How Cities Foster Innovation

We talk quite a bit on this blog about the importance and value of agglomeration, which is the additional level of productivity which comes from locating activities close to each other. Agglomeration is why Auckland growing will be good for all New Zealanders, and at a smaller scale why central parts of Auckland growing will be good for all of Auckland. While agglomeration economies are well studied in terms of observing that they most definitely do actually exist, it has been a little less certain exactly why they exist.

A recent article in The Atlantic Cities reports on research done by MIT (Boston version, not Manukau version) on this question – with some perhaps unsurprising but at the same time interesting results:

There have been plenty of theories. Adam Smith famously figured that people become more productive when we’re able to specialize, each of us honing a separate area of expertise. And when lots of us elbow into cities, we’re able to specialize in ways that we can’t when a rural farmer must also double as his own butcher, accountant and milkmaid. Other economists have suggested that cities become great agglomerators of industry when factories cluster together around economies of scale and communal access to transportation.

“We think there’s an underlying completely different way of thinking here, which is very different from the economist’s way of thinking,” says Pan, a doctoral candidate in computational social science in the MIT Media Laboratory’s Human Dynamics Lab. Previous work by researchers at the Santa Fe Institute has proven the math behind the power of cities: As they grow in population, all kinds of positive outcomes like patents and GDP and innovation (and negative ones like STDs and crime) grow at an exponential factor of 1.1 to 1.3.

This means that all the benefits (and downsides) that come from cities don’t just grow linearly; they grow super-linearly, and at roughly the exact same scale, with a growth rate that looks on a graph something like this blue line (a linear relationship is shown in red):super-linear
As for why this happens, though, Pan pushes aside theories about the location of manufacturing or the specialty of trade. “It’s more fundamental than that,” he says. “Cities are about people. It’s just that simple.”

We have discussed the work of the Santa Fe Institute in before in this post with a video presentation by theoretical physicist Dr Geoffrey West.

The full paper in which the study is published highlights that fundamentally it’s the density that we’re able to form social ties which generates the super-linear increase in outcomes. As noted, “the larger your city, in other words, the more people (using this same super-linear scale) you’re likely to come into contact with.”

However, unlocking the potential of cities is dependent upon ensuring that sufficient transport infrastructure is available for the city to effectively function as a large connected entity, rather than just a series of smaller disconnected placed which just happen to be next to each other. This is detailed further below:

“What really happens when you move to a big city is you get to know a lot of different people, although they are not necessarily your ‘friends,'” Pan says. “These are the people who bring different ideas, bring different opportunities, and meetings with other great people that may help you.”

Maybe this doesn’t sound like a novel discovery – that the inherent power of cities lies in our individual connections to each other. Other researchers have nipped at a similar idea, calculating, for example, the “social interaction potential” of place. But until recently, most economic thinking sidestepped the sheer value of human interaction in favor of explanations about the proximity of manufacturing, or the processes of production.

This explanation for the power of cities also raises some curious questions about those places that remain an exception to the model. In some African cities and Eastern mega-cities, innovation and productivity don’t grow super-linearly. Populations grow, but the benefits don’t accrue with them as we would expect. This is likely because transportation infrastructure in those places is so poor that people aren’t able to connect across town to each other. “To live on the west side of Beijing,” Pan says, you never go to the east side.”

What I find fascinating is to analyse whether the internet has the ability to change this fundamental relationship – because it’s now so easy to be in instant contact with a huge number of people no matter where you are. Yet none of the recent research seems to suggest that technological advances make agglomeration less important – in fact it seems like as employment specialises more and more, agglomeration actually becomes more critical than ever.

Almost the world’s most liveable city

The 2012 Mercer Quality of Living Ranking survey has Auckland as the world’s third most liveable city – retaining the same ranking as 2011. The survey is designed to assist employers in the placement of expatriate staff and how much they should receive in living allowances, so the results tend to indicate quality of living if you’re really well off, however they give a useful guide. Here are the top 20:The explanation for how the results are collated is helpful in making sense out of them:

Mercer evaluates local living conditions in more than 460 cities it surveys worldwide. We analyze living conditions according to 39 factors, grouped in 10 categories:

Political and social environment (political stability, crime, law enforcement)
Economic environment (currency exchange regulations, banking services)
Socio-cultural environment (censorship, limitations on personal freedom)
Medical and health considerations (medical supplies and services, infectious diseases, sewage, waste disposal, air pollution, etc.)
Schools and education (standard and availability of international schools)
Public services and transportation (electricity, water, public transportation, traffic congestion, etc.)
Recreation (restaurants, theatres, movie theatres, sports and leisure, etc.)
Consumer goods (availability of food/daily consumption items, cars, etc.)
Housing (rental housing, household appliances, furniture, maintenance services)
Natural environment (climate, record of natural disasters)

The scores attributed to each factor allow for city-to-city comparisons. The result is a quality-of-living index that compares relative differences between any two locations that we evaluate. For the indices to be used effectively, Mercer has created a grid that allows users to link the resulting index to a quality-of-living allowance amount by recommending a percentage value in relation to the index.

For 2012, Mercer also prepared an Infrastructure Index, based on Electricity, Water Availability, Telephone, Mail, Public Transportation, Traffic Congestion & Airport Effectiveness. The results for this index are in many places quite different, with Auckland dropping from 3rd for liveability to 43rd for infrastructure provision. This most likely highlights that transport, particularly public transport I suspect, is the main barrier to becoming number one. The table below runs a comparison between the lists for those cities which appeared in both lists – those which scored better in the infrastructure are shown in green and those that scored better in the liveability are shown in red:It’s interesting that Auckland and Wellington are the two cities which outperform their infrastructure score in the final liveability ranking so much. What’s also interesting is that the cities with the top two infrastructure scores which haven’t corresponded to ending up in the top 50 liveable cities are Dallas and Atlanta: notoriously car dependent cities.

What is very interesting is that Auckland’s poor infrastructure score, relative to liveability, is perhaps reflected in Auckland generally scoring quite lowly in terms of economic performance compared to a number of these other cities. This is outlined in the Economy chapter of the Auckland Plan quite starkly:

Measured internationally, Auckland’s performance is relatively poor: it is ranked 69th out of 85 metro regions in the Organisation for Economic Co-operation and Development (OECD) in terms of GDP per capita. New Zealand’s economic performance has declined relative to other OECD countries in terms of GDP per capita to its position at 21st, but has stabilised at around 80% of the OECD median.

