It’s said you shouldn’t respond to every stupid thing you see on the internet but sometimes it’s too hard to resist and that’s the case with an opinion piece published by Newsroom yesterday about the City Rail Link. The piece was written by University of Auckland economics Professor Tim Hazeldine suggesting we should stop building the CRL.
He starts off with an analogy about a business that comes up with an app to save $2 million but would cost about the same to get operational. That business, after spending $700,000 on it, finds it will actually cost $4.4 million to fully deliver and so management put the project on hold. He then kicks into the core of his argument.
Now, I expect that most readers would be with management on this issue. It was a pity that it took $700,000 to find out the real costs of the project, but, hey, don’t throw good money after bad, eh!
So why I am fairly sure that if I just add three zeroes to all the numbers – turning millions into billions, and hundreds of thousands into hundreds of millions – many, perhaps most, of you will reverse your judgement?
Because I have already seen you do this. Those numbers, multiplied by one thousand, are in fact the cost and benefit numbers of Auckland’s railway tunnel project – the City Rail Link (CRL) – which will give ten thousand commuters to the city’s central business district a somewhat faster journey to work.
Those faster journeys were estimated to be worth (on a present value basis) about $2 billion, and the construction cost was originally estimated (guessed, really) to be about $2 billion. Then, last April, with $700 million spent and not a lot to show for it, the cost envelope was revised to $4.4 billion, with no guaranteed finish date. And there was no outcry. People, especially politicians, seem to suffer from what I call ‘Big Number Blankness’: they lose their critical facilities when confronted with figures so far from their personal experience.
Last week, CRL management warned us that, because of Covid-19, costs would indeed rise, with no numbers given, but the promise – or threat – that a “red pencil” will be drawn around the budget at the end of this year. No mention of the possibility that Covid-19 will reduce the benefits of the rail link, through more people continuing to work at home rather than commute.
Adding in some substantial costs missing from the official calculations, the costs of disruption to business and citizens during the build, and the cost of the huge subsidy on the price of rail tickets, it seems sadly reasonable to predict that we now have a $5 billion+ monster on our hands. Even with more sunk costs incurred since last year, we are looking, in the best scenario, at having to fork out another $4 billion to finish a possibly $2 billion value project. How dumb is that!
The CRL should be mothballed, right now. Indeed, I thought it had been in effect mothballed during the lockdown, but I was wrong. Four hundred hard-hats were sent home, but, we are now told, 850 white collar workers have been beavering on from their home offices on procurement, consents and engineering. I may be wrong, but I do get a sniff of a rather well-upholstered work site here.
But surely we shouldn’t be mothballing ‘shovel-ready’ projects? Isn’t huge expense what we are looking for to kick-start the economy? No it isn’t. There are plenty of ‘projects’ with much better benefit-cost ratios
So let’s break this down and respond to the points he raises.
Firstly let’s not forget we’ve already signed contracts with one of the world’s largest construction companies to build the tunnels. I doubt they’re just going to happily accept being told to pack up and walk away.
It’s correct that City Rail Link said there would be extra costs due to the COVID-19 lockdown but in the same article he quotes, they also said:
“The plan is to try and work within our current cost envelope.
“What we are hoping for is if we can have a number of good results in high-risk areas and turn those into positives that will create a bit of a buffer,”
While in a Stuff article was reported:
If there were extra Covid-19-related costs, these could be met out of the existing contingency budget.
So incurring an increase in costs in one area doesn’t necessarily mean the overall cost will increase above the $4.4 billion announced last year – a large part of the cost increase at that time was to provide the contingency fund mentioned above. In essence, it’s simply too early to be making claims about what costs are going to increase.
Then there’s the $700 million with nothing to show for it, making the project even possible at all by enabling that 39-storey tower is not nothing.
As for operational costs, they are factored into the business case and aren’t simply ignored like claimed. That business case even includes sensitivity testing around them in case they end up more expensive than anticipated.
The Uncertain Future
As well as being too early to know about the final cost of the project, I don’t think anyone anymore can say with any certainty what the world will look like in 4+ years time. Will we see more people working from home, possibly, but at the same time there are many people will likely still be working in offices, some things just don’t work as well from home. I’m aware of many who can’t wait to get back to an office as the work from home novelty has worn off.
We can make guesses but no one has a crystal ball, and if they did, why weren’t they shouting about COVID-19 from the rooftops (not that people may have listened).
What about the benefits
The biggest claim that needs addressing though is the questioning of the benefits. If there were only $2 billion in benefits then that would be a concern but there’s much more than that, both being counted and not.
Tim points to travel time savings but importantly they make up less than half of the stated benefits. Other stated benefits accrue from things like improved reliability, agglomeration, and even those still on the driving on the roads. This is shown below however it’s worth pointing out that these figures are from 2015 and are now out of date.
As mentioned, the figures above are about five years old. They’re also discounted over 40 years, unlike the raw construction costs quoted in the piece so it’s not a like for like comparison and it’s surprising a professor of economics would conflate the two. Importantly, the project has changed significantly since this case was completed and about a quarter of the the $1 billion increase in costs announced last year was also to increase the capacity of the project by 50%. There are not many projects where a 6% increase in costs can deliver a 50% increase in capacity. These extra costs also include the additional Karangahape Station entrance at Beresford Square which will make that station more useful and popular.
So how much are the benefits. A one minute google of the CRL benefits from Treasury brings up the this paper from last year’s budget information. It notes:
Things are tight but at this stage are still positive and that’s before we take into account some other factors that could impact it.
Other impacts on benefits
Even those PWC figures are two years old and could now be quite different. For example, the benefits in the 2015 business case were based off using a 6% discount rate over a 40 year period and I assume the 2018 update is also using this. With interest rates much lower in a post COVID-19 world, the discount rates should also likely be lowered. That same 2015 business case says shows that with a 4% discount rate, the benefits increased by almost 60%. Further benefits would accrue from extending that analysis over a longer period of time.
