In a few months’ time the business case for the CBD rail tunnel will be completed, and we will see just how well the project ‘stacks up’ in terms of being value for money. There’s no doubt that it’s an expensive project: with a likely cost of at least $1.5 billion (similar to Waterview Connection and the Holiday Highway), so therefore assessing its benefits is crucial. What impact will the project have on Auckland, and how do we ‘capture’ that impact to help justify the obviously large cost of it?

The traditional method of analysing the benefits and costs of public transport projects is outlined in NZTA’s economic evaluation manual, volume 2, and appears to be largely based around the benefits to road-users (through reduced congestion) that happen when you take someone off the road an onto public transport. Because rail trips tend to be quite long, and tend to travel through some of the most congested parts of the road network (ie. into the CBD), their ‘de-congestion’ benefits are quite significant. This is outlined in the table below:

But really that’s only part of the story when it comes to what the real impact of the CBD rail tunnel is. Yes, it doubles the capacity of Britomart, which enables us to run many more trains and therefore makes it possible for patronage to increase (and therefore we capture all those de-congestion benefits) but there are also other benefits that I think need to be considered.

Like the effects on the CBD itself. You only need to look at the area around Britomart station to see that the station has prompted significant redevelopment, intensification and a concentration of economic activity over the past seven or so years the station has been open. Imagine something similar, although potentially on an even bigger scale (given that half of Britomart’s catchment is sea) around the Midtown, Karangahape Road and Newton stations and you start to see the impact the project could have: encouraging businesses to locate in the CBD and generating real wider economic benefits, not the kind of rubbish “pull a number out of a hat” wider economic benefits we’re seeing used to justify the holiday highway.

Furthermore, if we look a bit more long term projects like the CBD rail tunnel begin to appear as quite essential if we want the CBD to really grow and develop Auckland into a ‘world class city’. I’m not sure of the exact numbers, but I think around 80,000 people currently work in the CBD, and probably most of them arrive some time between 7am and 9am and leave during an evening peak time that might be a little more spread out, but would generally be between 4pm and 7pm. Add in the many thousands of students attending Auckland University and AUT (as well as the many private education schools in the CBD) and there are a lot of people shifting in and out of this space, particularly at peak hour. At the moment around 48% of those who do enter the CBD during peak times do so on public transport, as shown in the table below:

Realistically, there is little or no road capacity into the CBD at peak times available. All the motorways into the city are pretty clogged, most of the arterials that support those motorways are clogged and so forth. So basically, in order for the CBD to grow then more public transport capacity needs to be provided – because the roads are clogged and it would be damn near impossible to add road capacity. Does this “enabling the CBD to grow” get captured by the business case analysis? I don’t know. Should it? Absolutely.

Another issue that I think needs to be taken into consideration is the fact that unless we build the CBD rail tunnel, any other expansion of the rail network is impossible. By early next year we will be running 20 trains into Britomart per hour in the morning peak, and because all those trains have to also exit via the same tunnel, we won’t be able to go beyond that. 20 trains per hour basically consists of 10 minute frequencies on the three main lines plus two trains from Onehunga. That’s it. After early next year of course the trains will get longer in the future so we can add passenger capacity, but basically the system is at ‘train capacity’ until the CBD tunnel is built. This means we can’t have an airport line without the CBD tunnel, we can’t have inter-city trains to Hamilton unless we remove that slot from the suburban trains, we can’t go beyond 10 minute frequencies… we can’t really do much at all with the rail system. Does the “this project allows for further expansion of the rail network that is impossible without it” benefit get captured by the business case analysis? I don’t know. Should it? Once again, absolutely.

It will be very interesting to see the business case for this utterly critical project once it’s complete, and I very much hope that somehow these ‘wider’ benefits of the CBD rail tunnel are being taken into account. I do worry at the narrowness of cost-benefit analyses at times, usually because I think “I wonder why the cost-benefit ratio of Britomart station would have been when it was proposed?” Answer: probably extremely low because hardly anyone used the rail system then. Does that mean it was a poor investment? Answer: couldn’t be further from the truth.

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  1. So many rhetorical questions…


    I don’t see how a project that effectively doubles the capacity of a 70 km urban rail network could get a BCR of less than 3…

  2. I have one issue with the last benefit you state, being the fact that it will be extremely hard to monetize the “unleashing future expansion” benefit. I don’t for a second disagree with you on it – it is much more real than many of the hard-to-monetize benefits other transport projects get claims for by their political sponsors. But again, how would you ever measure this in $$$? I think it will need to be something for political argument in favour of the tunnel, rather than something that fits into BCRs.

    Damn, admin – you should have been at the IPENZ technical meeting yesterday. Chappies from NZTA were there, explaining how they are trying to calculate the WEBs (Wider Economic Benefits) of transport projects. Some good stuff, and a lot of huge questions, none the least how these will skew future transport project funding if they are ever included.

