Oram v Joyce: the battle continues

Business commentator Rod Oram has another transport related article in yesterday’s Sunday Star Times – responding to the points made in Steven Joyce’s opinion piece from last week. Joyce’s piece itself was a response to an earlier article by Oram – so this is turning into an interesting ‘back and forth’ between the two. Oram starts off by noting the enormous response his initial article got – and the fact that most of the responses were very positive:

My column two weeks ago about roads generated by far the biggest, most passionate response from public and politicians to any of the 458 columns I’ve written to date in this space.

It seems we care a lot about where and how we live, work and travel….

…Incidentally, Joyce’s was the only negative response to the column.

Oram’s article talks at length about the critical factor in this debate being the question of “how do we want Auckland to grow?” He also notes that in answering this question, we need a discussion with Aucklanders all being involved. While I think there’s some risk of us simply repeating the process that was done 10 years ago with the Regional Growth Strategy, there are some issues with the implementation of that strategy that probably need to be worked through. Furthermore, with the amalgamation of Auckland’s councils and the fact that doing actual planning seems back in fashion with this whole “spatial plan” idea, we really do need to sort out once and for all how Auckland is to grow in the next 20-30 years.

But turning back to the transport related matters of Oram’s latest column, he looks at the CBD Tunnel business case that Joyce dismissed so quickly the previous week:

Tensions between local and central government over transport investment have simmered for years. But they boiled over 10 days ago when Joyce rubbished the council’s business case for a $2.3 billion CBD rail loop.

The minister expressed disbelief about the cost/benefit methodology used to make the case. Then, in his article on this page last week, he scorned the thinking that lay behind the higher density urban form that underpins the case; and even if there were any merits in the urban form, he doubted local politicians could deliver on it because, he said, they had failed to do so in the past.

The case, though, deserves serious consideration. It says that an Auckland population of 2.2 million in 2051 would result in another 500,000 vehicles on the region’s roads if we stick to our existing road-dominant investment in transport.

But where would they go? Once the western link and Victoria Park tunnels are complete, there’s no room left to build new or expanded motorways in the central isthmus.

This is one of the most important “macro-level” points to make about the future of transport in Auckland. Put simply, we don’t have the space to build more roads, yet in the future Auckland is going to be a much bigger city – so we need to make more efficient use of our existing transport network: of which the rail corridors are a significant (and under-used) piece of. One of the greatest benefits of the CBD Rail Tunnel is that it enables spare capacity in the rest of the rail network to be utilised more efficiently – in effect by removing a massive bottleneck in the system.

Oram then compares the cost-effectiveness of the CBD Rail Tunnel with the Puhoi-Wellsford road:

On conventional analysis the CBD rail loop delivers a cost/benefit ratio of 1.1 (for every dollar spent, it generates a $1.10 return) at the Treasury’s current discount rate of 8%. In contrast, the motorway from Puhoi to Warkworth and Wellsford highly favoured by Joyce only delivers a ratio of 0.80 (80 cents on every dollar) on the same discount rate.

This is the latest figure from the Transport Agency. Joyce’s office sent it to me in an attempt to refute the conclusion of my November 21 column that the highway was an uneconomic investment. Incidentally, Joyce’s was the only negative response to the column.

Joyce says, though, the real value of the highway lies in its wider economic benefits (WEBs) such as the creation of jobs and new housing along its route. But again, the latest cost/benefit ratio supplied by his office is only 1.1 including WEBs, calculated on Treasury’s current discount rate.

In contrast, the economic benefits of the rail loop at the same discount rate lift its cost/benefit ratio to 3.5 (every $1 invested would return $3.50). This is based on detailed analysis in the business case of the likes of higher density office, hotel and other development in the CBD.

It has been pointed out before, and is worth repeating, that cost-benefit analyses really work best for comparing projects of the same type: rather than comparing a rural motorway with a downtown rail tunnel. However, the vast differences in the benefits of the project give a pretty strong indication that the rail tunnel would be better value for money.

Oram then brings the argument together to ask the question of why Joyce isn’t being consistent in his approach to the two projects:

In opposing the rail loop, Joyce proves to be a man of supple mind. On one hand, he argues for his motorway on the basis of wider economic benefits without any planning mechanisms to deliver, for example, more houses and jobs in Warkworth, hoping instead they will simply turn up in a random fashion once the road’s built.

But on the other hand he argues against the rail loop on the grounds that the economic benefits don’t stack up; and even if they did he doubts the council can produce planning mechanisms to deliver them.

This is the key point. We should either be scrutinising the cost-benefit analyses of both projects down to the last minute detail, or we should be taking the position that cost-benefit analyses only tell part of the story – but we should be doing the same thing for both projects. It is just hypocritical for Joyce to denounce the business case of the CBD Rail Tunnel project while ploughing on with the holiday highway, despite that project’s cost-effectiveness being even more questionable.

I must say I actually found it quite amusing when Joyce started having a go at the CBD Tunnel’s business case. He should have remembered that great old saying: “those in glasshouses should not throw stones.”

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