In addition, there have been changes to our plans for the city centre with the recent adoption of the refreshed City Centre Masterplan. The Access for Everyone proposal will give more space in the city over to pedestrians, bikes and buses thereby reducing the amount of capacity available for car travel and will mean that even if there are fewer people travelling to the city in the short-medium term, there will still be the need for that extra public transport capacity. And all of this could be further impacted by the prospect of road pricing.
One key thing the stated benefits don’t include is the benefits from land use change. The CRL has already spurred a $billions in development along its route – although some of these are now likely to be delayed or deferred as a result of COVID-19. Then there’s the thousands of new apartments and retail that can be on Mt Eden site after City Rail Link is completed and countless more projects around the region that will occur as a result over the next three to four decades.
Why the focus on just the CRL
Finally, one thing that frustrates me about pieces like this is the inherent rail bias that seems to exist. If we’re talking about mothballing projects already under construction with poor cost benefit ratios then there are bunch of big roading projects that should be ahead of the CRL in the queue that no-one says anything about. For example
The Otaki to Peka Peka expressway had a BCR when it started of 0.6. In November last year, the Waka Kotahi board agreed to increase funding by nearly $93 million, or an increase of 23%. How much lower is that BCR now?
What about the $190 million cost increase for Transmission Gully.
Why be silent on these while attacking the CRL, after all, his money is going towards those projects too.
Not sure who this Tim guy is but he seems to have a chip on his shoulder about CRL. I would have thought an economics professor would have a tad more objectivity in crunching the numbers…
More frustrating than that is false authority syndrome combining with laziness – “He’s an economics professor, why would I question him?”
Tim Hazeldine is a respected economist who has been a bit of a go to guy on some transport issues. Check out these people- he is 3 minutes in.
And at 6 minutes. Economics clearly operates within physical-environmental and socio-economic contexts and he doesn’t shy away from that. So it’s valid to question his perspectives/assumptions/biases…
His main bias seems to be the quaint idea that you should only do something if the benefits are larger than the costs and he assumes that money spent on something means there will be less to spend on something else. Clearly the man has no future writing the sort of bullshit reports Council’s use to justify their boondoggles.
Which depends on how the benefits are calculated, something he seems to have little interest in. It’s time for this 70 year old dinosaur to retire and let some new fresh thinking occur at Auckland University’s economics department.
Using traditional transport cost benefit appraisal, The Jubilee Line extension in London had a BCR of 0.7 during the construction phase; admittedly this project was funded in large part by the private sector. Look at how unsuccessful that has been! Can you imagine Canary Wharf and North Greenwich without the JLE ? Can Auckland imagine a future without CRL? The answer to both questions is no. The Wider benefits of mass transit schemes are often way, way bigger than anyone imagined.
Pete M the problem with that way of seeing things is there is an element of the Texas Sharpshooter fallacy in your logic. With Canary Wharf as it now is you are seeing one outcome and you are assuming it was the optimal one and it was caused by or required the current infrastructure to achieve it. It is an ex-post justification that says they spent a hell of a lot of money and the ends justified that. In that instance there were plenty of other options that were missed due to poor planning so HM Government had to make the best of it and build the Jubilee Line Extn and the Lime House Link at huge cost.
More generally if your goal is wider economic benefits rather than transport benefits then an assessment should at least consider the opportunity cost. Are there better ways to achieve those goals.
As an economics professor it is easy to find Tim’s views on how to go about the exercise of Cost Benefit Analyses. For example:
In particular, from the conclusion of his chapter, Tim writes:
>This does not necessarily mean that the existence of
non-monetisable moral dimensions to a policy – as will
often be the case with environmental and sustainability
issues – simply proscribes any use of CBA. It just limits its
appropriate realm of relevance
Now I kind of know Tim and his position last year was that the project is (a) not necessary and (b) the increasing costs suggest that it’d be a good idea just to leave things be and wait things out. That is, mothballing means “no additional expenditure” and “only building what’s already paid for”. Thus when Matt writes:
>Firstly let’s not forget we’ve already signed contracts with one of the world’s largest construction companies to build the tunnels. I doubt they’re just going to happily accept being told to pack up and walk away.
I don’t think Tim wants them to walk away… if the money is already sunk. Last year, Tim’s point was a pretty hardline example of “it’s not worth spending an additional $x billion to complete a project, rather than rational thing is to take the sunk costs on the nose”.
But that’s where that first point comes back into play. Tim also believes that if a project is necessary… e.g. repairing a sanitation system that costs much more to fix than the benefits it provides in terms of not having outbreaks of cholera or whatever… then there’s no choice but to accept the cost package. And, of course, Tim /doesn’t/ see the CRL as necessary.
So, to recap, the numbers are somewhat beside the point… but when you are talking about the numbers and the numbers alone, Tim’s very much a “don’t chase bad money with good” kind of guy.
What is odd is the insistence of framing benefits in terms of time travel savings. I guess it’s possible that there’s an implicit argument that other benefits don’t actually exist (for whatever reason) but that really is a guess. I don’t think that excerpt I provided can be twisted into describing, for example, regeneration benefits as non-monetisable. I don’t know what shape such an argument would take. I don’t have any reason to believe this is an explanation other than it resolves the problem (of why benefits are stated to be only $2b). That is in contrast to the above paragraphs. Maybe it’s like what miffy said below:
>if your goal is wider economic benefits rather than transport benefits then an assessment should at least consider the opportunity cost. Are there better ways to achieve those goals.
But you can see how TIm thinks about CBAs in, for example, that chapter in that report. And he really does distinguish between the relevance of BCRs in necessary versus unnecessary projects. And he really does see the CRL as unnecessary (wrongly imo but I’m not him). At least, if his views haven’t changed radically over the last year.