  3. The decongestion benefits in the NZTA EEM probably understate the true case. The value of time used for commuters in the EEM (Section 4) is of the order of $5 to $8 an hour. These low values are based on asking people what they would pay for a shorter commute and have attracted a certain amount of academic criticism; the most obvious criticism being that few unions would agree to work overtime for so little. More recent research suggests a value of $30 an hour in time disbenefits for individuals caught in congested car traffic, not including car running costs. Part of the reason for the cost underestimation in surveys is that individuals are not good at judging the marginal cost to themselves of wasted time. The effect is a lot like the under-judging of the cost of commuting by car, where you only count the petrol. A couple of hours a day in congested traffic will take at least some months off your life and generates no positive benefits, as opposed to spending the time productively in a train on the laptop, playing with the kids, or down the gym, and that where the $30 an hour figure for time spent in car traffic comes from. Names to conjure with in this area are Alois Stutzer and Bruno S. Frey, who did a paper called “Stress that Doesn’t Pay.” The Australian Productivity Commission has picked up on this issue in an online document called Behavioural Economics and Public Policy: Roundtable Proceedings. To sum up, if the B/C case is positive with commuter time cost valued at only $5-$8 an hour (lower values for PT users, higher values for car users), it would be a slam dunk with more realistic figures, which would be something like $10 an hour for train users and $30 an hour for car users. Researchers at Auckland University are right now studying the implications of a new set of commuter time values for NZ, with $10/$30 per hr for train/car as the starting point.

  4. The Holiday Highway has somehow given itself a better BCR through its supposed ability to ‘unleash wider economic activity’ so I don’t see why the same benfit can’t be claimed for this project.

  5. I hope the project stacks up well on its own so that the wider economic benefits can be the cream on top to push the project through as I can see it now. The tunnel has a BCR of .99 but with WEB it is pushed to 3 or more, the government will then just claim that the projects benefits just don’t stack up as it is less than 1 and will ignore the WEB even though that is the justification for the Puhoi to Wellsford road.

  6. The WEBs are totally unproven at the moment, with some of the input values barely better than speculation. They haven’t even been used on anything as a test case yet, to use them to JUSTIFY a project would be just wrong. Not that will automatically stop them.

    I think the CBD tunnel will easily get above 1 without any such debatable claims.

  7. “But again, how would you ever measure this in $$$? I think it will need to be something for political argument in favour of the tunnel, rather than something that fits into BCRs.”

    The curious thing with BCRs is their very existance is based on monetarising the benefits and disbenefits of things that have not financial basis (i.e. shadow pricing externalities). In that regard BCRs are extremely political, and it is argued that one can simply select their choice of precedents and pricing structures to produce any level of BCR they choose. Recently the shadow treasurer of Australia stated that he though BCRs were complete junk and totally unreliable, and that he would not consider them if he were treasurer.

  8. Nick, the issue is that while I agree with you that BCRs try to monetize things that cannot or can only be very problematically be monetized, the even worse thing we can do is try to monetize on an ad hoc basis. As the WEBs (Wider Economic Benefits) now seem to try to do, if you allow me to express my scepticism for this new-and-untested-tool. Similarly, putting a $$$ value to the tunnel unleashing our PT network would be stupid, because there is no “true” figue.

    Why have we lost the ability to argue, in WORDS, what is good or bad for us? Why have our politicians lost the guts to just do what they think is right, rather than make $$$ calculations their only (or final) crutch.

    In that regard I even agree with Steven Joyce insistence to push the Puhoi motorway, and damn the BCR. I just don’t agree with what he’s trying to achieve.

  9. My point was to not monetarise anything that does not have a market price at all, either in a psuedo-systematic way or on an ad-hoc basis. Simply leave it in its natural form (man-hours, tonnes of carbon, litres of runoff per day, number of residents affected by noise after 10pm) and consider it in its natural form.

    The step of putting a price on things with no price is just a step to try and reduce it all to the same single dimension, but it is so problematic you might as well just make it all up. BCRs were never intended to actually represent the amount of money involved or the ‘improvement on the economy’, but just to provide the means to compare options. Unfortunately politicians can’t seem to read anthing more than a single figure so you get ridiculous statements like ‘this new road will boost the economy by $3 for every $1 we put in’ which is an imposible thing to say from a CBR.

    So yes, it is more of a case of using words, or at least having a variety of measures of benefit and disbenefit.

  10. I guess this is what happens when economists rule the world?

    I wouldn’t have have a problem with benefits being monetarised, if we could work out effective and accurate ways of doing this. I don’t really think that’s possible in many cases, so a wider approach than “a single number” is necessary in my opinion. But how to do so in a non “pork barrel” way I guess is the real question.

  11. The true value of a roading project can be ascertained by modelling what the uptake would be if it were a toll road. For instance the Waterview extension, even if it were tolled at a mere $2, would be unlikely to attract sufficient people willing to pay this for a 15 minute time saving. There seems to be a real disconnect between dollar value benefits cited in the EEM and what people are actually willing to pay.

  12. Furthermore, if it’s so important for the government to give people more leisure time, why don’t they buy every household a dishwasher? You pretty much could for the price of some of these big projects.

  13. Cam, that’s simply because the ‘dollar value benefits’ aren’t actually real money values and therefore don’t bear any resemblance to what people would pay.
    Admin, if you asked any economist worth their salt about cost benefit ratios they would probably have much the same view as me, that they are so open to abuse they are almost not worth considering. Half the problem is the lack of transparency and accountability with shadow prices, someone somewhere comes up with a figure on how much a minute of a car drivers time is worth (or whatever), that makes it into a few texts and before long it is gospel.

  14. And ‘reality changes’ all the time too. Some two years back, the numbers for cycling were changed strongly, upping the $$$ benefits (health benefits track) of getting people on bikes significantly – as in SEVERAL TIMES higher.

    Now, I really liked that. After all, cycling projects are now suddenly viable like never before (or would be, if they actually all took money from the same funding pot). But I am still pondering why cycling, around approximately 2006, suddenly became so much healthier than in 2005 and before?

    BCRs. Do not pay any attention to the man behind the curtain.

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