Friday, August 28, 2015

Living with Giants - Lessons from Industry Organisation

Bigger is not Necessarily Better

Management consultants McKinseys were the advisors behind the creation in 2002 of the mega-cooperative, Fonterra.  Owned by dairy farmers, the new organisation was intended to consolidate New Zealand's dairy processing, exploit its export strength, diversify its output, and move it up the value chain.  This all looked good while increasing demand in China in particular sustained increasing output and prices, especially given that  Fonterra accounts for around one third of global dairy trade.   

But price escalation was never going to be sustained in what is essentially a commodity market.  Consequently,  over-production and cyclical pressure on consumer demand have seen a rapid collapse in prices, and increasing questions over Fonterra's performance.

Commodity Trading Still

There are no surprises here. We have seen a series of collapses in New Zealand's commodity sectors over the years. Where are industry giants New Zealand Forest Products and, in the meat sector, Waitaki New Zealand Refrigerating today? Where are those former behemoths of the pastoral sector, Borthwicks and Fletchers? Dominance of a sector all too often carries the seeds of its own destruction. Even that giant of the IT sector, Google, has reset itself as a cluster of smaller, more focused entities.

Fonterra was meant to drive the innovation that would increase the value of dairy exports, to reduce its dependence on commodity sales.

Its biggest innovation appears to have been the Global Dairy Trade an auction platform it established in 2008 that has become the benchmark for world dairy prices. It is no more than an instrument of the commodity trade, though. It simply confirms the cyclical nature of the market - and leads the race to the bottom. 

In fact, dairy prices have gone nowhere over the past decade. Those that have sunk capital into the sector on the back of the promise of "white gold" have seen poor returns, insufficient in many cases to cover the costs of their capital. This is especially the case for those that purchased or extended farms in the boom years.

Global Dairy Trade Price Index
(globaldairytrade.com)

What Went Wrong?

Industry commentator, Tony Baldwin, identifies five factors behind this indifferent performance.  These are detailed in his NZ Herald piece today. In summary:
  • The organisation remains producer-driven rather than consumer-focused;
  • It misunderstands its own strengths and weaknesses and therefore where it needs to address its role (and value) in the supply chain,;
  • It has confused roles and objectives;
  • As a cooperative it is capital constrained;
  • It has effectively misdirected capital into lower value volume production capacity rather than into higher value product development.
Not everyone will agree with this diagnosis, but the outcomes speak for themselves.  Whatever the vision was for Fonterra, the architects surely were not looking for more of the same - volatile commodity trading writ large?

The Lessons for City Organisation

So what's this got to do with city matters?  Everything.  Fonterra is another example of the fallacy of thinking big when it comes to reforming organisations. 

When Auckland municipalities were amalgamated in 2010 I suggested that large organisations are slow moving and resist change as internal relationships and established ways of doing things dictate their responses to changing external conditions.  Consolidation was the wrong response to whatever was wrong with Auckland.

Nothing I have seen since leads me to change my mind. And the comparison with large industrial organisations holds.

Think about it: 

Producer Driven
The new Auckland City remains focused on shaping the city according to a particular brand of planning. No room for innovation there as  the architects of Auckland draw on precedent from elsewhere to fulfil a vision of more people in less space. Intensification was a keyword in dairying as larger herds became established but that did nothing for the consumers of dairy products or, really, for the sustainability of the New Zealand economy. Citizens in Auckland are now faced with a future closer to the crowded cities of the past than the open city that could define our future.

Role Confusion
The role of Auckland Council has become one of dictating rather than  enabling, of shaping rather than servicing, and of participating in an unwinnable auction based on contrived city indices rather than facilitating and supporting a competitive private sector or housing the community in a sustainable manner.

Capital Constrained
Ultimately councils are constrained by their population and population expectations. Whatever form city taxes take, there is a limit to the capacity of citizens to fund current and future development.

Increasing the indebtedness of future generations to fund assets through debt is an option - an option that sours if the underlying population expectations fail to materialise. On that score, it is probably worth reviewing the volatility of the global dairy trade index when thinking about just how much debt it is sensible for the Auckland Council to take on. We need to acknowledge the uncertainty around our population projections - an uncertainty exacerbated in the short-term by unsustainable increases in housing costs.

Misdirected Capital
Time will tell - but intensification of the population requires highly expensive investments in public transport if the city is to continue to function without extreme congestion.

In due course this will constrain the investment that might be made in making Auckland as a whole (and not just as a CBD-centric conurbation) a more attractive place to live in. What will define a successful city must include reliable and quality services, green spaces, and ready access to community and recreational amenities across the board. 

Where to From Here?
Can Auckland get away with its mantra-based path to intensification as a means of creating a liveable and competitive city?  I think not.

Can the current structure deliver?   Not, I don't think, without a radical overhaul. 