The economics profession has reduced aspects of life around us into numbers, and has established processes to manipulate those numbers in order to glean insights and help with good decision-making.
From its inception, which aspects of life are included, and how the numbers have been processed, has been skewed, based on the values of the culture the economists are in.
Most economists today try to stretch their analyses to include more aspects of life, and to bring a better value system to the processes. I’m sure Tim is no different.
However, a higher level of humility would lead to a higher level of usefulness of economics. I think that can only be reached by looking backwards and asking:
How did our analyses pan out over the last few decades? How much of the environmental degradation, the human exploitation, the closing off of opportunities for future generations, the restrictions now experienced by children and people with limited mobility – has come from our economic processes and our decisions on what can be valued? Can we really put it down to political decisions and market forces when it’s been our profession that’s provided the technocrat framework for those decisions and for the regulations for how that market can operate? If we have improved, have we improved enough to prevent the same direction from being taken? Should we improve further, in order to undo the harm we have caused?
My issue here is that Tim is not just an economist. He is a professor of economics. I’m not seeing a broader, philosophical understanding of the flaws of his profession and his responsibility – in training up the next generation of economists – in fixing them.
With all due respect I think you misinterpreted the article and missed the real core of his argument:
“…I have calculated that… (I) …will have to cough up much more than $10,000 in rates and taxes…”
Can we get a response from the Professor to Matt L’s comments? It would be good to see if he has a valid argument to the points Matt covers.
It seems fair enough to go through an exercise questioning the cost benefit analysis of any large project. But as Matt points out the part of the article I found particularly remiss was then not to mention the large roading projects with similar or far worse cost benefit ratios.
Or even the wider critique that centring travel time savings in transport business case above all else is a poor methodology.
Or that we struggle to capture any dynamic effects like land-use, mode shift or network effects that quite obviously are an outcome of the project.
“University professor” ‘nuf said!
“University professor” ‘nuf said!
so why say it twice 😉
How about an up to date cost benefit analysis of the Northern Pathway?
From working with the NZTA economic manual ,
there is no recognition on the increased capacity that a piece of infrastructure provides and at the end of the day; more people more economic activity.
The CRL doubles the current rail network capacity (possibly more ?) , no roading project in New Zealand history can claim a similar increase in capacity.
Similar with the Northern pathway , an Economic analysis using the current process wouldn’t recognize the increase in capacity/new route option to people (i’m not a fan of how complicated/expensive the project has become).
I do think these editorials miss the critical element , “transport” is to move people and freight regardless of mode bias.
Capacity is not a benefit. We could build a factory with a huge capacity to build wooden wagon wheels but if nobody needs them there is no benefit.
The benefit of CRL is mostly travel time and God knows they have already counted every last dollar of that. So to get the project going they claimed Wider Economic Benefits (or WEB in their jargon) and claimed that job reloaction to the CBD was worth about three times what the actual travel time benefits were. This is why Treasury said the benefit cost ratio was 0.4 to 0.9.
Additional capacity absolutely is an additional benefit because it is not at all outside reasonable expectations of demand. So your old timey wagon wheel story is entirely irrelevant.
No. You can get a benefit from capacity only if it is used. Benefits are the area under a demand curve (adjusting for substitution). If the capacity is set above demand there is no additional benefit whatsoever.
In the case of CRL the direct benefits are travel time benefits. If additional capacity doesn’t impact on that or if it only impacts so far in the future that it discounts to almost nothing then you get no increase in benefits.
But of course none of this actually matters. CRL is being built because a bunch of people wanted it, not because it has transport benefits that exceed the costs.
“No. You can get a benefit from capacity only if it is used. Benefits are the area under a demand curve (adjusting for substitution). If the capacity is set above demand there is no additional benefit whatsoever.
In the case of CRL the direct benefits are travel time benefits. If additional capacity doesn’t impact on that or if it only impacts so far in the future that it discounts to almost nothing then you get no increase in benefits.”
Luckily, the entire transport network is at capacity at peak for trips into the city centre, so all of you fears of hypothetical wasted capacity needn’t worry you. You frequently state that you believe that transport investment’s only benefit is removing bottlenecks to growth. So surely the only benefit that you count is the removal of that bottleneck.
Substitution of fossil fueled car trips by bicycle/ebike is a definite benefit, one that is currently impossible due to the layout of the bridge.
No. Sorry but doubling down on bollocks doesn’t improve the original idea. Any future use of the additional capacity is a travel time benefit that then gets discounted out to the future year it occurs. So a small thing gets even smaller. But the cost is a big thing that occurs now so it gets included with very little discounting.
Travel Time Savings are not the only benefit. Increased access to employment and education markets are entirely linked to capacity. Full trains mean people miss those opportunities. Future TTS you refer to will have been related to projected ridership so therefore reflect capacity constraints. Once ridership projections started to come in above future capacity (due to land-use changes and increases in current ridership) then the need for future increased capacity future-proofing became clear.
Your whole argument relies on there never being any possibility of future capacity constraints, which is simply a self-serving assumption on your part. Bad assumptions = bad conclusion.
The used capacity you are arguing for are travel time benefits. Capacity doesn’t of it self have any benefit. Travel times are influenced by capacity- that was included in the original work. In the increased train length option that time saving gets discounted heavily due to not occurring for many years.
Being a regular user of trains into the city (every day) and frequently being unable to get on with my scooter due to overcrowding, I can tell you that every single time they increase capacity, you get a seat for a few weeks but very soon we’re back to standing room only. The figures for the constantly rising number of PT (including train) trips tell the story. You sound like old John Roughan from the Herald who confidently predicted that nobody would use the Northern Busway when it was built. There is massive appetite for PT in Auckland and with the upcoming increase in density due to Kainga Ora builds all over town, it will only keep going up.
