Nerd alert; this post is chock-full of graphs. Plus a few “hypotheses”, just to keep things exciting. And a dog, because I like dogs.

For those of you who are new to the data game but want to participate in the nerdy excitement, let me first explain the rules. The game starts when an economist, such as myself, formulates a “hypothesis”. In doing so we’re basically statistical crystal-ball gazing. Not only is this fun, but it’s actually essential.

It’s essential because formulating a hypothesis sharpens/hones subsequent analyses. It’s also essential because of what it reveals about our own internal biases. Economists have long recognised that we’re at least as biased as anyone else (and typically more selfish) – so it just seems kosher to clearly state our biases from the outset. That way other people know what game we’re playing.

I’d encourage you to play the economics game sometime, with just one word of caution: Be prepared to be wrong. I’m 100% certain, for example, that I will – at some point in the near future – be wrong. Keep that in mind whenever you are tempted to believe your own EBS (economic BS). I might also add, however, that economists don’t care much for being right, we just try and make damned sure we’re less wrong than the engineers.

Professional happiness is, after all, largely a relative frame of mind.

The primary hypothesis (it’s not really “mine” – we’re all standing on the shoulders of nerdy giants here) is something that has been articulated in previous posts here and here. Kent recently talked about it again here, where he also came up with the crazy notion that I should write a follow-up post. Thanks for that hospital pass. But other people have also asked for it, so I finally pulled finger and cranked this out. Unfortunately the cacophony of requests for follow-up posts misses an important issue: Not much additional data has been released since my last posts on the topic. Nonetheless, even in covering well-trodden ground I did find some interesting new nuggets.

The hypothesis is this: The demand for vehicle travel in NZ (when measured in terms of vehicle-kilometres travelled per capita) is falling in response to powerful wider forces, including:

  • Demographic trends, such as an ageing population (which has both age-related and income-related effects)
  • Socio-economic preferences, such as reduced attachment to private vehicles or increased awareness of health/environmental impacts of driving
  • Technological developments, such as smart phones, PT journey planners, tablets (which help to demystify public transport and lower the perceived costs of in-vehicle time)
  • Trends in transport costs, most notably sustained higher fuel prices but also reducing costs of air travel (Air New Zealand recently launched $29 late night fares between AKL-WGN)

Stylized facts support this hypothesis. In the graph below, for example, I’ve plotted VKT per capita p.a. in New Zealand over the last decade (source). You can see there was a trend towards higher VKT per capita until circa 2004, after which the trend turned negative. Since it’s peak VKT per capita has fallen by about 6% (NB: I’ve base-lined results to 2001 levels, so the graph measures the % change from that year onwards. Doing so makes it easier to identify and compare trends, which will be useful later in this post).

VKT per capita

The good news is that this graph suggests I’m not a complete moron. But nor does this mean my hypothesis is necessarily correct.

An alternative hypothesis, which has been advanced by the Government, is that the drop in VKT per capita that has occurred since 2004 is a temporary aberration caused by post-GFC economic malaise (which sounds suspiciously like a budget form of mayonnaise). Well, let’s investigate what I call the “budget mayonnaise” hypothesis by adding (indexed) real GDP per capita to the same graph (source).

VKT and GDP

Hmm. On the basis of this evidence it’s fair to say that the Government is more wrong than me: Budget mayonnaise does not seem to explain VKT per capita trends very well. The data actually contradicts their hypothesis; unless they’re going to suggest that drivers started preparing for the 2008 GFC way back in 2004. Now it is true that the GFC has a negative impact on GDP per capita, but this impact was relatively slight and has since been more than wiped out. In fact, since 2004 – which was the peak in per capita VKT – our GDP per capita appears to have increased by about 12%, whereas per capita VKT fell by about 6%.

