A couple of days ago I posted about my worries that the true benefits of the CBD rail tunnel: such as its ability to transform Auckland’s city centre and its ability to allow further development of the rail network – may not be being fully taken into account in the current business case analysis for that project. There was a very interesting discussion in the comments thread of that post, particularly in terms of whether we really should be simplifying everything in a business case down to effectively a single number: the project’s cost-benefit ratio. If not every benefit can be fully or accurately monetarised, then perhaps we need a more effective system of working out “is the project worth it?”

I’m reading the excellent book “The Limits to Travel: how far will you go?” by David Metz at the moment, and he takes a very detailed and in my opinion insightful look into what he calls “the economics of travel”. Metz states that the process of undertaking cost-benefit analyses is to offer an alternative to fully politicising the process of choosing what projects get prioritised:

The idea is that the sum of all the anticipated benefits of a particular project is compared with the total of all the anticipated costs. If the benefits are greater than the costs, the project is potentially worthwhile. Where there are more possible projects than funds to finance them, then best value may be obtained by preferring those projects with the highest ratio of benefits to costs.

Cost-benefit analysis allow for the flow of benefits and cost over time by bringing these to a single point in time for comparison (using a ‘discount rate – somewhat analogous to an interest rate – to reflect that each dollar next year is less valuable to us than it is today). Cost-benefit analysis also requires that all the benefits and costs can be expressed in monetary terms, which in practice can be problematic.

In New Zealand we use NZTA’s “economic evaluations manuals” to undertake a cost-benefit of each project and determine whether it’s worthwhile proceeding. The manuals are incredibly complex documents, and the information that gets fed into their calculators is often enormously complex itself – for example to model traffic flows and work out the difference that a project is anticipated to have.

Generally, the majority of benefits from a project are described as “time savings benefits”: the time saved by using the new road (or railway line) compared with making the same journey by the previously available route. In New Zealand we tend to exaggerate this difference to an even greater extent, by projecting how bad things are going to get by a certain date in the future, and then comparing that estimated scenario with other estimated scenarios that involve various options for a project, or just the anticipated difference that the project is expected to make. For example, the 2008 alignment of the Waterview Connection had these as the main costs and benefits:

I must say I still haven’t quite worked out the difference between “time savings benefits” and “congestion cost savings benefits” as they appear to be basically the same thing, but either way it’s obvious that time savings represent the vast majority of the benefits that arise from this project. While the detail of the project’s design has changed quite significantly in the past few months, its traffic effects are probably very similar so therefore the Waterview Connection is largely being justified on the basis of its time savings benefits.

Metz explains the rationale behind time savings benefits a bit more:

In economic terms, the point of travel has been seen as permitting people to get to destinations that allow more value to be gained than by staying at home. So travelling to work allows income to be earned, and travelling to the shops allows good to be purchased. If, for simplicity, we assume that the origins and destinations of our journeys are not altered by making available a better transport link between them, then the benefits of the investment could be the total travel saved by those making these journeys (since the benefits associated with the destinations would be unchanged.

As will become obvious soon, the assumption that the origins and destinations of our journeys remain unchanged is critical in the analysis of time savings benefits. But let’s return to Metz’s description of the benefits:

Time is money. If travel takes place in working time, then less productive work is done. And travel in non-working time means that we are deprived of activities that we would otherwise wish to do. So if we are able to reduce travel time for the trips we need to make, that represents a gain in value. Techniques have been developed for estimating how much value we attribute to travel time savings for different kinds of journey. For instance, time saved on journeys during working time is considered to be worth some five-fold more than time saved on non-work trips. These values of time saved are multiplied by the number of people benefiting from the time saving to estimate the benefit from some new transport infrastructure improvement.

Now I’m not sure whether such a distinction is made between work travel and non-work travel in the NZ method of calculating time-savings benefits (Metz is writing on the UK system). I certainly hope that there is such a distinction, because I have some doubts about what the real economic benefits are or simply allowing commuters to leave home later, or get home earlier. Surely if we want to give people more free time, then the government should start buying each household a dish-washer?