The proof is there in the stats, every single time.
How about Wailato expressway….. went from single carriage to dual carriage = double capacity. And of course many more reading projects have increased capacity by same or more.
“I may be wrong, but I do get a sniff of a rather well-upholstered work site here.” Really? How patronising. Does an economics professor really believe that stopping all work on a multi-billion dollar investment is the best way to derive benefits from that investment and to reduce the opportunity cost of money already “sunk” into previous sections (C1 and C2)? Where’s the economic analysis for this?
I imagine, he would argue the “sunk cost fallacy”. not that I agree with his argument.
I don’t understand fully your point. Sunk costs are the money already spent that can’t be recovered. You ignore that in economic analysis. You don’t include it in the costs any more so the B/C ration gets better as more money is spent. But you most certainly dont claim sunk costs are a benefit or reason to keep going. As Prof Hazeldine says to spend a further $4billion to get $2billion benefits is dumb.
But if you want to look at historic costs to figure out where it all went wrong then you would include the money spent to date and the large fortune spent on electrification as the real reason for that was to allow trains to go through the future CRL tunnels. The numbers are staggering.
Why do you believe Hazeldine’s unsourced cost-benefit claims over the ones provided in the article that have references?
PwC says it’s all good up to $5.1b, and they would’ve had to actually do the sums. Doesn’t seem as if Hazeldine actually has, he makes a song and dance about the initial $2b budget being a “guess” but all he seems to have done in his whole article is guess things himself?
The $5.1 billion isn’t travel time benefits. If it was CRL would be an incredible boost for Auckland. It is mostly made up of ‘wider economic benefits’ which is economics jargon for bullshit. They are the things the Council claims when the numbers don’t stack up any other way. The main one is job relocation. How is that possibly a benefit to NZ? Are we really supposed to accept that CRL is a sound investment right up to a point where actual costs equal fictional benefits?
“Are we really supposed to accept that CRL is a sound investment right up to a point where actual costs equal fictional benefits?”
Ignoring the bland assertion that most of CRLs benefits are all fictional for minute.
Every major roading project of the last 20 years has more less required that you accept that its BCR justification starting point is exactly that.
So for consistency what is sauce for the goose is surely sauce for the gander?
Or aren’t you really saying that road projects of all stripes deserve special privilege, because, they’re, well, roads and well, CRL *isn’t* a road?
Hypocrisy meet Mode bias.
So why not just accept your Goose is cooked on this one and stop beating a dead horse (and your fingers on the keyboard)?
That’s right I am not saying that. I am saying every transport project should be assessed properly and only built if the benefits exceed costs by a good margin. I have never argued that roads are good and rail is bad. I consider that just as stupid as the numerous people here who argue rail is good and roads are bad.
Using any rational analysis the CRL project was a dud at the beginning and is still a dud now. The real problem we all face is it will probably kill off rail investment for years.
CRL is surely the most assessed transport project ever in New Zealand, with many different business cases, reviews of business cases, City Centre Future Access studies and more.
It would be interesting to read the PWC report in detail (I’m surprised it hasn’t been published).
‘Using any rational analysis the CRL project was a dud at the beginning and is still a dud now. The real problem we all face is it will probably kill off rail investment for years.’
Poor BCR road investment hasn’t killed off further road investment so I wouldn’t be too concerned about it killing off roading investment.
*wouldn’t be too concerned about it killing of rail investment.
“not everything CAN be monetised”
Once a decision is made to spend money to achieve these “unmonetisable” benefits you have gone an awful long way to monetizing them.
Partisan politics possibly underlying the Professor’s view of the CRL ‘cost’?
Unlikely given that he is a bit of a lefty among economists and has written research papers of public transport agglomeration benefits. Maybe just maybe he has a point and is right about CRL.
I dont even know which side is for it and which is against? Didnt Key’s National govt green light it?
Spending large sums of money on negative net benefit transport projects seems to be a very bipartisan endeavor currently in NZ.
Arr this is the article I love on Greater Auckland. Well done.
How much do professors cost the tax payer were is their contribution to the economy seriously
That made me laugh. lol.
But seriously what is saddest about this is not that an economics professor asks this question publicly, so he should, but rather that he made such a half-arsed go at answering it.
A professor no less, of economics, he’d be well placed, you’d hope, to shine some light of the darks of economic evaluation, but no, it really is hard to see getting a pass grade at entry level.
Anyway, here’s his thinking, Auckland population should be only be a couple of hundred thousand. So after his great genocide, or border lockdown and mass sterilisation programme, he’s probably right, the CRL would be a tad lavish under his rule:
What is it with boomers and their: ‘the world was perfect when I was young’ bollux? Well then you ruined it, obviously!
Actually in that article he says house prices would be a few hundred thousand if the population had stayed at 2 million in Auckland.
He doesn’t argue for reducing the existing population as you imply, but does argue that government should not subsidise babies.
He’s probably right that, for our economy, more population means more costs and a dilution of resources (land, grass, water) per capita, hence less wealth per person.
You may disagree, but I don’t think your representation of his views are accurate.
(None of which takes away from the fact that his article evaluating CRL costs and benefits seems strikingly deficient).
But could a population of 2 million support luxuries like Professor of Economics jobs? He has personally benefited by the massive growth in the tertiary sector from the 1960s on.
Fraggle no. Here is the actual text:
Tim Hazledine, professor of economics at the University of Auckland, told Jesse Mulligan New Zealand is over-populated.
“When I was born it [population] was about 2 million. If we’d stuck at 2 million then houses in Auckland right now would be about the same as they are in Invercargill right now – about three or four hundred thousand.”
The ‘it’ clearly refers to NZ as a whole, it must do, as he’s referring to the dreamy far off perfect year of his birth.
