Transport Project Investment Economics

Last year the Government abolished ARC's proposed Regional Fuel Tax, this year they propose to demolish Auckland local government. What next? And all it seems in the interests of leaving transport and development to market economics - pump-primed with roading projects. A few weeks ago I made a presentation to the annual Conferenz Transport Summit. These slides are from it. The ideas in them about transport investment economics are readily available. Basically it's a cycle. Which should be a virtuous cycle. Tkaing this slide first: I accept that investment in a transport project kicks it all off. Whether it's a PT project or a roading project. These lead to an increase in transport capacity and changes in urban form. The 'top-line' benefits include travel time savings and improved safety.

Then there are the detail of the land use changes that come about from this change in transport. Land gets subdivided and developed after consents have been obtained. Building occurs. There is productivity around that and employment. And activities occur in those buildings. Other consumption. And other infrastructure services like electricity and water services not forgetting broad-band. This economic activity increases land value, and rents, should also improve value and amenity of local public places so areas become valuable and attractive...

But it's this next stage of economic development that is particularly important, and should not be ignored in the rush to kick start more transport projects. This is where long term economic development benefits kick in, through efficiencies of scale, agglomeration, clustering, and cost input reductions (like using less transport energy and less travel time).

And here's where the cycle should end, to kick start more investment. It's when those long term benefits are being realised, and when economic capacity has been used up, requiring more road or PT investment.

The first part of this cycle, I call the Infrastructure Construction Economy. This is the part of the cycle that is extolled above all other parts by NZ's Council for Infrastructure Development. I agree it is important, but it must not be seen as a stand-alone thing. The economic benefits last as long as the bulldozers are running and the concrete is being poured. And then they end.

The next part of the cycle is associated with the gold rush of new land being subdivided. It's the short-term development economy. It's why investors love buying land just outside Auckland's MUL (Metropolitan Urban Limit). Put in a new road (or state highway), and turn that rural land into urban gold. Sure there are economic benefits for the developers, but what about those new families and businesses that move in?

They only become more wealthy - and so does the whole country or region - when the long term economic benefits are realised. These stay locked inside urban developments that have not been able to fully develop: people need to travel long distances for most of their needs; businesses are remote from their supply chains; money is wasted moving people and things from 'A' to 'B'; opportunities are lost because there are few benefits from clustering and agglomeration. Auckland needs to think inside the square.