But that’s not the only flaw with the focus on time savings benefits. Metz has done significant research that shows average travel time has remained pretty constant in Britain since early 1970s. If anything, travel time has seemed to creep up slowly, rather than decrease as “promised” by all these projects that have been justified on the basis of their supposed time-savings benefits. Metz looks a bit further into this interesting outcome, seeking an explanation:

This prompts the question: what has happened to all the travel time savings claimed to justify public expenditure on roads in Britain of around £100 billion over the past 20 years? One possible answer would be that average travel time owuld have been higher than it has been, had it not been for the time savings associated with this investment. However, the pattern of investment in road infrastructure in Britain over the past 20 years has shown marked swings in expenditure, as fashions for road building have come and gone. Spending on roads has varied between £3.5 billion and £6.4 billion a year (at constant 2004/2005 prices). The amount of new road capacity coming on stream would show a similar swing. But the steady trend of travel time shows no hint of any such variation in new capacity. There is no support for the idea that average travel time would have been higher in the absence of new road construction.

What has actually happened is that because the new road investment has made the process of travelling faster (at least until induced demand kicks in and triple convergence clogs everything up again), people have simply travelled further. This is shown in the graph below, which shows that while the number of trips per year has remained fairly constant over the past three decades, the length of the trips has increased dramatically. What road investment in the UK (and the same is undoubtedly true here in New Zealand) has actually achieved over the past 30 years is not “saved time”, as was promised by all those time savings benefits used to justify projects. What the investment has actually achieved is that it has enabled our trips to be longer. Because we now have faster roads to drive along than we previously did (at least when they’re theoretically not horribly congested) we can travel further within the seemingly set time that humans allocate to travel each day (on average not particularly much over an hour).

I would argue that all this has achieved is an enabling of urban sprawl, a highly unsustainable form of urban development, and an encouragement of greater and greater levels of travel, which over time has generated the ‘induced demand’ that now clogs our roads despite the masses and masses of money that has been spent on them. There is a benefit in making a city easier to get around, or more accurately a city where it’s easy to do what you need to do. That’s an accessibility issue, and it is improved access that was promised by time-savings benefits. However, I think what we’ve actually ended up with is increased mobility but no improvement in accessibility, or arguably a reduction in accessibility (in that you’re not pretty screwed if you don’t own a car and want to drive it everywhere).

What I think we need to measure is the ability of a project to “increase the number of people within “x” minutes of “y” location” (ie. measure the number of people whose accessibility has been enhanced), rather than hope that a particular project will save a certain number of minutes off travel time, and then measure those minutes. We must take into account induced demand: both in terms of triple-convergence, but also in terms of longer-term changes such as whether the project is inducing people to travel further, or whether it’s encouraging land-use patterns that will eat away at the project’s benefits over time. I think it is only then that we’ll be able to truly measure the benefits of our transport investment accurately, and I think such a change could throw up some interesting results.

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  1. Another thoughtful post. Again confirms the proposition that the economic justifications presented for many roading projects are illusory at best, and at worst a deeply deluded cargo cult. When are you taking up a senior position at NZTA?

    Perhaps its time you started building connections with the current Labour shadow minster of transport so you can be a key advisor next time they are in government.

  2. Cheers LX… I like that description of economic justification as a “deeply deluded cargo cult”. I have met Darren Hughes and chatted to him about transport – he seems pretty onto it.

  3. I wonder to what extent there is a ratchet between road-building and ever larger mega-malls and business parks, that tends to propel this process? In other words people aren’t just driving further to use up their so-called travel time budget, as if they had to commute for an hour a day come hell or high water. The roads are lengthened and then the malls and business parks get bigger and further apart (with larger carparks too), out to the limit of reasonable travel expectations. In this way travel time is always maximised, but with bigger roads people just go further. Perhaps you can get goods 10% cheaper as a result of the ensuing economies of scale, but the cost is effectively transferred to driving to get there. This is all the more probable given the “lumpiness” of many real estate markets, i.e. as a mega mall opens the small local ones will tend to close. So it is all indeed for nothing, perhaps. I must look into this ratchet idea further. Plus of course many would say that the small local shops had more character, but that’s a separate issue…

  4. Exactly and this sprawl costs us all more but is effectively hidden (other infrastructure costing more isn’t really linked in people’s minds) and the environmental and social costs are not even considered…

  5. Sprawl, auto-dependency, mega-malls, mythical time savings benefits and minimum parking requirements are all linked together in an ugly self-perpetuating cycle of cumulative causation. The question is how to break that cycle.

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