Pulling a few strands together, I think there’s likely to be an argument that Auckland’s historic under-investment in infrastructure – particularly the kind of transport infrastructure that encourages productivity through boosting employment densities – has held back our economic growth. This is reflected not only in our relatively poor economic performance, but also in our relatively low infrastructure scores in the Mercer survey. Because our transport investment in the past has been so focused on encouraging employment dispersal we have missed out on the agglomeration benefits that would have otherwise been enjoyed and therefore missed the economic growth that we should have had.

Fortunately there seems to be a growing recognition of this faulty thinking and a growing realisation that smart transport investment is about encouraging and facilitating land-use patterns which support economic growth – particularly through agglomeration. Let’s hope the government finally starts to understand this point and sees how critical a project such as the City Rail Link is in boosting Auckland’s economic productivity by allowing much greater employment densities in the city centre and in major centres on the rail network across Auckland. I can’t say I have too much hope though, sadly.

Sideswipe Covers Travel Time Savings

In recent days the Herald “Sideswipe” column has helpfully illustrated some of the core issues around urban sprawl and using travel time savings as a measure of the worth of a transport project. It started with this on Monday:

 Good life in the country costs less

OK, so you move out to, say, Whangaparaoa from the North Shore to get a more affordable mortgage. The estimated extra petrol costs ($55 a week) aren’t going to make it more expensive than the difference in mortgage payments. Mike Dennehy explains:

“1. You live close to town and have a $500,000 mortgage. Using Westpac’s online mortgage calculator, repaying a $500,000 mortgage over 20 years at the current rate of 5.6 per cent p.a., your monthly payments are $3468.

“2. You move out of town and get an affordable house at, let’s say, a $300,000 mortgage. Using the same calculator, the monthly repayments are only $2081. The difference looks like this – you will save $320 a week on your mortgage, and pay an extra $55 a week for transport. You’re $265 a week better off, and you’re on the housing ladder. It gets better: the annual difference is $16,640, but you only have to come into work for a maximum of 48 weeks, so the extra travel works out at $2640 a year. You’re better off by a whopping $14,000 a year!”

A reader responded to this on Tuesday with:

“If you live in Whangaparaoa instead of, say, Takapuna, you will spend around 30 minutes extra each way in your car at rush hour. Since in each eight-hour work day most people spend at least a couple of hours doing pretty much nothing (coffee, gossip etc), commuters work an extra day a week, equal to 20 per cent of their salary in lost time/money.”

I do wonder if this particular reader is a transport economist for the NZTA, as this evaluation seems to be straight out of the Economic Evaluation manual. Finally today there are some more responses in today’s Sideswipe, including one from yours truly:

Commuting isn’t equal to cash

“A commuter in Whangaparaoa might spend a lot of time commuting by car, but this isn’t ‘equal’ to 20 per cent of their salary,” says Cam Pitches. “People choose to commute in their own time, not their employers’. A recent NZ Transport Agency survey found that 40 per cent of people actually enjoyed their commute. Common responses identified any time savings would be spent on non-work/non-study activities such as sleeping, more time getting ready for work, eating breakfast, family time, household chores and reading.”

Cheaper doesn’t mean better value

A reader says Mike is right that buying a cheaper house further out will cost you less to pay off, but he is forgetting that at the end of paying off the mortgage, you have a house worth $300,000, not $500,000.

 West is best for the commute

Gary lived in Cockle Bay, Howick, for 27 years, but this year he moved west, to Riverhead. “I work in Newmarket and it was 24km to work from Howick. Now I travel 28km to work, but the trip is 20 to 30 minutes quicker because I don’t have to battle traffic on the Pakuranga Highway anymore. I now enjoy the wide open spaces for the same sort of money as a house in Howick. Because of the position of Riverhead and new motorway links, I can head north or south out of Auckland, or go anywhere within Auckland and not have to use the harbour bridge. That alone made the move worthwhile.”

These are quite useful illustrations of how human behaviour contradicts the official way benefits are calculated, as covered in this post.  The last is a good example of how increasing capacity of a transport corridor encourages longer distances to be travelled.  It is also backs up David Metz’s research which concluded that in spite of billions of pounds being invested in transport in the UK, average commute times have remained largely unchanged for decades. Perhaps it is time we focussed more on the absolute peak carrying capacity of the transport corridors we build too?  And favouring transport projects which reduce our reliance on fossil fuels.

Of course the other important issue is how much more productive/relaxed a commuter would be on the 897X from Whangaparaoa, over a commuter in their their car – again a point ignored when travel times are considered to be an economic “bad”.

Hopefully NZTA takes note of their own survey and revisits some of their economic assumptions.

Measuring ‘transport benefit’ better

In transport planning there’s a lot of talk about ‘cost-benefit analyses’, leading to a “BCR” (benefit cost ratio) for a particular project. Projects with a BCR of greater than 1.0 deliver more benefits than the money expended upon them (and any disbenefits the project generates) and are therefore worth considering spending money upon. In terms of transport projects, the BCR is used to measure a project’s “efficiency” – which together with an analysis of “strategic fit” and “effectiveness” determines whether that project should happen or not. BCRs of between 1 and 2 get a “low” ranking, 2-4  for a “medium” and above 4 for a “high”.

To calculate a benefit-cost ratio there are obviously two things you need to know – one is fairly easy, being the costs. The other, the benefits, is much more complex. Economic theory says that the best cost-benefit analyses capture as many costs and benefits relating to an intervention as possible, but when it comes to transport matters things are a bit narrower.

The “Economic Evaluation Manual” – an incredibly long and complex document, is used for this process. The EEM outlines which benefits are relevant for measurement and how one goes about measuring them. The main benefits are typically the following:

  • Travel time savings
  • Vehicle operating cost reductions
  • Safety benefits
  • Travel reliability benefits

For public transport projects, benefits are split into those enjoyed by the PT users themselves and those enjoyed by other people as a result of a PT improvement (people changing mode from driving will mean everyone else can drive a little bit faster). In recent times a lot of thinking has gone into analysing “wider economic benefits” of transport projects – with “agglomeration benefits” (being the benefit arising from economic activity being more closely located) now able to be included in the EEM calculation of any project’s benefit. Agglomeration benefits are usually calculated as a proportion of the travel time savings benefits, with that portion dependent on the type of project being considered.

While a fairly wide range of benefits are outlined above, in the calculation process they are certainly not all considered equally. For most projects, the vast majority of benefit arises in the form of travel time savings – an extrapolation of the old saying “time in money”. A transport project that makes it quicker to get from A to B is said to generate a dollar benefit. This benefit varies depending on whether the trip is for business, commuting or “other” purposes. Add up all the minutes saved, multiply by the dollar amount and you have a project justified.

