People sometimes argue that we should provide more public transport because it will reduce households’ transport costs. But is that actually true?
I took a look at this issue in a recent working paper on Location Affordability in New Zealand Cities that I presented at the 2014 New Zealand Association of Economists conference. In that paper, I found that:
…housing costs tend to fall with increasing distance from city centres, while commute distances, which drive variable transport costs, tend to increase. All other things being equal, higher rates of public transport use did not appear to improve transport affordability due to the fact that New Zealand’s public transport fares are comparable to or higher than car operating costs. However, car commuting is likely to be more costly in areas where parking is priced – a factor that we were not able to robustly estimate.
Car ownership rates, which drive a large share of transport costs, tend to be fairly consistent outside of city centres. One of the benefits of providing public transport and walking and cycling infrastructure is that it enables households to reduce car ownership costs. Conversely, policies such as minimum parking regulations tend to encourage higher rates of car ownership by ensuring abundant and low-priced parking.
In short, public transport can save households money, but whether it does in practice depends upon what how much they would pay for parking and whether they own a car or not. (A classic case of an economist saying “on the one hand… on the other hand…“!)
Here, I’d like to take a closer look at transport costs using a concrete example: my regular commute from Mount Eden to Takapuna. Here’s the Google Map view of the route between Mount Eden village and central Takapuna that I use on the days when I have to drive. (Note: The addresses on the map do not show where I live or where I work.) At 12.9 km, it’s a little bit longer than the average Aucklander’s 11.5 km commute:
Time for some maths. According to data from AA’s 2013 Petrol Car Operating Cost Report, a compact car costs approximately $0.25 per kilometre to run. This figure includes the cost of petrol, oil, tyres, and regular repairs and maintenance, but excludes the cost to own the car.
As a result, I’d expect to spend around $6.45 per day commuting by car (12.9km x $0.25/km x 2).
What would the same journey cost on public transport? According to Auckland Transport’s journey planner, the best way to do this is to take the 274/277 bus from Mount Eden village to Symonds St, walk down the hill, and hop on the 839/858/875/879 service, which runs to central Takapuna. Because both buses run frequently all day, this is a really easy connection. (AT’s New Network will be adding frequent, connecting services to many more parts of Auckland – which is really great news for south and west Auckland and the North Shore!)
As I use a HOP card, which offers discounts on the cash fares and also a $0.50 discount if you transfer between services, the entire trip costs me $4.05 – or $8.10 per day to commute in both directions.
So far, driving is coming out ahead – the costs to operate a car are a bit cheaper than the cost of bus fares. But wait: we’ve forgotten to account for parking costs!
Wilsons operates the closest parking garage on The Strand in Takapuna. They charge $11 for all-day parking. If I pay them for parking – and I don’t have many other options in the area – that means that a car commute now costs $17.45 ($6.45 + $11). That’s over twice as expensive as taking the bus!
In short, when people must pay for parking, public transport is a much cheaper option. However, a lot of people don’t pay directly for parking, due to the fact that minimum parking rules have resulted in an uneconomic oversupply of parking in many areas. (They still pay for parking indirectly – through lower wages, more expensive groceries, or higher housing costs. But these costs, while significant, aren’t as obvious to people on a day-to-day basis.)
And we haven’t yet accounted for one of the big costs of driving to work – the fixed costs of car ownership. Based on data from the AA’s Petrol Car Operating Cost Report and the Ministry of Transport’s data on the NZ vehicle fleet, I estimated that it costs around $2,900 per annum to own an average car (i.e. not a new car). This includes the cost of registration ($288), insurance ($790), and warrant of fitness ($49, twice a year), as well as the interest payments and depreciation on the car itself (assuming that the average car is worth around $8,000).
$2,900 per car per year is obviously quite a big cost for most households, and I’m sure a lot of people would rather save the money and spend it on other things. Abundant public transport and walking and cycling options can give households the option to downsize on car ownership and save thousands annually.
Here’s a summary of my calculations. As you can see, by taking public transport rather than driving I save $9.35 every day I commute to work. Over the entire working year, this adds up to a lot of money – over $2,300!
And by choosing to take the bus and not to own a car, I save even more money – over $5,200 every year in total. If I choose to save that money instead, it will add up to a large sum of money over time. According to Sorted.org.nz’s savings calculator, if I put an additional $5,200 in my Kiwisaver account every year and get a modest 6% return, I’ll have more than $200,000 in retirement savings after thirty years – which is enough to let me retire three or four years early.
In other words, our driving habit is literally squandering our lives. Sell your car and retire early!
Finally, it’s worth reflecting on the policy implications of this analysis. The maths on transport costs suggest that:
- Distortions in one market (parking) can affect outcomes in an adjacent market (public transport). When parking is available for free, it makes taking the bus or train much less attractive from a financial perspective. This in turn makes PT seem less viable than it would be if parking wasn’t heavily subsidised. And it’s simply unrealistic to expect parking to be free – space is expensive in cities!
- Councils have in the past regulated for an oversupply of parking by setting highly prescriptive minimum parking rules. In addition to forcing property owners to pay for supplying too much parking, this makes it impossible for people and businesses to price parking to reflect the true cost of providing it. This is insane, and we need to stop doing it.
- While public transport can save households money on a day-to-day basis, the big gains arise when people cut back on car ownership. Transport and urban planning can enable households to make this choice – or prevent them from doing so.
- When councils choose to put in new PT services or infrastructure, they should always ask: what do we need to do to turn a neighbourhood with a frequent bus route into a neighbourhood where you don’t need to drive for daily necessities? Neighbourhoods need to pass the “five minute pint test“: can you get a pint of beer or a pint of milk within a five minute walk?
So, what would you do with an extra $5,200 in your pocket every year?