At this point, ardent purveyors of the budget mayonnaise hypothesis might suggest GDP per capita is not the only indicator of economic activity, and dog-yarned it they’d be right. Wages, in particular, tend to “lag” movements in GDP, such that it is possible that post-GFCNZ is experiencing suppressed wages. But why bother asking when we can get busy answering – in the figure below I’ve added inflation-adjusted hourly earnings (source).

VKT GDP and earnings

Here we see earnings rising steadily from 2001 to 2009, since which time they have fallen. This drop probably reflects the lagged effects of the GFC plus the Christchurch Earthquakes. I should say that 2012 data shows earnings rebounding back up to 2009 levels, which is good news. But overall these indicators do not provide much evidence to support the view that a slowdown in economic activity is primarily responsible for declining VKT per capita. It seems fair to conclude that the budget mayonnaise hypothesis does not cut the mustard (how does one actually cut mustard?).

That’s not to say economic activity in general does not impact on VKT per capita; I definitely think it does. And I certainly expect that as the economy gathers momentum (as it seems to be) VKT per capita should “rebound” somewhat. Whether this rebound is sufficient to counteract factors that are causing it to decline is hard to say.  My hunch is that if fuel prices stay low then we may see some VKT growth, but that’s not really something the Government can point to and say “we told you so”; that just strikes me as getting lucky.

So for now at least, I’m sticking to my story – even if I look forward to the MoT updating their vehicle fleet spreadsheet with 2012 VKT data so that I can finally be proven wrong, and in turn get to start the game again with a new hypothesis (plenty more where that came from).

But I’m also sticking to my story because, in writing this post, I uncovered another little piece of data that seems to support my hypothesis. But it does so in a somewhat unusual way, in that it suggests that VKT per capita should have actually grown in the last decade. The source of this indicator is this delicious data set from Statistics NZ,which presents New Zealand’s population from 1991 to the present. You might think that’s not particularly exciting or novel. Think again – because in this data set Statistics NZ has split the population by their precise age at the time. It’s rather useful I think.

Using this data you can estimate the number of people of driving age (which I’ve defined to be 16-70 years). You can then calculate the ratio of people of driving age per capita, which measures the proportion of the population who are of an age where they could get a drivers license, if they were so inclined. I’ve plotted this ratio below for the period from 1992 to 2012.

Driving age per capita2

Holy bandages.  What this graph shows (if the Statistics NZ data and my calculations are correct) is that the proportion of people of driving age in New Zealand is now at the highest level it’s been for two decades. Moreover, most of the growth in this ratio has occurred within the last decade. The very same decade that has seen a fairly significant decline in VKT per capita.

Thus in the same decade when the proportion of people of driving age appears to have increased, we have witnessed declining VKT per capita.

Fairly interesting stuff. And well worth chucking into a regression model, if we have more than 10 years of data.

Where this ratio may head in the future I just don’t know, although Statistics NZ might be able to tell us. Perhaps I’m over playing it’s importance – after all the ratio only changes by 2.5% over a period of ten years (note the graph’s truncated vertical axis). But I would have intuitively thought (here we go again with the same old EBS) that the proportion of people of driving age would have a relatively large impact on VKT per capita. Actually, in a situation where young people behave exactly like their parents you might even expect an elasticity approaching 100% (i.e. a 1% increase in the proportion of people of driving age would cause a 1% increase in VKT per capita).

Of course, the proportion of people of driving age is only one part of the VKT equation. One useful (albeit incomplete) way to visualise the VKT equation is to consider a Russian doll of overlapping circles, where each circle captures related but distinct demographic and socio-economic variables, which ultimately combine to determine VKT per capita in any given year, like I’ve shown below.

Travel demands2

The outer-most circle is population, which is important only in a “multiplier” sense. That is, we can forecast total travel demands by multiplying VKT per capita by NZ’s total population. What the previous graph showed is that the lilac-coloured circle has increased in size relative to the outer circle, i.e. a greater proportion of the total population are now of driving age per capita.