The problem with this approach, in my opinion, is that it does not properly capture many other benefits and costs. Widening a road to shift traffic faster not only comes at the cost of construction, but also at the cost of a street that’s now probably less friendly for pedestrians and cyclists and has less general amenity. This amenity loss is likely to only show up in analysis of the impact of a project on property values, but that’s not something able to be captured in the evaluation process.

Similarly, a project which slows traffic down to improve things for pedestrians, cyclists and to boost the attractiveness of an area will come out of this process with a negative BCR (not just below 1, but actually below zero) because it slows vehicles down – even if it generates a whole pile of other benefits. This is why NZTA makes no contribution to footpaths, why it is so often extremely difficult to get additional traffic signals put in place for pedestrians and why we end up with horrible roads like Mayoral Drive, Hobson and Nelson streets: because vehicle speed is valued above everything else.

Creating this road would have had a fantastic BCR, but was it worth it?

 Let us think for a minute what the real benefits of something like the London Underground of New York Subway really are. It’s not in the reduction of congestion: the roads are still full of traffic. It’s not in making traffic go faster: as I said, the roads are still full of traffic. But rather, the real benefit of both projects is that they have enabled each city to grow far bigger and far more prosperous than would have ever been possible without that infrastructure being in place. These underground rail systems enable a simply huge number of people to travel around the cities without destroying the fabric and attractiveness of those cities and without requiring utterly incomprehensibly large amount of space for parking.

These are a different kind of transport benefit from what we’ve measured in the past, and really get to the crux of transport being a “means to an ends” rather than an ends in and of itself. While roading projects could very well be measured in the same way, for some reason they’re not – perhaps because they’d perform rather badly in comparison (they require such a huge amount of space for the benefit they bring).

The crux of this issue is that when the government says that various public transport projects don’t “stack up”, it’s largely because they are being assessed against a system that is flawed and misses out so many of the most significant benefits that something like the City Rail Link would bring. Where’s the assessment of the benefit provided by Auckland’s city centre being able to double in employment count? Where’s the assessment of the benefit from not needing to waste so much space on tens of thousands of carparks? Where’s the assessment of the benefit to property values – not just in the city centre, but also along all the rail corridors?

The disputed economics of the City Rail Link

A few months back when Auckland Council and the government released vastly different results from their (supposedly) joint review of the City Rail Link’s business case, we learned that the process of determining whether a project is “worth it” is not the objective exercise that is so often portrayed. The government’s review said the project’s cost-benefit ratio was 0.4 while Auckland Council’s review put that number at around 1.1. As both parties were fairly agreed on the costs, it was debate over the magnitude of the benefits that really led to the disagreement. As an interesting sequel to this debate, a recent paper discussed at the Council’s Economic Forum today, put together by Auckland Council’s chief economist and based on work done by the NZ Institute for Economic Research that looks at a key component of this debate: the ‘discount ratio’ used. The concept is discussed below:

A country’s social discount rate policy should attempt to solve two distinct problems (with ideally two distinct instruments). The first is to take account of an infrastructure project’s ‘wider economic investment’ effects. This means ensuring that public projects do not crowd out/replace even more profitable private sector projects, as measured by their social opportunity cost – as well as taking account of how productivity improvements stimulate more private sector investment. These wider investment benefits and opportunity costs can differ significantly between projects, depending on how the original investment was financed and the kind of benefits they provide. Taking account of these features is critical to ensure value for money.

The second problem is determining the social rate of time preference. It is well accepted by economists that individuals and society in general, place a higher value on benefits and costs that occur in the near future vis-a-vis those that occur many years into the future. Consider for example, asking a two-year-old if they would like a lollipop today, or two lollipops in a years’ time. The social discount rate makes a judgement on the value of benefits and costs received in the future. This “time value” judgement is critical for the aspirations of sustainable investment in New Zealand’s transport network and our corresponding level of wealth over time. The social discount rate currently used in the assessment of transport projects is 8% (real, meaning net of general price inflation; all discount rates here are expressed in real terms).

This is a somewhat overly complex explanation in my opinion. My understanding of discount rates is to ensure that we know it’s better of putting money into a project than just chucking it in the bank. Having $1000 of benefit now is more valuable than getting that $1000 of benefit next year, because if you put your money in the bank you’re going to earn something off it.

In any case, the main debate in the paper is not over whether we should both having a discount ratio, but rather what that ratio should be and whether the benefits should be “chopped off” at some point in the future. Different projects have different types of benefits, some which happen quicker and some which last longer. A useful example of how two projects (one with short-term benefits and one with long-term benefits) compare is outlined below:

This 8% real social discount rate means that policy-makers equate a unit of benefit2 received in 30 years’ time, with 6 cents received today. A reduction in the social discount rate would alter this equation significantly. For instance, at a discount rate of 4%, policy-makers would equate a unit of benefit received in 30 years’ time with 31 cents received today (so benefits in the future are given a higher value). This has important implications for the type of projects approved for funding. A lower discount rate changes the prioritisation of transport projects from those that have benefits in the short term to projects that have benefits further into the future.

For example, Figure 2 illustrates this for two hypothetical projects that are mutually exclusive (that is, doing one means you would not do the other). Project A (e.g. widening a road) realises benefits immediately and sustains them indefinitely, while project B (e.g. implementing a rapid transit corridor) has smaller benefits in the short to medium term but substantial benefits in the longer term.

The decision for which project to invest in lies, in large part, in the value society places on future benefits – a judgment made implicitly by the social discount rate. Using New Zealand’s current discount rate of 8%, project A is preferred over project B, because the benefits from project B are realised in the distant future, which is heavily discounted. In fact, transport project evaluation is currently capped at 30 years because any benefits realised after this period are often discounted to zero. This means that the majority of the benefits of project B are excluded in the benefit cost analysis. In contrast, using a discount rate less than approximately 5% means project B would be preferred over project A.

Here’s the image:What gets really interesting is when this theoretical debate gets applied to real projects, like the City Rail Link – which has very long-lasting benefits, but benefits that accrue somewhat slower than smaller projects like widening a road.

Figures 3-6 below illustrate this point using the City Rail Link (CRL). Figure 3 shows the undiscounted benefit stream of the CRL. Notably, the project’s benefit stream is very similar to the long-lived project in Figure 2 above (project B), where benefits are shown to increase into the future. Figure 4 shows the benefit stream of the economic appraisal using a standard New Zealand appraisal following the Treasury guidelines of an 8% discount rate and a time period of 30 years. This gives a discount benefit stream of 1.8 billion and a Benefit Cost Ratio (BCR) in the order of 1.1. However, if the appraisal period was lengthened to reflect the long-lived nature of the CRL, then the benefits attributable to the project would increase to 2.7 billion and the BCR would increase to a figure in the order of 1.5. This is shown in Figure 5 using a 60 year appraisal period. This example shows how current methodology is biased against long-lived projects, because many of the future benefits are simply not included in the standard evaluation.

