This is a guest post from Cameron Pitches is the former Convenor for the Campaign for Better Transport. These days he’s the Technology Manager at PortConnect
It should be a surprise to nobody that cars are expensive to own and operate. Obviously they are an inherent part of the road transport system and most families own at least one. In this post I investigate how well private vehicle financial costs are factored into the evaluation of transport projects.
According to the Ministry of Transport, there are 3,582,246 light passenger vehicles in New Zealand, as at April 2023. That’s a lot of money tied up in vehicles that could be potentially invested elsewhere.
To figure out just how much money, we can get a reasonable idea of the value of the New Zealand car fleet by looking at Trademe. Helpfully, when you search Trademe by price band you get a count of the number of cars in the result. Tallying up the number of cars for sale, in this case from the 7th May 2023, and applying the price band percentages across the number of cars in New Zealand produces the following result:
So we arrive at a figure of just over $109,000,000,000 ($109 bn if you are struggling with the zeroes) currently “invested” in cars throughout New Zealand. That’s a lot. The opportunity cost of this amount, if we assume a risk free rate of return of 5%, is $5.5 bn annually. This assumes cars are owned outright. But plenty of people borrow money at higher rates of interest to purchase their vehicles, so the true financial cost of New Zealand’s private car fleet per annum is much higher.
So far I’ve only talked about the capital cost of car ownership, but of course car owners also pay for operating costs – petrol, insurance, registration, warrant of fitness and maintenance.
These costs can easily total $3,000 or more per year depending on fuel consumption and other factors.
Use in Transport Decision Making
Recently the Government announced partnering with New Zealand Steel to deliver New Zealand’s largest emissions reduction project to date. This was equated to removing 300,000 cars from the road.
So how does the Government value projects that could actually remove cars from the road?
In comparing different transport projects, it would seem obvious that all financial costs to the economy should be considered, along with the benefits. It makes no difference to a household if transportation is funded privately, or through rates and taxes. Cost is cost.
Furthermore, transport projects that achieve a goal of “one less car” should be able to include the monetary benefits associated with this.
Domestic Transport Costs and Charges Study (DTCC)
I’ve taken a look at two government planning documents to see how these concepts are applied. The first is the Domestic Transport Costs and Charges Study (DTCC). This is a draft document from the Ministry of Transport:
The overall aim of the DTCC study was to identify all the costs imposed by the domestic transport system on the wider NZ economy and the countervailing burdens, including the charges faced by transport system users. Its outputs aim to improve understanding of the economic, environmental and social costs associated with different transport modes, for freight and person movements, principally by road, rail and urban public transport.
I’m told the final version will be released in a few weeks, but on the whole the report does a pretty good job of cataloguing public and private transport costs. However, I do question the treatment of travel time as a cost for all modes. For instance, on page 32 of the report an estimate has been made for the time costs incurred by pedestrians and cyclists, shown as “other time costs” in the table below.
For many, including myself, time spent walking or cycling isn’t considered a cost as this doubles as healthy exercise, something we all need to incorporate into our day.
Still, the report makes the following useful point:
The economic costs incurred directly by users, amounting to about $94 bn in 2018/19, account for 76 per cent of the total expenditure on the roading system. The indirect costs of crashes and environmental impacts account for a further 8 per cent.
Against these numbers, the costs of providing and operating the road system itself, even on the basis of the desired capital return in place of the lower PAYGO total, are fairly small at about $6 bn or 4.5 per cent of the total costs.
The DTCC includes more analysis on costs of parking, congestion, accidents and other social costs, but at this point let’s take a look at how car costs are treated in the Monetised Benefits and Costs Manual (MBCM).
Monetised Benefits and Costs Manual (MBCM)
This is the manual that determines how benefit cost ratios should be calculated for transport projects and competing alternatives in New Zealand. It is a substantial refresh of the earlier Economic Evaluation Manual.
I wanted to see how the concept of “one less car” was reflected in the cost benefit analysis framework. There must be an economic benefit when public transport, walking or cycling projects result in less car ownership, so I looked to see how this was quantified.
Evaluating Road Improvements
First, here’s the evaluation template for a road improvement project.
You can see that vehicle operating cost savings (SP3-5) are used when considering a roading improvement, but private costs are not considered under the cost of the options (SP3-3).
The implicit assumption here seems to be that users of the road improvement project already own cars and that no new cars are required. There doesn’t seem to be a factor reflecting the need for new users to by a car in order to use the new roading improvement.
Evaluating Public Transport Improvements
Now let’s look at the template for public transport.
Here, vehicle operating cost savings are not listed as a first order benefit, like they are for roading projects. Service provider costs, which includes the capital cost of required buses and trains for example, are included.
The template does refer to Road traffic reduction benefits, however it is a little confusing as this apparently refers to benefits for other transport system users (presumably remaining car users), not new users who have had the financial benefit of ditching their cars.
The MBCM does point out that some 70-80% of new public transport patronage for a new project could come from users diverted from their cars. This should be a huge economic benefit, and indeed p.165 does refer to calculating road reduction benefits using this table:
I’ll leave it as an exercise for the reader to see how well that $2.99 per vehicle per km has been applied to public transport projects. The original CRL Business case only had vehicle operating cost reduction benefits of $10m, which would seem a bit light if this MBCM framework was applied.
Evaluating Walking and Cycling Projects
The template for walking and cycling projects looks like this:
Again, vehicle operating cost savings to reflect “one less car” are missing here. I would have expected an economic benefit would be applied for this, as is applied for health benefits:
It could be that the “one less car” benefit is applied elsewhere in the framework, but it isn’t obvious.
I’ve concluded that the economic benefits of having “one less car” are not applied consistently across different project types. The consequences of not correctly considering the value of one less car are huge and we could well be significantly undervaluing projects that don’t require a car. Let me know your thoughts in the comments.