We also know from our previous analyses that the inner-most (orange) circle labelled “DRIVE” (i.e. VKT per capita) is currently declining. These two results thus suggest that the reduction in VKT per capita is most likely to have arisen in response to either 1) a reduction in proportion of people with drivers license per capita (green) and/or 2 ) a reduction in vehicle ownership per capita (blue circle).

The graph below shows the latter (per capita vehicle ownership) superimposed on top of the previous VKT trend.

Vehicle ownership

So it has declined, by not by much. And what is most interesting about this graph is that the peak in vehicle ownership occurs a couple of years after the peak in VKT per capita. Does this suggest that travel demands are actually the egg and vehicle ownership is the chicken? Could it be that NZers are choosing to reduce their VKT first and only subsequently reducing the number of cars they own? Or maybe it’s both – maybe lower VKT results in lower vehicle ownership, and lower vehicle ownership results in lower VKT. I should say that 2012 data shows a small rise in vehicle ownership per capita back to 2010 levels, but it’s still down on the 2005 peak.

The final piece of my little diagram is the proportion of the population with drivers’ licenses. I don’t have this data on hand, although I’m sure it’s out there (please point me to it if you know of good data sets). Anyway, I think that’s quite enough statistics (and lies) for one day, so let’s finish with something that is 100% certain: Puppies that try to chew tennis balls even when lying down are 100% adorable.

P1020619

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60 comments

  1. As a new puppy owner and sometimes train passenger. May I add a wild card comment and that is that one more block to Public Transport use is you can’t take your dog on the train. You can in the UK and Europe.

      1. I’m not an animal lover so would say no.

        The funniest I saw in London was the guy on the bus with a Christmas tree!

        1. bah ha ha. That’s hilarious.

          Funniest thing I saw was a giant bearded Dutchman getting on the tram in Amsterdam carrying a chihuahua that was sitting proud as punch inside this Louis Vuitton dog-bag covered in sparkly little jewels. The combination of big masculine man and little feminine dog just completely confounded my internal stereotypes. Had to laugh.

      2. Why not dogs on trains? As said above, not allowing itt is just another barrier to people using the train.

        Nice picture of the dog, btw Stu.

        1. You can argue that animals on transit is a barrier to use, as they create a number of problems for other users. There are reasons for, and reasons against.

        2. I know of several people who wouldn’t step foot on a train if they knew it would have dogs on board, if they are ever allowed then muzzles would have to be compulsory.

          1. I would say no to dogs on trains. I once was on a bus when the driver let a dog onboard and I know for a fact that it was not a guide dog. I thought it was very poor.

  2. Interesting read. However are you sure you didn’t choose the wrong brand of Mayonnaise. While John Campbell lets us know about every layoff that occurs around the country, NZ actually came through the GFC relatively unscathed as the wage data shows. However, consumer confidence (I assume, I haven’t checked) would have reduced more. I don’t know anyone who got laid off but I do know lots that had reduced pay rises, wage freezers or recommended they find new jobs, which they did with out being fired or made redundant (ironically, normally in better positions).

    There were also lots of news reports about belt tightening and paying down debt. So while wages drops may not have been a driver for reduction in VKT, reduced confidence austerity may have been.

    1. Yes in recent times employment has dropped, which would suppress VKT. But again only post-2009, so there’s approximately 5 years of declining VKT before that which still needs to be explained. Same goes for consumer confidence.

  3. “We have to build a society that doesn’t depend on forecasts by idiotic economists” Nassim Nicholas Randomness

    Less wrong than engineers? Economists have destroyed the the entire planets financial system, I hope to god engineers are less clueless than economists. They certainly are less arrogant and no doubt more fun down the pub !

    1. It wasn’t actually a forecast but another economist telling us what have already happened. Might as well ask an historian next time…

    2. Hold on a second. Economists built the financial system in the first place, therefore it’s fully ours to destroy. Don’t blame us for playing games with our own toys.