Agree he then referred to house prices, but wants Auckland to have value of Invercargill!?. Of course house prices are horribly and artificially high, but to lower them by smashing the economy AND POPULATION of our biggest city is an insane inference. Even for an academic.
Yes sorry, agreed he meant NZ population. So did I. I don’t know why I typed Auckland, except of course I was thinking about Auckland at the same time.
He still doesn’t advocate smashing the economy and population. Just that his view is that increasing the population is decreasing wealth by spreading it more thinly, so he advocates not having policies which encourage population increase.
I think his view is understandable as far as the economy is based on limited resources, like grass production and (relatively) non-intensive conventional farming.
I’d add that non-renewables will also be drawn-down faster with a higher population. And wealth distribution is another angle on this nexus between the economy and the population that is worthy of thought.
As before, it’s reasonable to disagree with his view (or my further musings). E.g. you might think a better solution is to change the nation’s economy, or that he’s wrong about the nature of the nation’s economy, etc., etc.
But I do think you’ve read too much into what he actually said. It wasn’t that sinister.
But you’d have to ask how on earth he got a degree in economics if his model of cities is that population grows but economic activity is static and doesn’t grow with it? This just simply isn’t the case, he can’t possibly believe that.
What he really must mean is the obvious truth that land area doesn’t grow with population. No indeed. So here we are; he’s just another of these arch suburbanists, who start from the assumption that low density living is a non-negotiable starting point. This is flagged by the silly nostalgia; a 1950/60s world is perfect. This model doesn’t scale. By choosing this position, and it is a choice, growth will always be inefficient and cause housing cost rise (forced low density, and long commutes).
Or at least without building unwanted urban things like metro railways, which of enable more dwellings and work places in the same finite amount of land.
Of course, he doesn’t say people should be killed to reach his preferred population, what monster says that? I’m extrapolating the consequences of his claims to absurdity. Which is valid, after all, doesn’t he want to be something meaningful, isn’t economics a study of the real world, or is entirely abstract musings?
I’m grumpy here cos I think academics should weigh in on policy, sadly Auckland Uni has a very poor track record of this, perhaps our good professor now occupies the Cumberland Chair Misunderstanding Cities?
Urbanista what sort of idiot could listen to that interview and then claim he was in favour of genocide, border lockdowns and massed sterilisation. I am not meant to attack the person but my God you have an over fertile imagination. Try listening again. He says that is gone at 11:14. His general point is a higher poipulation means fewer resources per person so you pay a higher price for them. That is one of the stylised facts of development and isn’t radical.
Brilliant Trumpian comment. You don’t like what he says so rather than engaging with the issue you have a go at him. His benefit to society is he gets to ask us all to consider the opportunity cost of spending our limited wealth on a ruinously expensive underground railway. Just think of all the great projects we are foregoing because the rail fanboys wanted to waste our money.
It gets worse. As people become aware of the huge cost and comparatively small benefits of this hole in the ground there will be a backlash that will stymie future good projects.
Doesnt seem to matter for roading projects with even worse BCRs. Doubling down on the double standard?
So dumb shit can be justified by other dumb shit? Trump said disinfectant injections might cure Covid so should I try windowlene injections to help my vision? Feel free to be cross about daft roading projects. You should be cross. But you should also be equally cross that so much is being wasted on CRL. Digging expensive holes doesn’t help our future prosperity any more than building expensive roads..
“So dumb shit can be justified by other dumb shit?”
If we insist on building dumb sh!t, then yes. That is, if we insist in building sh!t roads then sh!t rail should be built as well. Why only one? And if so, why only roads, given that we have been doing that for 50yrs?
Of course, what we should be doing is using fair BCR methodologies and let both stand on their own two feet. If that means both don’t get built and instead we get a mass roll-out of cycleways and busways, fine with me.
But in the interim, let’s not get rail to jump through hoops roads don’t have to.
“there will be a backlash that will stymie future good projects.”
You mean all those Mega-RONS 2.0 road projects with back-of-the-envelope costings, that none the less produced abysmal BCRs like almost eveyr single one of those boondoggles RONs 2.0 projects that were being pushed as desperate last-roll-of-the-dice saviours by the former National Government when Bridges was Transport Minister?
Yeah. Right. I’ll stick with the CRL even as it stands, than spend ten times as much on those projects thanks.
The only thing that future generations will ask about CRL, is not why did they waste so much money on the thing, it will be, why didn’t they properly plan for the possibility of 12 car trains and why did it take so damn long to get on and start building it.
Hazeldine has simply [probably deliberately] muddled up his costings and benefits by chosing figures with different base dates.
That $2 Billion cost he talks about, was the estimate , way, way back in 2014 dollars or even earlier, when they were doing CCFAS2 which was essentially a Joyce/Brownlee led “do-over” attempt to run another bake off of a CRL-type underground design versus more and more buses for Africa on the roads.
Those costs were notional costs for the purposes of the bake off [which as you well know, showed that the wall of buses plan CRL was benchmarked against was a non starter every way you looked at it].
The costs he talks about now are the inflation adjusted costs, that the original $2B would always be turned into when the project actually commenced, and there are now additional benefits being delivered by the CRL as being constructed, over the original (stripped down to to the bare bones minimum) design put up for consideration in the bake off 6+ years ago.
The same cost inflation to year of spending happens for any road project you can care to name.
Nobody in NZTA or Treasury raises an eyebrow about doing so.
While Hazeldine is right to question the CRL, the same is equally valid for all previous, currently under way, and pending road projects as well.
Truly how many of those are likely needed anymore if in a Post-Covid19 world people are not sloshing to and from work en-masse every day, like some kind of human tidal wave as was assumed by all the models in a pre-Covid world?
We could argue round in circles over the BCR for ever, but either way I highly doubt there will be a serious backlash to the CRL once it is up and running. Most people will either be impressed or ambivilent.