The graph showing the gradual but consistently growing benefits of the City Rail Link is a very good match with the theoretical “project B” outlined in the graph above:60 years into the future the benefits of the project are quite truly massive, and still growing. This is not really too surprising, the New York Subway continues to provide that city with enormous benefits that grow each time its ridership grows – even though the subway opened over 100 years ago. That was an investment with benefits that have truly lasted the test of time.

Looking at the standard way of measuring benefits, you can see what a tiny fraction of the undiscounted benefits are actually caught:Of course it is appropriate to discount benefits and (possibly) to cut them off at some point. But the quantity of benefit measured using the standard approach seems to be completely tiny compared to the actual amount generated. Extend the appraisal period out (but keep the 8% discount ratio, and you start to capture some of the longer-term benefits of a project like the CRL: But what’s really interesting is looking at what happens when you combine both a lower discount ratio and a longer appraisal period to the process. Interestingly, this is exactly what’s done in the UK and a comparison of the results is shown in the diagram below – comparing the quantity of benefits of the CRL under the NZ and the UK system of assessment: The report goes on to note that the only differences are the discount ratio and the length of time the benefits are measured over:

Figure 6 then uses the CRL benefit stream (from Figure 3) and shows the difference in perceived benefits using the New Zealand standard appraisal and the United Kingdom (UK) appraisal methodology. The only difference between the two is the discount rate and the appraisal period. The CRL shows a present value benefit stream of 1.8 billion under the New Zealand methodology and a BCR in the order of 1.1. Under the United Kingdom methodology, the same project would be shown to have a present value benefit stream of approximately 11 billion and a BCR in the order of 5.2. Using the same benefit information, the UK methodology would place the benefits of the CRL in the order of 6 times as great as under the standard New Zealand methodology.

In other words, if we were undertaking a cost-benefit analysis of the City Rail Link in the UK, the project would have a cost-benefit ratio of 5.2 rather than the 1.1 the Council has measured it as having. That is an absolutely massive difference.

While I imagine transport projects generally score higher in UK assessments, meaning that the threshold for funding is probably a higher cost-benefit ratio than here, the key issue is that the City Rail Link is exactly the kind of project the NZ system is weighted against. If you compare how a project with much quicker (but shorter-lasting) benefits performs under the two systems, the difference is much smaller:So is the UK unusual in the way it measures projects, or are we? Looking an international comparisons it seems that we are the ones who apply an unusually high discount ratio:The report to Council’s Economic Forum proposes that the Council lobby central government to relook at this matter, so that better consideration of long-term projects can be made. I certainly hope the issue is looked at closely so that we’re brought in line with international best practice and to ensure that the full benefits of projects with long lifespans can be given adequate consideration.

CBD Tunnel Review: my thoughts on the Council document

As I noted in yesterday’s blog post, which focused on the Ministry of Transport review of the CBD Rail Tunnel business case, Auckland Council – in conjunction with Auckland Transport and a wide variety of international consultants, also reviewed the business case. Their final document is a very interesting read – and I hope they eventually upload all the appendices that were prepared to inform their final review document. Appendix E in the MoT’s review presents a summary of the Auckland Council/Auckland Transport position as well.

As I noted in yesterday’s post, part of the way through the business case review process Auckland Council/Auckland Transport re-examined some of the assumptions that had sat behind both the original business case and the MoT’s review of that document. Just as MoT’s analysis seemed to find areas where the business case had over-estimated the benefits of the CBD Tunnel, it seems that Council’s re-examination also highlighted areas that had previously been under-estimated, or strategic policy changes that it saw as likely. These are outlined below: Most of these changed assumptions make good sense. In particular, it is completely obvious that with the CBD Rail Tunnel providing enormously increased rail capacity, and with bus capacity being very constrained, that many more bus routes would become feeder services to the rail network. Furthermore, as the CBD grows it seems inevitable that parking will become more expensive – if you exclude “EarlyBird” specials, most parking buildings already charge around $30 for a full day’s parking. If Auckland Transport’s publicly owned parking buildings stopped dragging parking costs lower by under-cutting market rates (seemingly for political reasons) then parking charges are likely to be higher than the $16 a day figure that MoT’s review used to calculate its 2041 patronage.

In fact, with these changed assumptions we can start to see the real impact of the CBD Rail Tunnel, in making rail the primary mode for people entering the city centre during peak times – on a passenger-kilometre basis. This is a huge transformation from the current situation. The changes to employment benefits probably require consideration in a fully separate way, because this seems to be where the Council’s review has undertaken some really useful work, bringing the assessment of wider economic benefits for this project completely in line with what is being done overseas for large projects like London’s CrossRail. In fact, their approach is so eerily similar to what I’ve suggested in various recent blog posts that I wonder whether they’ve been getting inspiration from me. From the table below you can see that the measurement of wider-economic benefits is starting to resemble quite closely what the United Kingdom has done for large projects such as CrossRail:

There are two figures for the AT/AC wider economic benefits because one relates to the project generating 20,000 additional jobs in the CBD while the lower figure relates to 5,000 additional jobs being generated. Unfortunately we still get some massive discrepancies between the government’s estimates of wider economic benefits, compared to that of the Council. But reading into the reasons behind the discrepancy, it seems that many of the WEBs are simply calculated as percentages of the traditional transport benefits – so obviously any difference in the transport benefits simply gets carried across and magnified by the WEBs. Perhaps one particularly positive thing to come out of this review is the fact that a methodology for calculating WEBs seems to have been relatively settled, and it seems to be consistent with what happens in the UK.

Putting this all together, we can really see the massive difference in the final numbers of the MoT and Auckland Council/Auckland Transport: Considering the time and effort that has obviously gone into the business case review process, I think some serious explaining is needed from the various parties as to why we have come out of this process with almost no more clarity compared to when we went into it. I thought the two main parties were meant to be working together on the review project, so that they would be able to come together with an agreed position on the business case, which bits of it needed refining, which bits had been overly optimistic, which bits had been missed, which policy assumptions were out of date and so forth. To be honest, it seems like something of a giant waste of time to have spent nearly six months on the review when we come out of it with this result.

Perhaps the most interesting insight comes from MoT’s own question and answer page, when it looks at the issue of why we’ve ended up with two separate review documents:

Auckland Council and Auckland Transport note that the Review has identified and corrected issues with the way that the transport benefits were estimated in the Business Case. However, they consider that, combined with a number of other initiatives not included in the Business Case, the benefits would be significantly greater than the Review concludes.