    3. If you laid all economists in the world end to end they’d still all point in different directions… It’s hard to keep up with your occupational specialisations Stu, first an engineer (implied anyway), then an historian (nice little subtext Gian), now an economist. I guess that explains a lot. An excellent post all the same. May I suggest another reason for the reduction in VKT, especially by the younger generation: the back seats of modern cars are far too small. Bring back the HQ Holden I say.

  4. I kind of expected to see more discussion of price from an economist. I would hypothesise that the flattening off of vehicle ownership would correlate fairly strogly to the average cost of vehicle ownership relative to average incomes – I’m pretty sure the average car has become more expensive in the last few years and the average income has remained relatively flat.
    Equally – I would think one of the biggest determinant on discretionary vehicle kilometres travelled would be the cost of the trip which is largely a product of the cost of petrol. If that is the case we would expect to see the VKT decline as the oil price rises. If so – the idea that VKT will rise again when the economy gets back to normal will face a challenge because at the moment the cost of fuel (and cars for that matter) is heavily subsidised by our high exchange rate. If the dollar comes down to more ‘normal’ levels motorists are in for a hell of a price shock.
    The other correlation I’d love to see would be the relationship between urbanisation and VKT. The largest kilometre demands that I might call ‘non discretionary’ would be my daily commute. If more people are living in cities then they may have less distance to travel each working day and have more non-car options for completing that journey. A comparison of PT kilometres travelled (if such a stat exists) versus VKT would be interesting.
    Oh – and that’s a very cute dog!

    1. VKT per capita is very strongly correlated with urbanisation. Auckland and Wellington have the lowest, while the likes of Northland and the West Coast have the highest.
      People who live in cities drive lesser distances, and the larger the city the less they drive, as a trend.

    2. Hi Stu, great post. I agree with Richard here that prices are important. Not vehicle prices – those are pretty affordable, as shown in Stats NZ’s CPI data for example – but fuel prices. In fact, I think that the part of your hypothesis that mentions fuel prices should be in bold, with a really large font. Possibly in all caps and underlined. Because I don’t think it’s a coincidence that VKT here, and all around the world, started to go down circa 2005, just as oil prices started to go up dramatically. I would say that is absolutely the main factor. I also note that the decline is more significant in the US, because they had relatively low fuel taxes and therefore saw a higher percentage increase in their fuel costs (since they weren’t buffered by a roughly constant level of tax).

      I would suggest that the increase in fuel prices is the main kicker which may have started other shifts, e.g. young people blowing off driving, etc. And fuel prices, of course, are expected to stay high and probably increase over time, so this “cause” factor isn’t going anywhere. And nor should it, as it’s getting people to think smarter about their transport needs.

      1. It would be interesting if fuel prices were the driver as a regional fuel tax is the cheaper option that road tolls and if it forced more people onto public transport, would be win win.

        1. Road pricing is considered to have much more impact on travel demand than fuel prices are, even if the financial impact is the same. I think that is largely because road pricing would be more visible where as fuel price changes tend to be more easily hidden.

          1. Not disagreeing but the complexity of road pricing is a lot higher than a fuel tax.

            If you only tax motorways – suburban streets will be more crowded.
            If you do a zone like london, that is a lot of infrastructure (northern toll road works as there is only one unfavourable alternative)

            The only way to avoid a regional fuel tax is to fill up at the bombays before you reenter the area. This is only possible for those travelling a lot, or for those that live close to the boundary. It also encourages more fuel efficient cars so you may see more Swifts than Holden SS’s.

            The problem is making the tax high enough to cause results. Tabacco tax is a very high portion of the purchase price and I dont think we want to go their with cars/petrol.

            I haven’t had a chance to read that new paper that came out yesterday (?) to see how they want to implement road pricing (does it cover options or just the principle).

          2. That might not be the case in Auckland Harvey. We have such a series of pinch points breached by motorways that there often isn’t a local road alternative!