In reality whether the project is value for money or not will depend on whether it is still functioning in 80 years time or whether is has become redundant.
Don’t forget that the most recent pricing for CRL was done pretty much at the highest peak in the civil construction market for decades. If I remember correctly, cost inflation in Auckland was running away at between 5% and 10% a year. It was a real struggle to get appropriately qualified staff, subbies etc.
Does anyone still expect the next 4 years to be so inflationary?
I don’t think we’ll see a big downturn in civil construction since it’s so reliant on publicly funded projects and they’ll carry on regardless. But the absence of privately funded projects will surely take the pressure off.
I would like to see a BCR done for the cost of running central government. However when the cost of CRL is reflected upon in 30 or so years time the comment will mostly likely be “why was its construction start delayed for so long” rather than final cost.
The same type of debate is taking place in the UK where many are calling for the stopping of HS2, without taking into account that most existing mainline rail corridors are now (pre COVID 19) running at maximum capacity, yet the demand for passenger and freight capacity is increasing along with the population.
Few points. First of “the uncertain future”. “why weren’t they shouting about COVID-19 from the rooftops (not that people may have listened)”. Many scientists had warned for years another epidemic like the spanish flu was very possible if not likely. This is why I don’t have too much sympathy for struggling businesses at the moment (they should have seen something like COVID-19 as something likely at some point to come). I don’t know why many people didn’t listen.
Regarding the discount rates 6% is way too high and the CRL will be in use long long after 40 years. I think 100 years is a much better time frame. I think discount rates should be based on the current reserve bank OCRs. In such case many major roading projects will also have their BCRs improved considerably. I hope the budget tomorrow includes a massive infrastructure spend up
It’s $5B being spent on the minority who already have access to rail. To me, the priority is extending the rapid transit network to the majority of the city that has poor public transport choice, such as the north and east (which as usual are not even on the map). Where is the funding for that?
I don’t mind expanding the capacity of the current network but, without first extending the network and integrating everything, all we are doing is yet again making the rich richer and the poor poorer. I’d far sooner get rail services all over the city than spend a fortune to get those already with rail a trip that’s 9 minutes faster.
The North is currently getting a major extension to its existing and successful rapid transit system. The East is finally getting rapid transit all the way to Botany. These are both fully funded and underway.
It’s the NW, especially) and the Isthmus and SW that are lagging at the moment.
But these investments are overdue everywhere, CRL and whole rail network needs the investment its currently getting too.
Of course the immediate benefits overwhelmingly go to those already along rail lines – but remember the key part of CRL is turning Britomart into a through-station (and adding midtown & K Road stations, increasing access across the CBD) – thus allowing further expansion in the future.
No point building new lines all over the city if they can’t actually connect into Britomart.
The Eastern Busway is very important but it relies on transferring to rail at Panmure… And that transfer is significantly less attractive without CRL (both in terms of network reach and train frequency).
+1 to all these replies to David B
An odd comment when the north received its first rapid transit line in 2008 and is currently having it extended, while work on the first rapid transit line to the east is quite literally underway as we speak.
CRL critics consistently miss the point that probably at least half of the benefits are not in the CBD area but throughout the rail network because it will allow a doubling of train frequency (and even more capacity with enabling of 9 car trains). So this means that we (all Aucklanders) will get twice the benefit of all the sunk costs of Project DART and electrification, etc. over the last couple of decades.
Yes, this is important thanks, Graeme.
Yes only half of the benefits in the benefit cost ratio of 0.4 to 0.9 accrue in the CBD. But the real point is why would anyone spend $1 now to get back 40 cents with that 40 cents spread out over years and years. Where the benefits fall seems trivial when the benefits are so small.
If you insist on using the wrong bcr, you are going to get the wrong answers. Garbage in equals garbage out, not that hard to understand.
Yes the BCR that Treasury said was comparable to other transport projects, rather than the AT one that included all sorts of other crap designed to boost the benefits to get a boondoggle started. Funny how evey time the costs go up they seem to come up with an equal increase in ‘wider economic benefits’ that they didn’t know about before. But then I guess they would say that wouldn’t they.
Is crap a recognised technical term because you seem to use it quite a bit?
I’m sure there are so many more benefits or the degree of such that are not included in the BCR calcs that I can’t see this project ever being a waste of money.
Heck even people living in Howick & Pukekohe will benefit from it.
“I’m sure there are so many more benefits or the degree of such that are not included in the BCR calcs that I can’t see this project ever being a waste of money.
Heck even people living in Howick & Pukekohe will benefit from it.”
Did you copy this from the East-West business case?
The model they used already included the benefits to people as far afield as that. Even with those distant benefits they still got a poor result and had to supplement it with their other nonsense. Don’t make the mistake of thinking they haven’t looked under every possible rock to find benefits for this thing. There are not some ‘other’ benefits out there that they haven’t already explored, identified and generously stated.
But do we need that extra capacity. We don’t know what the impact of working from home for the past month or so is going to have on work habits in the future. There is a chance that companies my wish to get rid of high rent burdens in favour of staff working from whilst management lease a small office in the suburbs or even work from home themselves.
And if any of you have been watching the show “Paul Henry’s Rebuilding Paradise” he also has been wanting the CRL closed down . And this was 2mins into last nights show and it was not the 1st time he has brought it up ;-
And it seems to be the car lovers that don’t won’t to happen .
who let the Poison Dwarf back into the country?
“if any of you have been watching the show “Paul Henry’s Rebuilding Paradise”” – haha good one.
The whole series was interesting and for those that missed it go to threenow and binge watch it online .
No I haven’t but thanks for confirming I’ve made the right decision.
Another thing to add is that in order to reach his number of $5B+ he has inflated the cost figure by adding in non-monetary “costs” that won’t be paid by the government / rates / taxes. Eg “costs of disruption to business and citizens during the build”. Just guessing, but most of the disruption is probably in the past anyway.