At a late stage in the assessment of the Business Case, Auckland Council and Auckland Transport presented a new policy case which estimates transport benefits between $1.2 and $1.4 billion. This compares to a Review figure of $387 million.

While an in-depth analysis of the policy case has not been possible, it is clear that some of the interventions in the policy case – particularly the additional park and ride and reconfiguration of bus routes – could be used to increase the benefits from the current rail investment as well as the City Centre Rail Link project. This issue would need to be explored and clarified in any future business case.

It seems pretty dumb for MoT to release a review of the business case that absolutely slams the merits of the project, without even bothering to take the time to undertake an in-depth analysis of the policy assumption amendments that Auckland Council and Auckland Transport proposed. After all, as I noted above they hardly seem illogical.

Ironically, while the media has generally reported the business case review as a bit setback for the project, the really important news is that Auckland Council, in conjunction with KiwiRail and Auckland Transport, will be able to proceed with designating the rail route and securing all the necessary resource consents. That, along with the necessary detailed design, is probably a couple of years work. Perhaps once that’s completed MoT might have finally got around to reviewing the new policy assumptions and we might find ourselves with an agreed position between the parties.

Outlining why Puhoi-Wellsford is a stupid project

It was good to read in yesterday’s NZ Herald that the Labour Party has committed to cancelling the Puhoi-Wellsford “holiday highway” if they’re elected at the end of the year. While the polls indicate that the chances of Labour actually being elected are reasonably remote, if we assume that they retain this policy into the future, the long timeframes for actually planning, consenting and eventually constructing Puhoi-Wellsford should mean that the project never goes ahead in its current form, as eventually Labour will become the government again. For those opposing the highway, it would seem now that the key is trying to delay it until there’s a change of government.

Already $11.4 million has been spent on the project, while NZTA have committed to many more tens of millions being spent furthering the design, purchasing property (a spend that I suppose can always be recouped) and getting all the documentation prepared for the consenting process. So it seems inevitable that more money will disappear into a project that now seems unlikely to ever be completed – a bit of a waste when there are so many competing demands for transport funding at the moment.

It’s inevitable that Labour’s commitment to cancelling the project will annoy some. The NZ Council for Infrastructure Development is already scaremongering that Labour’s policy will destroy Northland’s economy (I never knew saving 10 minutes would have such an impact). I suspect Labour won’t get much gain from the decision until they do the obvious: which is to say that the billion or so saved from the holiday highway (assuming that they still do operation lifesaver or something similar) will be redirected into paying the government’s share of the CBD Rail Tunnel project. That might still leave sufficient funding available to upgrade the North Auckland Railway Line or even complete the rail branch to Marsden Point. $1.7 billion can go a pretty long way when redirected to a series of more sensible projects.

Given that the holiday highway has now become a major political football, it’s probably worthwhile putting together a lot of the background information I’ve looked at with regards to this project and clarifying exactly why it’s such a stupid project. Ultimately there are six key reasons why I think Puhoi-Wellsford is a waste of money. Broadly, they are:

  1. It is not cost-effective and has a low (though still inflated in my opinion) cost-benefit ratio.
  2. It will have significant adverse environmental effects.
  3. It works against Auckland’s planning strategies and will encourage urban sprawl.
  4. Its justification is based on unrealistic traffic growth expectations.
  5. It uses up a lot of money that could be far better put to use on other projects.
  6. It takes far too long to implement and will mean people continue to die on the existing road over the next decade or two.

Obviously there are many connections between these broad points, and I’m not going to work through each one of them individually – but as you can see there are a number of serious issues with this project that mean it’s a stupid idea.

Starting first with the cost-effectiveness of Puhoi-Wellsford, this has been informed by a business case put together for the project in late 2009, which informed the January 2010 “Project Summary Statement”. That statement noted the project had the following cost benefit ratio (depending on whether wider economic benefits were in or out, and what discount ratio you used):It’s worth remembering that projects are assessed on an 8% discount ratio, with the lower discount levels only used for comparative purposes. In terms of the “Wider Economic Benefits”, its interesting to note that the Project Summary Statement makes a fairly big deal of them, but barely a year earlier the same company that put together the 2009 business case had this to say about what it termed “Regional Economic Impacts”: Labour MP David Shearer did a bit more digging, through a series of written questions, about the exact nature of the wider economic benefits – and in particular whether they complied with NZTA’s standard manual for how WEBs are calculated. He got this response from the Minister of Transport:

David Shearer to the Minister of Transport (23 Mar 2011): Were the wider economic benefits used in the cost-benefit analysis of the Puhoi-Wellsford road of national significance calculated in a manner consistent with the New Zealand Transport Agency’s economic evaluation manual?

Hon Steven Joyce (Minister of Transport) replied: The NZTA’s Economic Evaluation Manual contains procedures for assessing agglomeration benefits, which are one type of wider economic benefit, and agglomeration benefits have not yet been assessed or included within the Puhoi to Wellsford business case BCR. Therefore, the NZ Transport Agency did not assess wider economic benefits for the Puhoi to Wellsford BCR as per the Economic Evaluation Manual.

Even more intriguingly, an independent assessment of the economic benefits of all the roads of national significance, which was undertaken by SAHA consultants, made a number of adjustments to the cost-benefit ratio of the Puhoi-Wellsford project (along with a number of other RoNS):
Business cases are generally calculated over 30 years, and as the Minister wants the Puhoi-Wellsford project completed by 2020, that means the benefits should be truncated at 2049 rather than 2059. My understanding is that that 2059 date came from NZTA’s initial assumption that 2029 was a more realistic completion date. This was confirmed by the Minister in an answer to another question from David Shearer:

David Shearer to the Minister of Transport (23 Mar 2011): Further to the Minister’s answers to questions 01514 (2011) and 01506 (2011), why did the business case for the Puhoi to Wellsford road measure the opening date of the Warkworth to Wellsford section as being 2029 when NZTA are proposing to complete the section of road by 2022?

Hon Steven Joyce (Minister of Transport) replied: The New Zealand Transport Agency advises me that the opening date of 2022 for the Warkworth to Wellsford section of the route represents an aspirational completion date for the project, reflecting the desire to make a substantial start on all the Puhoi to Wellsford RoNS sections within 10 years. The Business Case opening date of 2029 for the Warkworth to Wellsford section represents the Agency’s estimated timeframe for the project when the Business Case was completed.

I’m not quite sure the extent to which the GPS4 updated funding total made much of a difference, but it certainly seems as though the actual BCR for this project is closer to 0.4 than to what NZTA have been telling the world.