    3. Normally I’d be interested in prices, but 1) they already receive a lot of attention; 2) the elasticity is not especially high and 3) I don’t think vehicle operating costs changed that much in this period (I’ll check this in my next post). Given this background I think the more significant factors going forward are likely to be demographic trends, rather than price signals. Again, I’m certain to be wrong at some point ;).

      Parking could be the “price wild card” – insofar as if Local Councils start to roll back minimum parking requirements and price on-street parking more, then you could see a large contraction in VKT.

      1. Again, I must respectfully disagree Stu. 2006 NZ research (available here http://www.nzta.govt.nz/resources/research/reports/331/) estimated the short run elasticity of petrol consumption at -0.15, or -0.2 in the medium term. And the increases in petrol prices have been massive since around 2004. In nominal terms, from the graph here, http://greaterakl.wpengine.com/transport-statistics/nz-petrol-prices/, they’ve gone from circa $1.20 in 2004 to above $2 now. That’s a rise of maybe 50% once inflation is taken into account (don’t have time to check those numbers now).

        Which would suggest a decrease in petrol consumption of around 10%. Not too different from what we’ve seen. Notwithstanding that elasticity estimates can be a lot less accurate when you get such large percentage changes, we’re certainly talking the right order of magnitude and I think a regression analysis would be likely to show that the main factor in decreased petrol use and driving is, indeed, higher prices.

        1. Also that reply wasn’t intended to be harsh at all, love your work Stu and indeed this entire blog :-). But also as I said above, “I don’t think it’s a coincidence that VKT here, and all around the world, started to go down circa 2005, just as oil prices started to go up dramatically”. This blog has previously posted VKT trends for the US, and they show exactly that.

  5. Very interesting post. Did you adjust the wealth for inflation or is it just straight?

    Although as we know inflation seldom takes into account the true cost of living but rather the cost to do business.

  6. Good stuff. And, yes, I freely admit that I scrolled straight to the dog at first… (is that transport themed sleepwear next the dog?)

    These stats are good ammunition against the Government contention that the construction of more roading capacity is a) needed and b) drives economic growth. Again I wonder how much of a substitute AKT (Aircraft Kilometres Travelled) per capita is for VKT. Are stats on domestic air travel kept anywhere?

      1. True. At a minimum could we say that there is a no correlation between economic performance and the amount that people drive in general? Of course others might point to something like the ANZ “Truck-o-meter” that attempts to correlate economic performance to distances trucks travel.

        1. probably worth distinguishing between light and heavy vehicle travel. The latter (heavy is likely to be much more strongly linked to GDP than the former (light).

  7. Some other factors. PT in Auckland is actually getting better (trains, northern busway) so more people are using it, even though they have cars. Slowly people change habits and consider fuel and car usage more. Just as less people drink and drive, and more people wear seatbelts, the “new” common sense messages take time to sink into normality. I think cars, maintenance, and fuel is cheaper than 10 or 20 years ago, and PT is cheaper given the improved services

  8. It would be interesting to see how intercity and intracity has changed over the years, however I suspect it would be rather hard to split the two apart.

    1. You could probably build up a reasonable model for state highway figures, making assumptions about which carry intercity and which primarily carry intracity.

      1. The issue there would be that the vast majority of urban trips never touch a motorway and hense don’t get recorded on the easy to measure motorway sensors.

        What you would really need to do is compare motorway traffic to local arterial traffic however you would ne hard pressed to get a full set of local arterial data.

        Maybe if we looked at a isolated auto dependant are pike botany we could get some representative numbers.

        1. Yeah I do realise that, but you also have regional VKT figures that would help. For example you could take the Auckland VKT figures, factor through estimates of exurban state highway traffic based on motorway counts north and south of the city, then the remainder would be a good estimate of your intraurban VKT. Auckland is an easier case because all interurban kms occur on a couple of state highways that have relatively short length within the region.

          And I did say reasonable, not great.