If we exclude non-monetary costs then we would also exclude non-monetary benefits which is almost all of them. All you would have left is operating cost savings and the residual value or around $104million. You just killed this project dead!
you don’t even have to speculate what the benefits might be now. that’s work’s been done. When the renewed funding envelope was agreed by council on 2 may 2019, there were also refreshed benefit calculations done by council/crown. These estimated that the BCR would still be positive if costs were less than $6.6b.
see paras 27-31
Thanks for that Detch. It’s short enough and relevant enough to post those paragraphs:
27. The 2015 business case for the CRL project identified a benefit-cost ratio of 1.6 (based on the original project cost of $3.4 billion).
28. CRLL engaged PwCto update the economic assessment of benefits of the project prepared as part of the 2015 business case to reflect new parameters, a revised delivery schedule, and using the most up-to-date transport modelling.
29. The updated assessment found that the benefits of the project are between $6.64 billion and $7.06 billion. This means that if the total project costs are less than $6.64 billion, the benefit cost ratio will remain greater than one (i.e. benefits exceed costs).
30. Additionally, PwC noted that this assessment is considered to be conservative as it is based on a standard 40-year assessment period despite being a transformational, long-life project. If the assessment was extended to 60 years the gross benefits would increase by up to 24 per cent. They also noted that the assessment did not incorporate the scope change to support nine-car trains which would be expected to further increase the benefits, although it is noted there would also be additional costs to be considered.
31. This work confirms that at a cost of $4.4 billion CRL remains a strong project for sponsors to invest in with a benefit-cost ratio of at least 1.5.
Do you have a link to the actual PWC report?
I expect that Hazeldine is correct in that the BCR has decreased.
But the project is already too well-advanced and contracted-out to mothball now, it would result in too much of further costs in litigation. And it’s not as though its continuation will end in disaster and that it will be some big white elephant. Even if the COVID-19 results in more people working from home which thus reduces its ridership for some time; it’s still going to be an increasingly valuable asset for the decades to come. Sometimes nations need to spend money on projects with long-term benefits.
Besides, if the oncoming recession is as bad as some are predicting, great depression or 1870’s scale; it might be needed more than ever when people have to give up their cars.
I think this discussion and Miffy’s replies to it are one of the key reasons to read Greater Auckland daily. This is such a superb resource – and despite some people going off at him, Miffy does have a point – the CRL is a political decision, not an economic decision. Nothing wrong with political decisions of course – we are living in an age (this month) when ordinary economic reasoning goes out the window.
CRL needed to be done to get Auckland’s train system working – at twice the through-put as before, it will make a marked improvement to Auckland’s transport, but of course it will make little difference to the vast majority who will still use cars every day.
No, that’s not the case at all; it is as much a political, or economic, decision as any large transport project. Nothing unique about it at all.
As for Miffy’s obsessive objections, really? He’s just choosing his own numbers, cos he doesn’t like the official ones cos he doesn’t like the project. So far so conventional, then of course dressing this up as ‘the real economics’. meh. little to see there.
I am indifferent to mode. I don’t like public money being wasted regardless of whether it is a road or rail. You should hear me rant about the East West link sometime. Please aim the choosing their own numbers at AT. Treasury said 0.4 to 0.9. It was AT that paid to get a higher number not me. They did so by counting what they called ‘Wider Economic Benefits’.
Which raises the obvious questions:
1/ Are they benefits or just transfers and displacement?
2/ Are they displacing value from poorer people to wealthier ones?
3/ Did we ever require these benefits or notice we didn’t have them?
4/ If we really wanted them then is there a better way to get them than building a transport project that doesn’t have enough transport benefits?
cynical trying to be funny miffy > earnest CRL hating obsessive miffy
AT and Treasury both chose their own numbers. I think you have some valid concerns about the quantity of benefits, but it absurd to claim as Treasury did that there would be no wider economic benefits from this project.
Miffy is absolutely right – getting transport projects to assess WEBs is poor form. WEBs exist I agree, but should be assessed outside of the transport assessment – there’s too much potential for bollocks WEBs to be manufactured by the people who have reason to rely upon them (to justify the poor economics of their project). So for CRL, its transport benefits/costs should be stand alone, its WEBs should be standalone, and then you could ask yourself, if the transport BCR is poor, whether some or all of those WEBs could be achieved with an alternative transport option. This is a slippery slope, because if you are OK with WEBs being included for CRL, don’t be surprised if NZTA pump them up for their next m’way project…and when they do that (and I know they already are), I guarantee you PWC (or any of their ilk on the consultancy gravy train) will have no issues with it.
Thank you missing link, that is all I am trying to say.
Jezza of course some wider benefits exist beyond travel times and operating costs but you can’t go claiming every change is a benefit. Displacement and transfers are not benefits and never have been as the wins are reduced by loses to others. The assessment should be at a national level. If you don’t think anyone would actual pay $3.3b or whatever for these WEB’s then they are probably being overstated and the assessment is based on bollocks.
Urbanista your hate speech is mellowing, at least you haven’t accused anyone of promoting genocide today.
You just need to look across the Tasman to see examples of the sort of justification games that can get played for roading projects and what consequences they can have.
I wonder if there will be productivity reviews coming out of the great work-from-home experiment that will challenge the notion of WEBs.
I completely disagree with this. TTS are the proxy measure. Going faster is not in and of it self of certain value to an economy. It is only of net value if it doesn’t also impose other higher costs on that economy. For example urban motorways that disperse land-use are funded on TTS calculations, and on your kind of total denial of land-use change impacts.
This simply is to deny reality. It is not good enough for economic evaluations to be easy to do and countable, they are supposed to describe that actual real world outcomes of infrastructure investments. Ignoring real wider benefits and costs is nothing short of a distortion. And has delivered us the poor, low productivity sprawl mess of a city we have today.