And if there are any immediate lessons we might take from the Fonterra and Auckland City examples - bigger is not necessarily better. Oh, and choose your advisors carefully.

Wednesday, August 12, 2015

Too little, too late: finally fronting Auckland's housing problems

Singing an old song
It’s hardly worth blogging about the Auckland housing crisis any more.  It’s an old song few people wanted to hear in the past. Now everybody’s singing it. Today’s comprehensive coverage by the New Zealand Herald neatly highlights the ultimate contradiction – how can Auckland be one of the most liveable cities in the world when it is one of the least affordable?

When the problem of where to put our growing population could have been relatively easily solved 20 or so years ago, planners were stuck in an eighties groove promoting Plan A - a city contained within strict boundaries against the clichéd back beat of “no more sprawl”.

The idea of urban sprawl was – and still is – used to raise an image of ever-expanding, continuous development of monotonous housing and crowded roads swallowing pristine bushlands and a pastoral cornucopia.  From this it was a short step to damning all and any greenfield development that might have kept the housing market functional, offered opportunities for smart urban design, and made new communities viable –and liveable.

Even though geography, economics, and preferences favour a city in which employment can disperse and urbanisation can take place on greenfields divorced, if necessary from high cost legacy infrastructure, we put up the shutters and were blind to the consequences and costs of a high density, high rise alternative.

The tide has turned 
The resulting shortage of affordable housing has finally risen to the top of the Government agenda. The Minister of Housing and even Auckland Council are starting to push the boundaries and look at options for a realistic city footprint.   Initiatives include extending the capacity of hinterland villages and towns , identifying areas well suited to urbanisation on or beyond the city edge, and tackling the thorny issue of how to re-form swathes of the existing urban area to accommodate greater density. 

It’s a sign of our past failures, though, that these initiatives necessitate bypassing the Resource Management Act and leapfrogging the fraught process of translating the Auckland Plan into a meaningful statutory planning document.

But things will get worse before they get better. 
The Council still estimates a shortfall of 25,000 dwellings in 2018 compared to 15,000 today.  The Productivity Commission estimates an even greater 32,000 shortfall and says another 13,000 homes would be needed annually just to cater for growth.    Whatever the number turns out to be, it will swamp the best we have achieved, a peak of 12,000 dwellings consented in 2005, and a long-term average of little over 7,000 a year. 

Unfortunately, it's no longer just a numbers game.  We have procrastinated to the point that we are now faced with an enduring structural problem in a housing market that will be marked by increasing reliance on offshore capital, a lift in long-term rental tenancies, and ultimately a slowdown in population growth as the city loses its appeal.
Do we have the capacity?
It’s no longer just a question of releasing land for development.. 

One problem is that we have let our investment in infrastructure fall behind.  That can be solved with time, funded by more rates increases, foreign capital, or, better perhaps, the municipal infrastructure bonds long promoted by advocate of affordable housing Hugh Pavletich. 

But don’t expect any early boost given the small size of the civil engineering sector in New Zealand, and, like new housing, don’t expect it to be achieved without a solid injection of foreign capital.

We may also lack the capacity to ramp up residential construction and in trying to do so increase the risks around the quality and cost of building houses.  The challenge for the building sector will be to achieve levels of productivity not enjoyed since 2004 while boosting building personnel, and promoting a more competitive materials sector.  Without gains in these areas, Auckland may need twice the builders it had in 2014 simply to reach an annual target of 13,000 new homes, let alone make a dent in the existing shortfall.  

Finally, and fundamentally, prices have reached the point that the traditional drivers of new demand, the first home buyers, are effectively excluded from the market.  Incomes have simply not kept pace with house prices.

The flow-on effects are insidious
The consequent shift to a housing market dependent on investors funding new stock rather than occupants raises a new set of uncertainties (including a divisive populist reaction against offshore investors, as if their presence is a cause and not a result of a housing shortfall contrived by poor planning).

For a start, we have an insufficiently developed rental sector to provide tenants the degree of security necessary to underpin education, health, and career . Without a strong institutional and regulatory framework, rental housing is a second best solution for families, undermining commitment to community and increasing mobility. While that may not worry the young and transient, it is not conducive to family formation, household stability and savings, or strong communities.

A high rental population tends to be associated with high labour turnover, lifting the cost of employment and undermining in particular businesses that employing the less skilled.  At the same time, higher salaries and wages are needed to compensate for high cost housing (and commuting) in Auckland, boosting the cost of the professional and management services to the corporate and government sectors.

Can we afford the bubble to burst?
Auckland's distorted housing market contains the seeds of its own destruction that no amount of fiddling with macro-economic settings will now resolve.  And even if some twenty years too late we take the brakes off land supply, prices are unlikely to fall quickly and quietly enough to restore order as we knew it, if only because of the costs that have become embedded in the construction sector and are likely to be amplified if demand for development outruns the capacity of the market to supply it.

