic over-projection of future demand has occurred in recent years:
As there are so many factors that may affect future transport demand, plus so much uncertainty around the short-term and long-term causes of these changes, the Ministry’s project developed four different scenarios for the future based around two-axis: whether the relative cost of energy would increase or decrease and whether technological change would lead to a preference for virtual or physical accessibility.
Perhaps what is most interesting in the scenarios is the modelling that was done on future total vehicle kilometres travelled between 2014 and 2042 and that they declined in three of the four scenarios. This is not a per capita decline, but an absolute decline. It is only the “traveller’s paradise” scenario which saw VKT increase over this time period.
The study draws some interesting conclusions:
When we think about creating a thriving New Zealand we should recognise we are trying to improve access not just mobility. There are three different ways we can achieve this: with good transport systems; with good spatial planning; or by improving digital access. We need to integrate our thinking across these three areas to achieve the optimal outcome.
To reduce the uncertainty we face we should seek to better understand the factors affecting the changing patterns of demand and refresh our demand models accordingly. We should look both at social trends and also speed in development, take-up and impact of new technologies.
To ensure resilience of the access system we develop for New Zealand we should seek to build in flexibility where we can. This will allow us to respond more quickly to changing patterns of demand and reduce the likelihood that we will make investments which will become unnecessary.
We need to recognise that the investment decisions we make will shape patterns of demand and not just respond to them. We should move away from the approach of seeking to simply predict future demand and then provide for it. We should instead debate the sort of access we want and decide how to invest to support the future.
That last sentence is exactly what I’ve long thought, our travel choices are a reflection of the system that we’ve invested in. It’s no surprise that so many rely on cars for transport options when for so long that’s the only thing we invested in improving while at the same time we allowing all alternatives to get substantially less attractive and useful. The changing trends that we’ve been seeing over the last decade are in part a response to the fact we’ve slowly started to improve some of those alternatives.
There’s a huge amount of additional background information on the project website, which is worth a read through as it summarises a lot of discussion about the issue of “peak car”.
While it’s great to see the Ministry doing this work, the real test will be to see whether this affects any policy changes. The draft Government Policy Statement seemed to write off the recent flattening of VKT as a “blip”, whereas this future-focused work suggests that, under the majority of scenarios, it’s here to stay and VKT could even start declining.
Last week the Briefings to government ministers (BIM) were published. I’ve already looked at what the Ministry of Transport (MoT) and NZTA have said about transport in Auckland and so in this post I’m going to look at some of the other points mentioned in the documents. In particular what they say about long term trends and funding issues.
Perhaps the most significant aspect in the BIM from the MoT is that they are finally starting to acknowledge the transport world is changing. That demographics are shifting and people are starting to think and use transport differently to the trends that have persisted for around 60 years. Of course these are the same issues we regularly talk about and previously the ministry seem to have taken “it’s a blip” approach the the real world results. As such it was a pleasant surprise to finally see such an acknowledgement from them.
The MoT have split the changes into three areas:
- A growing and ageing population
- Uncertain demand for personal travel
- New technologies driving improvements in safety, efficiency, and environmental outcomes
A growing and ageing population
Along with the talking about the huge population growth expected in Auckland the briefing notes this important point about the biggest demographic group in most western countries.
By 2036, the number of people in New Zealand aged 65 and over is forecast to double to 1.2 million. The ageing population is more pronounced outside of the major urban areas and international data suggests that individuals halve their vehicle kilometres travelled when they retire. This is likely to radically change transport demands in the regions and reduce the revenue base available to maintain the transport network and meet social expectations for levels of service.
Our large older generations halving their car travel would have a massive impact on the demand for new roads in particular. As that happens the demand for Super Gold cards is going to soar. The next section almost had me falling of my seat when I first read it.
Uncertain demand for personal travel
Around 96 percent of personal travel in New Zealand occurs in private vehicles. Historically, the total distance travelled by private vehicles has increased consistently over time. This consistent growth has been driven by an increase in population and the number of vehicles in the fleet, and an increase in the distance travelled on a per capita basis. However, as shown in figure 2 below, this growth has stalled in recent years.
The average distance travelled per-person in light passenger vehicles has fallen by around 8 percent, from a peak of about 7,600km in 2004, to around 7,000km in 2013. The total distance travelled over the same period has increased marginally (from 39.3 billion kilometres in 2004 to 40.4 billion kilometres in 2013) as a result of population growth. This trend is not unique to New Zealand – it has been observed in a number of developed countries.