Count what counts, not what is easy to count. Even if it’s hard.
+1,000 to Chris N above.
There are numerous issues with the economic analysis:
1) The time period for benefits (30 years (now 40) when the initial work was done vs the 50 & 60 years allowed in Australian & UK assessments). The much longer time period provides substantial additional benefits. https://en.wikipedia.org/wiki/City_Rail_Link
2) There is no inclusion of future expected carbon costs. Whilst not policy it could have been a sensitivity test.
3) There is no consideration of congestion tolls. Whilst not policy it could have been a sensitivity test.
4) “and the cost of the huge subsidy on the price of rail tickets” – the subsidy paid on PT fares reflects the benefits of providing transport to those that cannot afford cars. Their trips by bus would still bus would still be subsidised and much slower.
I’m sure an incremental analysis now would show spending the remaining money is better than sinking that already spent.
My guess is full carbon pricing wouldn’t move the dial that much relative to the horizon / discount rate selection, but I would like to see an analysis allowing for the impacts of congestion pricing.
In the current environment there is no chance it will get cancelled, and compared to some of the other ones we might see it could be a reasonably good investment.
Does anyone have a link to the PWC report that has projected benefits of $6.6b – $7b? I cant find it.
Do you mean the current report that justifies the current cost, the last report that justified the previous costs or the next version that will justify the next blow out?
The method for these types of projects is quite simple. Take the costs, multiply by 1.5 and state that is the benefit. Then send in a massive invoice.
Yeah I was not previously up to date on this. It seems the cost blew out, and then PWC managed to write a report in 2018 that estimated benefits 3 times of what they had estimated 3 years earlier. And that is what is justifying NZs largest infrastructure project. But I cant even find a public copy of the report?
It seems borderline negligent that they managed to get a different answer by a factor of 3, and yet nobody seemed to really notice. The whole thing just seems more and more bizarre the more I think about it.
Well even off the top of my head you have to remember that rail patronage estimates were way under estimated prior to Britomart & electrification projects been done. They continued to underestimate them. So bar COVID-19 mid term dampening (which I’m guessing will be out of the way by the time CRL is complete) the benefits purely from more patronage will make a difference. This is one of the reasons 9 the car train upgrades are now planned for.
“With interest rates much lower in a post COVID-19 world, the discount rates should also likely be lowered. That same 2015 business case says shows that with a 4% discount rate, the benefits increased by almost 60%.”
Treasury’s estimated discount rate is 6% for infrastructure and is reviewed each year. Even if the risk free rate goes to zero (real) you will still end up with close to a 6% discount rate based on Treasury’s methodology (the risk free rate matters less and less the lower it is). Not clear where anyone got 4% from.
The stupidest thing is only looking at a 40 year window.
London Metro has tunnels that have been in operation for the last 150 years.
What will the benefit of CRL be to Auckland over 150 years? Far, far greater than it cost even when taking into account present and future value of money spent.
I’m not a fan of rail investment, but CRL is a no brainer in how it improves the effectiveness of all the existing lines. I’m really only thinking about the capacity to move people.
We know our population will keep growing and we know expensive motorways or democide are not viable options. So we need to use the higher capacity options of walking, cycling and mass transit. There really isn’t any other sustainable option.
At last in this swirling myriad of comments above the London Tube finally gets a mention. I’ve used it more times than I can count and it works well. Any city in the world with a continuous over/underground transport network operates well. Regardless of the cost when completed we will all say “Why didn’t this get built sooner” Nobody will be worried then about the cost
Agree. If the plan was to abandon the CRL in 40 years time then Professor Hazeldine is probably right we shouldn’t use it but I highly doubt that will happen.
Agree with all of the above. CRL and the huge uplift it will give to the whole rail network, and all PT systems in Auckland, will reshape land use permanently and positively. Something that travel time savings evaluation fails to capture directly. Am entirely puzzled by Hazledine’s take on this, though less so the traffic engineers, who have twisted economics to a self serving end with their insistence on only counting the both temporary and wholly inadequate metric of vehicle TTS.
The time horizon used is a reflection of the discount rate. The higher the discount rate the sooner the point at which there is no point counting the future costs and benefits because they become so small.
You can dispute the actual rates used, but the idea of discounting itself is solid. Everyone prefers sooner benefits over distant benefits.
And discounting also recognises that the risk that benefits might lessen over time e.g. because someone invents technology that makes commuting redundant (though I’d argue that it would be better to recognise these risks explicitly rather than bundling the treatment of the issue into the discount rate).
I think it makes sense to use discount rates / horizons in line with the UK and Australia, which makes the CRL case look better, if everything else stayed the same.
Yes, like you (and kiwi_overseas) say, it makes sense to use 50/60 year (or more) time horizons for railway infrastructure, due to it being more long-lasting in nature than most other forms of infrastructure.
(I mentioned this at a public meeting of Council about 20-25 years ago, but can’t recall the excuse made for not doing this, other than recalling that it didn’t make any sense to me or anyone else.)
Thanks Matt for your good analysis. When I read the piece by Tim Hazledine I thought I’d want to hear what Matt Lowry has to say about that.
Just leaving this here for anyone who comes to get a view on Tim Hazedine’s objectivity and expertise when it comes to cities and transport. I think this pretty much sums up his starting position on anything transport ” our most cherished and useful possession – the private motor vehicle”
From this article published today
“And citizens grumble about ‘faceless bureaucrats’ handling urban policy, but I’d say these would better be dubbed as Mad Scientists, running amok with their latest theory, which in the case of urban transport is currently a savage crusade against our most cherished and useful possession – the private motor vehicle – even though trends in electrification and information technology mean that the environmental and logistical difficulties of private vehicles are steadily attenuating.”