Even if we could drop prices sufficiently to bridge the affordability gap we risk bursting the bubble.  Highly mortgaged householders will find themselves without equity and banks without collateral. The social and economic consequences and the fiscal and political impacts would be grim.

On the other hand, we may no longer have a say.  As the rock economy encounters softening commodity prices, falling consumer confidence, and a weakening labour market, expect that other pillar of economic growth – the Auckland housing market – to encounter its own rocks. A weaker economy could burst the bubble without any supply side response.  On the other hand, global deflation and a low New Zealand dollar could prop up a bubble market for a little longer, exacerbating the problem in the long run. 

Will the market simply slow down as people move out or stop moving in?

There are other scenarios that might just ease the pain and slow the market.

For example, the trickle of households exiting Auckland (which has exceeded any gains from the rest of New Zealand for over twenty years) could turn into a torrent .  Detached housing, lack of congestion, and ready access to amenities underpin the growing attraction of secondary cities and towns.  Retirees have known this for a long time, and the potential to cash up their Auckland home for two or three times the cost of a better dwelling in a smaller city or town is likely to boost the momentum as increasing numbers of baby boomers retire.

And despite loose talk of zombie towns, employment and entrepreneurial opportunities are out there to complement the lifestyle opportunities associated with small town living. 

Expect many more families to make the move.  A return to the regions and a slowdown in gains from international migration as excessive house prices and lagging infrastructure diminish Auckland’s liveability may be sufficient to lower the temperature.

Retreat of the baby boomers?
And we need to think about what will happen to the stock of baby boomer housing 10 or 20 years out. While we can incorporate the ageing of the population into naïve demographic projections, do we really know how their behaviour might shape the housing market ten or twenty years hence?

Only a minority might move out of Auckland, but that will have a significant impact on the housing market.  Many more may opt for the convenience, comfort and security of retirement villages.  That, and a little natural attrition along the way, should see the options for suburban revival increase as the large houses of the 1950s and 1960s are recycled or replaced, increasing residential capacity in existing suburbs.
 
Add to that the changing household characteristics in an increasingly diverse Auckland– including more multi-generation families occupying larger individual dwellings, more sharing among non-family members and households – and the numbers game might change substantially.

So what do we plan for now?
Of course, either of these scenarios – a bubble burst or a market moderated – creates another problem.  What do we do with all our plans and projected spending predicated on another million Aucklanders – or thereabouts – by 2041.  How should we revise the massive spend proposed for transport infrastructure that assumes that the growth of the past decade is somehow inevitable over the next, and maintains the conceit that as much as 70% of it might be contained within the existing built-up area?   And how do we pay for the debt that we are accumulating on the basis of growth assumptions that we were never ready for and are consequently unlikely to be fulfilled?

It’s time to think about Plan B; Plan A has clearly failed the city.

Thursday, April 30, 2015

Beyond constraint - urban form and housing affordablity


Resolving the housing affordability crisis

New Zealand’s rock star economy might just get deflated.  Prices in the Auckland and Christchurch housing markets are growing at unsustainable rates.  And when the bubble bursts, the implosion will be far-reaching.  The solution proposed here addresses the critical issue – how to get the land market working effectively and efficiently.  Without that, abstract aspirations for liveability in our main cities will, like a bubble, burst.

The solution is multi-faceted.  It lies in:
·     acknowledging the centrality of land supply;
·     changing how we think about urbanisation;
·     bringing multiple sites forward for development;
·     moving on six related fronts
  • change traditional mindsets
  •  realign institutions
  •   regulatory reform
  •   rethink infrastructure
  •   rethink funding
  •   back off excessive prescription
·     Moving to “why not?”

I expand on these points below.  If we can pull all this off, we might not only create a more productive, liveable city, we might also save the bubble blowers.


Sort the supply problem and the rest follows
It’s no news that that the housing affordability problem is multi-faceted. It’s tied up with fiscal and financial conditions, incomes, the size and structure of the market, inter-generational “competition”, the unpredictability of migration, the configuration of the building industry, and so on.   But without resolving supply constraints, and especially land supply, forget initiatives in these other areas. 

Get land supply right, though, and some of the other impediments might just melt away.
The issue really is land.  It is simple minded to think we can simply build our way out of a supply problem by Increasing building coverage and heights.  Boosting densities within cities might help, but raises a number of other issues: the cost of replacing or extending ageing and under-capacity infrastructure, how to spend our way out of congestion, redevelopment of transport corridors, and obesity and other health and social issues associated with confined and crowded living conditions.

My suggestions focus on Auckland but with relevance, I believe, for other settings.