          1. The issue there is however is that the most important figure, being the split in inter and intra, which would be a guess / estimate.

            If there was some reliable annual split factor we would be sorted but I don’t know if a series exists.

            Do you know where I could get AUckland arterial traffic volumes from?

          2. I assume you found the AT traffic volume stats, the big problem with them I find is many roads only get checked every now and then. I wanted to find stats for Queen St and the last traffic count was done in 2004 since which time there have been massive changes including the streetscape upgrade.

  9. “I might also add, however, that economists don’t care much for being right, we just try and make damned sure we’re less wrong than the engineers.”

    Lol. Good luck. You’re still stuck at trying to explain the basics of how markets works and can be predicted (a rather central field for an economist!).

    At least we engineers know that kicking over the main support strut, stuff collapses. Our theories are tested!

    1. Yeah, the immediacy of the results in most fields of engineering is one reason it’s fairly robust. Perhaps transport is a sub-field which is quantitatively different in this regard, as the impacts are often indirect and delayed.

    1. It’s actually vehicles per capita, not cars per capita that they mention in that article. The number of cars went up by 10.9% between 2007 and 2012, vs. 13.3% for all vehicles.

      Australian cars per capita would also have increased, by about 3.7% from my rough calculations. But that situation would be unusual in the developed world over 2007-2012, and isn’t the case in NZ.

      Interesting that it did go up in Australia though, I’m quite surprised as Australia (and NZ) already has one of the highest car ownership rates in the world, and even if they did better economically than most countries in the last few years they’ve still seen a slowdown.

  10. JohnP your right but as the figures were both for for all vehicles it should be approximately OK.
    Import tariffs have been reduced to from 10% to 5% in 2010 AU dollar has risen where in nz second hand import criteria has become stronger

  11. I believe that discretionary income is more important than just vehicle/fuel cost increases.
    An increase in inequality in NZ and income for lower income brackets will also lead to cost cutting on inessential items like Sunday driving etc.

  12. I like dogs, I am allergic to dogs, I don’t have a dog picture.

    There is good support for this in a paper by Peter Newman & Jeff Kenworthy, in World Transport Policy & Practice, http://www.eco-logica.co.uk/pdf/wtpp17.2.pdf
    They give six reasons (although a couple might be symptoms) based on data fromAustralia, Europe & the US.

    A good picture of what the economy is up to comes from http://www.resilience.org/stories/2013-04-30/commentary-interview-with-steve-kopits
    Peak Oil is part of the picture

    Kerry

  13. This a great research work done on travel trendz in New Zealand. Graphical description of stats shows the true picture of travelling trendz being followed by the people here.

  14. This is great thanks- also worth thinking about looking at vkt by age group, I suspect much of this change is being driven (pun intended) by younger ages. They are more likely to live in the inner city, be price sensitive to fuel and want to use public transport (you can’t use your iPhone while driving- well I hope not anyway). I went to a talk by Peter Newman this week at the University of Otago Wellington (he is on the transport group of the IPCC) and it looks like NZTA are wrong in assuming this is a “blip”, these trends are happening in a number of countries. Some of this is undoubtedly fuel costs (although it can’t be all of it given how much fuel prices plummeted during the worst of the GFC), but some of it may be de-coupling of vkt from gdp. Finally.

  15. Trucking mileage ( road user charges)is a great way to gather info on how the economy is performing.
    Raglan to Hamilton ( just sit and watch/ measure the traffic flow) allows you to understand the behavioural changes taking place within an urban population

    1. RUCs won’t tell you where those trucks are going/travelling/what they’re doing/whether they’re full or empty, just that they are driving around.

      And as you have to buy the RUC’s in advance, you can’t measure the economy very accurately from the amount of RUCs in the “pot”.

      ANZ have their Truck-o-meter indicator which they say does, and gives both an instant snapshot and a 6 months lead on the economic activity of the country which they publish monthly.

      Probably more accurate than RUCs will ever be.

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