The bizarre thing is that even then I think that the benefits of the project are being grossly overstated. The business case relied on an assumption that in the “do nothing” scenario the average speed of vehicles along the route would be merely 60 kilometres an hour – which seems bizarrely low. As Warkworth is the major source of delay points, one would think that a bypass would solve much of the congestion issue there at a fraction the price. Furthermore, the business case relies upon massive increases in traffic volumes that seem a bit out of whack with what’s been happening in recent years. To finish the point off about cost-effectiveness, perhaps the final word should go to something Martin Gummer (former head of transport funding agency Transfund) said in a December Herald opinion piece:

This is one big difference between the projects. The CBD rail loop is an all or nothing project. A loop that stops halfway is not a loop but a dead-end – or loopy.

The holiday highway, however, has a lower cost alternative – improvements to the existing road, that could defer replacement for a further 20-30 years. Corners could be smoothed, alignments improved, maybe a short bypass built around Warkworth, and three- or four-lane sections with a central wire barrier built in the Dome Valley.

If one is truly interested in cost-effective improvements to State Highway 1 north of Auckland, the answer is pretty obvious: bypass Warkworth, extend some passing lanes, do some safety improvements in Dome Valley and then take a look at things. The fact that the Minister of Transport is unable to see the advantage in such an approach really does suggest that the project is more about monument building than actually about responding to what’s needed.

The next big issue I have with the project is in relation to its environmental effects: both in terms of its actual impact on the environment it will pass through and also how it will encourage urban sprawl in the northern part of the former Rodney District. A detailed analysis of the project’s environmental effects can be found in this post but to summarise we’re probably looking at another three or four of these: Plus a simply massive amount of earthworks, as shaded blue in the diagram below: I’m sure there will be plenty of battles over the project’s environmental effects when it gets to the consenting stage, and judging by what has happened with the Waterview Connection project, NZTA shouldn’t simply assume that they will be able to get consent easily: my feeling is that the board of inquiry for the Waterview Connection (subject to the release of their final decision of course) have set the bar pretty high in terms of avoiding/mitigating adverse effects if projects pass through the “fast-tracking” process.

Another aspect of the project’s environmental effects is less easy to pin down, but potentially more significant over time: and that is the way the project will encourage urban sprawl north of Auckland. This works against Auckland’s growth strategies that have been seeking to maximise the growth of Auckland through intensification and limit urban sprawl – yet another potential example in Auckland’s sorry history of having transport and land-use development strategies that are completely at odds with each other.

If we now turn to safety concerns, this is where the holiday highway proposal really annoys me, because it is literally leading to lives being lost. There is no doubt that much of the Puhoi-Wellsford road is very dangerous at the moment. Between 2000 and 2009 there were 41 fatalities along State Highway 1 between Puhoi and Wellsford, along with 31 serious injuries (between 2004 and 2008) and 118 minor injuries between 2004 and 2008. 25 of the fatalities were between Warkworth and Wellsford, through the notorious Dome Valley, while 16 were between Puhoi and Warkworth. Most of the deaths were from head-on collisions, suggesting that they could be prevented by simply putting a concrete median barrier down the middle of the road.

But with the holiday highway proposal, chances are we’re not going to see any further improvements to the road for the next decade or so: meaning another 40 or so people are likely to die as a result of Steven Joyce choosing to proceed with the holiday highway instead of immediately making safety improvements to the existing road. When I helped put together the Campaign for Better Transport’s “Operation Lifesaver” proposal this was top in our mind: how can we improve safety along the road quickly and cheaply. There’s quite a lot you can do for a fraction the price of the holiday highway.

And finally, perhaps the main reason (along with safety) I oppose the Puhoi-Wellsford project is the opportunity cost of it: what can’t we fund because we’re sinking $1.7 billion into this pretty dodgy project? The obvious one is the government’s contribution to the CBD Rail Tunnel: of let’s say around a billion dollars – which would make up half the cost of that project. Other projects could include a series of road upgrades throughout Northland, improvements to the North Auckland Railway Line, potentially constructing the Marsden Point rail spur and so forth. As I said above, you can do a lot with $1.7 billion. In this blog post I tried my best to stack up the CBD Rail Tunnel against Puhoi to Wellsford, being as generous to the holiday highway’s business case as I possible could – but even then I came up with the following comparison: The graph below shows how Puhoi-Wellsford stacks up against the other roads of national significance (and the CBD Tunnel, which I put in): Perhaps what’s most interesting is the comparison between the benefits of the Victoria Park Tunnel and the Puhoi-Wellsford road: with the VPT’s benefits looking around four times that of the holiday highway – even though it’s one quarter the price. In fact, Puhoi-Wellsford’s benefits look minuscule compared to all the other RoNS: even though it’s one of the more expensive ones!

Overall, by any measure I am convinced that Puhoi-Wellsford is a stupid project. It’s a waste of money, it will ruin the area’s environment, it will cost lives because it takes too long and it will prevent far more worthy projects from proceeding. Which is why I am very glad to hear that Labour opposes it.

The UK approach to Wider Economic Benefits

When the CBD Rail Tunnel business case was released late last year the Minister of Transport was skeptical about many of its details – and in particular its approach to various forms of ‘wider economic benefits’ (WEBs). He was reported as calling many of the benefits outlined in the business case “WEBs on steroids”. Now I am no economist, but certainly parts of the calculation of the project’s wider economic benefits confused me. The contentious benefits are those called “Net Value Added from CBD Increased Productivity” in the table below:
As you can see those benefits are rather substantial, being around $3.3 billion compared to the $1.3 billion of ‘traditional’ transport benefits the project was assessed as likely to generate. If you dig through the Business Case in more detail  you can find where these numbers are compiled, but although the thinking behind them makes a lot of sense (people working in the CBD have higher productivity jobs than outside the CBD so if the project allows/encourages more CBD workers then it creates a benefit) the logic behind the connection between that statement and the final number was somewhat opaque.

The best thing we get is a big table:
The first two columns make sense: the difference in the number of employees in the CBD with and without the tunnel. To be honest I think the tunnel might make a bigger difference than this – because our ability to get more people into the city without the project is extremely limited. What is a bit more difficult to make sense out of is how the difference in employee numbers get transferred into a monetary benefit. Once again I understand the logic behind it: that a CBD job is more productive and high value than a job elsewhere, I just don’t quite get how the connection is made in a numerical sense.

From reading some of the advice provided by Treasury and the Ministry of Transport to Steven Joyce, it would seem that they haven’t got their heads around this issue either (at least not prior to the business case review project, which one would hope has cleared this issue up). So they seem to propose canning any consideration of these benefits as part of the process of undermining the business case.

