The Auckland Council Chief Economist’s most recent economic commentary highlighted a vital challenge for the city: the rising cost of adding road capacity (and the dubious returns from adding capacity).
International studies have shown that expanding the roading network, either by building new roads and/or widening existing roads, typically does not keep up with the increase in the number of private vehicles because of induced demand. For instance, Duranton and Turner have shown a near one-to- one relationship between expansion of highway capacity and the kilometres of car travel in the US.
In summary, the more roads you build, the greater the incentive there is for people to drive on them.
But there are also other challenges. In the case of Auckland, geography makes it increasingly difficult and costly to add motorway capacity. Land availability constraints mean that engineering costs are escalating as most “easy” roading projects have already been completed. And because roads are funded by both the tax payer and the rate payer, we are subject to competing demands for roading in other parts of the country as well.
This is an issue that’s concerned me for a while. The rising cost of adding transport capacity is going to fundamentally affect the way the city grows. I’ll talk about that in a moment, but first, some numbers.
I tracked down some data on the costs to build roads over the last decade and the costs for the next few major road projects that are planned. To enable a standard comparison, I’ve estimated the cost per lane-kilometre – ie a $100 million project to build two kilometres of a two-lane road would have a cost of $25m per lane-km. Here’s a chart:
This chart should strike fear into the hearts of Auckland Transport and the NZ Transport Agency.
It shows that the costs to build roads have steadily increased in recent years, and that the cheapest major roads we’re going to build over the next decade are as costly as the most expensive roads we’ve previously built.
Prior to now, the most expensive road on a per-kilometre basis was the Victoria Park Tunnel, which cost around $60m per lane-kilometre. We’ll be lucky if we can build the Reeves Road flyover, East-West Connections, and Additional Waitemata Harbour Crossing for a similar cost – these projects are likely to blow that record out of the water.
Even a highway on the edge of the city – Mill Road – is going to be more expensive than last decade’s major motorway upgrades.
Why is this happening?
A fundamental cause of this cost escalation is that we’re out of easy-to-build transport corridors. It’s comparatively cheap to lay down highways on paddocks, and expensive to retrofit them into built-up urban areas or thread them through geographic pinch-points.
Going forward, the options for new transport corridors in Auckland are:
- Dig a tunnel (eg Waterview);
- Build a bridge or viaduct (eg Reeves Road flyover);
- Reclaim some land (eg East West Connections); or
- Buy and bowl some houses.
All of these options are costly.
However, as the case of Mill Road shows, the cost of acquiring a corridor isn’t the only problem. As I wrote in a post a few years back, there has been significant cost inflation in civil construction as a result of recent governments’ decisions to spend more building roads. Inflationary cost pressures have probably gotten worse over the last few years, driving up the cost to build just about anything in Auckland.
We probably have quite a lot of room to bring down construction costs. International data on rail tunnelling costs shows that while the City Rail Link isn’t unusually costly, it’s not that flash either. Spain and South Korea can build underground rail for more like US$100m per kilometre, or around 25% of the cost of the CRL.
What can we do about this?
As the Chief Economist’s report outlines, the rising cost to build roads means that it’s going to be increasingly difficult to keep up with transport pressures from growth.
There are three basic things that we can do about this.
The first is to ensure that we get the best use out of any new transport capacity we add. If it now costs us more to build corridors, we need to make sure we’re maximising their ability to move people. As I wrote last year, that means rapid transit first:
If you start a sentence by saying “we need more land for housing…” the next words out of your mouth should be “… and therefore here are some rapid transit investments we should make to support it.”
The second is congestion pricing to get the best economic use out of our existing road network. This isn’t easy to do, although we’re moving towards it. As the Chief Economist points out, we’re going to have to solve some political problems to get there:
…there are at least two pre-conditions to making any policy that wants to smooth road use work:
- Good transport alternatives: Better public transport (frequency, speed, and coverage area) would entice more commuters out of their cars, freeing up the roads for those who continue to use them. It would also mean that road prices required to get a certain volume of traffic off the roads would be lower.
- Impact on equity: Any road pricing scheme must address any differential impacts it might have on different socio-economic groups, in particular those who may not have good alternatives to car travel.
Finally, we need to work out how to build cheaper tunnels and bridges. We’re probably going to need to build more of them. It would behove us to do it more productively and at a lower cost. Learning from people who are building a lot of tunnels relatively cheaply – like the Spanish and South Koreans – would be a good start.
What do you think of the cost of building roads in Auckland?