There is some debate as to whether this trend is the result of economic factors or a more structural shift in attitudes towards personal transportation. The fact that this trend emerged before the onset of the global financial crisis gives cause to believe that social, behavioural and lifestyle factors (such as the proliferation of smart phones, social media, online shopping and video conferencing) may also be having an influence. A related trend is a reduction in the number of driver licences being issued. In particular, fewer young people are choosing to drive. This suggests that in some groups, the perceived merit of car ownership and use may be declining.
Strong population growth means that overall demand for transport across all modes will continue to increase. Motor vehicles are and will continue to be the predominant mode of transportation in New Zealand for the foreseeable future. However, the rate of growth in motor vehicle travel seen in the twentieth century is unlikely to continue. An ageing population, rising fuel prices, increasing urbanisation, improved mobility and accessibility options, growing health and environmental concerns, and changing consumer preferences all appear to be contributing to reduced per-capita travel in motor vehicles and an increase in demand for alternative transport options
To me this is a huge admission from the MoT and I guess they could only go on so long ignoring the data that was in front of them. I really hope this means we can start to have a more rational discussion about our transport future along with an acknowledgement that we can also shape that future, especially in our urban areas. The last section touches on this future a little however it once again shows the ministry (and we’ve seen it repeated by the Minister) seem to think driverless cars are going to magically change everything.
New technologies driving improvements in safety, efficiency, and environmental outcomes
Technology is everywhere, and it is changing the way we live our lives. It is changing how and when we communicate with each other, whether we travel to purchase goods or have the goods come to us, and where we work. It is changing the demands that we, as a society, place on the transport system and our need for it.
Modern transport systems are becoming increasingly reliant on technology, with increasing levels of automation delivering improvements in safety and efficiency. In the long-term, the use of fully autonomous or driverless vehicles has the potential to revolutionise the transport system. In the more immediate term, the increased availability and reducing cost of information technology will offer improvements in efficiency, safety, and social experience. Technology will play an increasingly important role in helping to improve service levels while managing costs.
Moving on, the long term future of the current funding model is raised and it’s clear the MoT is concerned about the future funding stream for transport. Here are some high level predictions for what the MoT say we may see.
In the next ten years:
- The historic link between the rate of economic growth and the level of demand for transport will continue to weaken. We will achieve economic growth without an equivalent increase in transport demand.
- As our population becomes more concentrated in urban areas, local councils with stagnating or declining populations and low growth prospects will find it increasingly difficult to meet the cost of maintaining their existing networks.
In 20-30 years:
- Gradual improvements in the fuel efficiency of cars will slowly erode the effectiveness and fairness of Fuel Excise Duty as a means of collecting revenue from transport users.
- Solutions to congestion in cities are likely to become increasingly expensive. This could increase the tension between cities’ and regions under a national funding system.
- Greater demand for public transport and active modes could put pressure on the National Land Transport Fund, which is collected from motorists.
The first point about the weakening link economic growth and transport demand is something we’ve highlighted a long time ago. This is quite important as the Roads of National Significance are largely based on the idea they will improve the economy. The last point is also an odd one as we know that investing in PT infrastructure can really help bring down operating costs while also boosting revenue due to more customers using the services.
The briefing says impacts of changing trends could have these impacts on the government.
- We will need to answer difficult questions around the amount that should be collected from transport users, what it can (or can’t) be used for, and how it should be distributed around the country.
- As expenditure rises and the amount collected from motorists at the pump decreases, regular increases in fuel taxes will be required. This could prompt changes to the way we collect revenue from transport users.
- Measures to contain costs and transition towards a more sustainable expenditure path will be challenging, particularly for transport providers that are accustomed to continuous improvements to network standards.
- The government should expect increasing pressure for more funding from both larger cities (especially Auckland), which are struggling to pay for the investments required as a result of population growth; and smaller regional centres, which are facing rising costs with fewer rate-payers to fund them.
There are some serious issues in there and it seems the third one could be aimed at large infrastructure builders hoping for continuous large projects like currently seems to be happening. The current set of projects are already putting large pressure on the National Land Transport Fund (NLTF) and this is highlighted in this graphic below where expenditure is greater than the revenue being generated.
Lastly it’s interesting to see the current transport spend in the context of New Zealand’s history. It’s currently at 1.3% of GDP which is the highest level it’s been for decades and well above the OECD average of around 1%.
Overall it’s good to finally see some sense starting to come through from the Ministry but the question is, will the government listen?