As a result of my concern about this pressure to simply ignore these benefits, I have done a bit of research over the past few months to try to expand my knowledge of these “wider wider economic benefits” as I have previously called them. One particularly interesting place to look is the United Kingdom, as they undertake business case analyses of transport projects in a pretty similar way to what we do. Furthermore, over the past few years there have been a number of very large rail projects that have gone through the process of a business case assessment – with London’s CrossRail project being a particularly relevant example (although one obviously on a somewhat different scale as its price tag is about ten times that of the CBD Rail Tunnel).

The Business Case used to justify the CrossRail project has its welfare and GDP impacts summarised in the table below:
What I find particular interesting is the line in the benefits that is called “Move to More Productive Jobs”. This sound awfully similar to what the CBD Rail Tunnel’s business case is trying to describe. These benefits are outlined in a bit more detail on the UK Department for Transport website:

If a reduction in transport costs encourages a worker to join the labour market or to move to a more productive job, transport appraisal should aim to capture the full productivity increase from this. When deciding whether to work an individual will weigh up the disbenefit of working (including travel costs) against the wage they would receive from the work net of tax. This potential net wage is the return from making the commuting trip to work.

The gain to the worker from making a trip to work – the net wage – is recognised in appraisal by commuters’ willingness to pay for time savings and this welfare gain is offset by costs such as travelling to the job. This is captured in conventional appraisal benefits and is implicit in the rule of a half welfare calculation. Adding this as an estimate of the labour supply benefits into appraisal would be double counting the benefits.

This sort of captures what my post a couple of days ago was discussing – that travel time savings benefits are something of a proxy for other benefits: be it whether they’re land value increases or ‘net wages’ in this case. I guess it’s not so much that you benefit from being able to make a trip fifteen minutes faster than before, but rather that a lot more potential jobs are located within a reasonably travel proximity than was previously the case.

However, apparently that does not cover everything. There is also a public benefit in the form of the increased potential taxation that can be gained through all of this enhanced productivity that a project like the CBD Rail Tunnel (or CrossRail) will provide through the improved accessibility detailed above. This is reasonably logical: more workers in the CBD participating in more productive jobs will generate more tax revenue. As outlined below, it is this benefit that gets captured by the “Move to More Productive Jobs” line in many UK projects’ business cases.

There is, however, a difference between the productivity of a worker and the net wage the worker receives (the ‘tax wedge’) so that the wage does not reflect the social benefit of labour supplied. As user benefits reflect only the net wage, commuter benefits in conventional appraisal do not capture the full productivity benefit – there is an ‘external’ benefit from an individual joining the labour market or moving to a more productive job in the form of the exchequer revenue they generate. The part of the benefit not captured in appraisal is the ‘exchequer’ or ‘tax wedge’ effects of the worker joining the labour market and this is also part of the productivity gain. These benefits (the tax wedge) should therefore be added into appraisal to capture the full benefit.

To ensure additionality to conventional appraisal, the 2005 discussion paper provides an approach for estimating the labour supply and productivity impacts, and then adds in to the appraisal benefits only the exchequer component of the labour market response. In effect the tax component of the overall labour market response is calculated on the basis of tax rates, and only this ‘tax wedge’ benefit is added as the wider economic benefit to appraisal.

For the CrossRail project, the types of WEBs (including what I have described above) are analysed in good detail in a study called “The Economic Benefits of CrossRail” – prepared by Colin Buchanan Ltd. The “Move to More Productive Jobs” analysis for CrossRail had two elements: that the project would help generate jobs from international companies that would have otherwise located overseas, and that the project would help shift jobs from one part of London to another (a less productive area to a more productive area).

While the international element might have some relevancy to Auckland, as international firms probably look at the attractiveness of Auckland’s CBD when deciding whether to have a New Zealand office or whether to simply locate in Sydney, probably the main effect will be on the location of jobs within Auckland. For CrossRail, this part of the analysis is detailed below (from the Colin Buchanan report):Now of course it’s difficult to compare CrossRail with the CBD Rail Tunnel, because Auckland and London are cities on such a vastly different scale. However, it seems that there’s obviously an accepted methodology in the UK for measuring the same type of benefit that was included in the CBD Rail Tunnel business case. I don’t know whether the benefits were measured in the same way, but certainly some sort of analysis that looks at this employment shift issue seems highly legitimate.

When is that CBD Tunnel business case review going to be completed anyway?

Measuring the economic impact of Auckland’s rail upgrade

Measuring the benefits of transport projects is usually done through a process of comparing how long it took someone to get from A to B without a particular project, how long it is expected to take from A to B with that project, compare the difference, apply some value to the time, multiply it up by how many people will benefit and get a big round number. This methodology has its own flaws (what if people just travel further, rather than taking quicker trips), but it also potentially ignores many of the benefits that enhanced transport access can provide. What if a particular project encourages employment to concentrate in a city centre and thereby generates agglomeration benefits? What if people owning property in a particular place see their land values skyrocket through enhanced accessibility? These are all benefits, but not necessarily benefits that are frequently captured.

An interesting study by Motu Research attempts to capture and quantify some of the benefits from transport projects that tend to be ignored – looking at the example of the upgrades to Auckland’s Western Railway Line. Further to that issue, the paper also analyses the ‘anticipatory’ nature of these impacts: the extent to which house prices started increasing even in advance of completion of the upgrade – because people knew it was coming. It’s important to note that the benefits analysed were only those in the former Waitakere City.

A summary of what is analysed is outlined in the introduction: A bit more on the findings is outlined below:
So there seems to be a statistically significant impact. I suppose the real question is what the level of that impact was – and potentially how we might ‘tap’ that effect to help fund future projects.

But first, it’s worth having a read through the theory behind the idea that rail improvements will boost property values. This is broadly summarised below – although the study itself goes into quite a bit more detail: Interestingly, the house price benefit seems to largely occur within the pedestrian catchment of the train station – and most particularly when the station wasn’t constructed with “park and ride” users being prioritised:
There’s a lot of complicated maths in the way the effects are all worked out, and the study splits the railway stations in the west into three groups: those around New Lynn, those around Henderson and then Ranui & Swanson as a third group. The result show a definite uplift in house values in the areas around the stations compared to similar areas during the post-announcement period: after around 2005 when it was known that the rail upgrade would go ahead. The graph below averages out the two time periods to make the “jump” clearer:

Interestingly the biggest increases were for the stations closest to the city. It makes one wonder what effect the CBD Rail Tunnel might have on property values in the Grafton to New Lynn corridor along the Western Line: as that project will shave a huge chunk of trip times to the city centre.

When the value uplift is aggregated, you can some pretty big results in terms of the impact the project has had:
Now remember that this type of ‘benefit’ is not even included in the typical cost-benefit analysis. It’s also worth thinking about what the value uplift of the CBD Rail Tunnel might be – as typically rail projects have a greater effect on commercial land values in city centre than they do on residential values. We could be looking at some pretty massive numbers that haven’t even been given consideration in the business case for that project.

I suppose my final point of interest is in how this value uplift could potentially be used as a funding mechanism for rail infrastructure projects like the CBD Tunnel. Perhaps if a proportion of the value uplift was taxed (by way of a targeted rate or some sort of capital gains tax) then the revenue raised from that tax could help repay loans that were taken out to fund the project.

In any case, the article is certainly an interesting read – both in terms of identifying a benefit from rail projects that seems to have been previously overlooked, while at the same time also potentially highlighting a possible source of revenue. After all, if you owned property in the CBD you’d probably prefer it increased in value by 100% as result of the CBD Rail Tunnel, even if you saw a third of that taxed, than if it didn’t increase at all because the project could not go ahead.

Next steps for the CBD rail tunnel

The agenda for Auckland Transport’s board meeting tomorrow has been posted online (both the boring open agenda and the rather more interesting confidential agenda). In the closed agenda, along with various items that seem relatively normal, will be special consideration of the following: One imagines that the EMU Procurement item is responding to KiwiRail’s short-listing down to two of the preferred suppliers that was announced a few days back. Perhaps Auckland Transport is being asked to make some decisions on exactly what they want. It’s the Central City Rail Link (is that the new official name for the project?) item that interests me most though – as this comes not too long before the Cabinet is going to be considering the CBD Tunnel Business Case Review project that has been going on for the past few months.

It’s hard to know exactly what will come out of the business case review. Compared to the Puhoi-Wellsford business case I thought that the CBD tunnel case was extremely comprehensive. I liked the way that it went beyond the traditional analysis of wider economic benefits to look at the impact on productivity that concentrating employment in the CBD (something the project is critical for allowing to happen) would have. However, it also had some weaknesses – with obvious questions like “how many cars will it take off the roads” not being answered in an easily accessible way. I think it also focuses too much on what the benefits to the CBD are – and ignores benefits to other parts of Auckland that will arise from us being able to operate trains at frequencies of more than one every ten minutes. The table below shows what a massive difference the CBD Tunnel will make to total rail patronage in Auckland in 2041 – 22.2 million without the tunnel, 47.6 million with it: Another issue I took with the business case is probably not its own fault (in that it was written last year before the Super City came into being), but that it ignores to some extent the impact on the city centre that things like the International City Centre Master Plan might have. That Master Plan envisages creating a city centre that is far more people-oriented and far less vehicle-oriented – a potential fundamental conflict with even the current number of cars and buses that stream in and out of downtown every day. Yet the business case modelling suggests that even with the tunnel, the city centre will have to deal with bus passengers increasing from 23,000 to 42,000 in 2041, and vehicle numbers increasing from 34,500 to 39,600 by 2041. This is shown in the table below: As most people would clearly recognise, the number of vehicles entering the city at peak times probably doesn’t have much capacity to grow – plus with measures proposed in the Master Plan (like two-waying Hobson and Nelson streets, potentially pedestrianising Queen and Quay streets plus implementing many more bus lanes to stop the city being so clogged up with buses) it seems highly likely that general vehicle capacity will decrease. So that calls into question some of the modelling outcomes of the business case in my mind at least – meaning that the benefits of the project may have been under-estimated.

However, my understanding is that the central government agencies involved in the review are likely to take quite a different approach – as papers released under the OIA suggested. The Ministry of Transport had the following to say about the business case: Looking further into MoT’s criticism of the business case, and in particular their criticism of the expected rail patronage (referred to above) pretty much boils down to flooding the city centre with cars. MoT’s revised modelling suggests that up to 56,000 vehicles would enter the city during peak time in 2041, even with the project. Something tells me they need to get a new modelling system if it produces such insanely counter-intuitive results.

I suppose, to cut to the chase, unless something dramatic has happened over the last few months to result in government officials and Auckland Transport officials reconciling their massive differences on the merit of this project – it seems somewhat unlikely we’ll have a definitive answer on whether it makes sense or not. I suspect that a lot of further work needs to be done to better understand wider economic benefits – and although this work has begun in terms of the various RoNS projects – the way the CBD Tunnel business case came up with its staggering large “urban regeneration benefits” didn’t make a lot of sense to me. Perhaps it is the same measurement that was used in the UK’s assessment of CrossRail’s “move to more productive jobs” benefits, but I just don’t know. The logic behind the benefits makes sense – as is outlined above – it’s just working out exactly how to quantify those benefits which might need some further analysis. I’m sure we could always ask the UK government how they do it.

However, considering the financial impact of the Christchurch earthquake and the government’s general distaste for anything rail, one could argue that the business case review is pretty irrelevant anyway – even with the most fantastic cost-benefit ratio in the entire world I think it’s doubtful the government would simply go “yeah sure, here’s a billion dollars, go off and build it”. They only do that for uneconomic roading projects.

So I think what we can really hope for, once the business case review is completed, is what I talked about in the aftermath of the Christchurch earthquake and its impacts on project priorities: that Auckland Council simply gets on with designating the route, undertaking the detailed design and sorting out all the necessary consents to actually build the project. As shown in the diagram below, if we want to have the project completed by 2021 (which is the date used by the Regional Land Transport Strategy and the business case) then we don’t actually need to start building until 2015 – we have a good 3-4 years of work that needs to be done before the point where we get the diggers out:

Because of this, there’s no real need to start spending “big bucks” until later this decade – once again something spelled out quite clearly in the business case:

Auckland Council could quite easily cover the costs of the project by itself up until 2016ish – I would think. So there’s no desperately pressing need to get the government ‘on-side’ to help with funding – at least not for now. One might imagine that by the middle of this decade, particularly if petrol prices continue to increase and rail patronage continues to grow (with integrated ticketing and electrification coming online that seems inevitable), a sensible government could take quite a different perspective on the need for the project. Perhaps the Ministry of Transport might have even updated their modelling software to something that’s not stuck in the 1960s too!

The one big potential ‘spanner in the works’ is that the only agency legally able to designate railway lines is KiwiRail. And KiwiRail’s Minister is Steven Joyce – who has to give the ‘go-ahead’ for them to be able to designate the route, even if Auckland Council is the one who’s actually paying for the process 100%. Now one wouldn’t think that Joyce would ban KiwiRail from doing such a thing, when it comes at absolutely no cost to the government – but you never know.