Changing how we think about urbanisation

Get away from the obsession with contiguity.  Places aren’t urban simply because they are all joined up.  Urbanisation has its roots in transactions, not simply being there. Better to think about cites as networks – a mass of corridors linking nodes across a variegated landscape.  Take this approach and urbanisation and nature need no longer be in conflict. 

Think outside arbitrary administrative constructs. In Auckland, we might start with a focus on the super-regional corridors, and the quality and strength – or potential strength -- of our linkages with the smaller cities of Hamilton, Tauranga, and Whangarei.  Through this we can act beyond local constraints, as part of a potentially powerful and extensive crucible for New Zealand’s next round of development.

Breaking out the land
A growing city is not homogeneous.  Increasing land supply for urban development can and should take multiple forms.

Bring aboard multiple sites and forms of greenfield land. Within Auckland these can readily access and strengthen the region’s well-defined north-south access corridor.  They can also be distributed in such a way that they extend but work within the realities of sub-regional and sub-urban housing and labour markets. 

Think of townships as well connected urban nodes, without necessarily enveloping them within a creeping built landscape.  In Auckland we can apply well thought through extensions to villages and townships – Wellsford, Warkworth, and Waitoki in the north, Waimauku and Helensville in the west, Whitford and Clevedon in the east, Pukekohe, Tuakau, and Pokeno in the south, all surrounded by bush and farmland, linked to each other and to the urban core by a dense network of roads and, for some, by rail.   

And we can envisage of larger settlements closer to the existing built up areas, creating sub-urban communities with character as well as mass, some building on incipient development.  In Auckland we have multiple opportunities that align with existing sub-regional communities but assume their own form and character: Think Dairy Flat and Riverhead in the north, Kumeu in the west, Beachlands-Maraetai in the east; Drury, Ardmore, Runciman, and Karaka in the south.

And for traditionalists still wedded to singular edges, contiguity, and sprawl, seeking to preserve the city within arbitrary limits there are still possibilities for pushing existing suburban boundaries outward beyond, say, Albany, Orewa, and Silverdale in the north;  Massey and Hobsonville in the west; Wiri, Weymouth and Papakura in the south.

Suburban opportunities for selective intensification are still around.  They will increase as boomers age and voluntarily or otherwise relinquish their particular legacy of modest houses on large plots.  Medium density housing – perhaps by way of terrace houses and duplexes, low rise apartments, and especially residential villages (the retirement industry leads the way here) – offer the prospects of modest intensification without undermining communities or destroying the amenities which make the suburbs attractive in the first place.  But the costs can be high and progress slow.  Growing cities cannot wait around for successive generations to be bought or simply die off. 

Brownfield development may be seen as the silver bullet at the moment, because it implies swathes of already urbanised land simply waiting for the first sod to be re-turned and deliver intensive inner city settlement. Well that’s not so easy.  Issues around title consolidation, infrastructure rehabilitation, decontamination and the removal of hazardous materials, impacts on households and businesses in adjoining and proximate communities, the consequent battles for consenting, and the cost associated with often prolonged holding periods all-too-often turn brownfields into red ink or black holes.  Brownfield development is no solution for a supply constrained city.

While we are at it, let’s put the CBD into perspective.  It’s the leading office, visitor, and entertainment precinct in a city.  But it’s not where many of the city’s population lives, works or plays.  Sure, it may make sense to surround it with cheap apartments for Generation Zero to pass through, and where a very small group of the privileged may purchase a water-view, high amenity apartment.  But even in our wildest dreams, that’s not a path to the affordability or the capacity that a growing city requires.

So resolving the supply and affordability housing crisis presumably requires action on all those fronts, and in a wide range of localities.  One consequence of such an approach would be to reduce the capacity for speculative gains and land banking.  Another might be to encourage and sustain the development of significant, medium sized developers and builders, moderating current reliance on a small number of large developers on the one hand, and a large number of very small builders on the other. 

What to do?

All this is easily said.  So how is it to be done?  Here are some ideas.
First, we have to change from the traditionalists’ mind set.

What we have today, or what we thought of yesterday, may not suit tomorrow.  Tomorrow’s urbanisation may be more connected but less contiguous.  Greenfield development need not raise images of never-ending suburbs or houses to the horizon, but of settled landscapes that are penetrated and defined by natural features and green corridors.  Fields of green will stretch away from a diverse urbanised core interspersed with supplementary settlements – towns, villages, suburbs – connected to corridors that link a network of cities into a coherent economic and social unit across multiple administrative boundaries. 
But that’s getting ahead of ourselves.

More immediately, let’s throw off an outmoded mind set, and think about communities, not just housing.  Urbanisation involves business and work settings, community centres, local transport and recreational networks, and houses – detached, semi-detached, multi-storeyed, high and low density.  Don’t just count house sites when assessing potential; allow the land for a whole community.   Then let the landscape, the designers, the developers, and the market –future residents – bring it about (subject, always, to appropriate environmental constraints). And think about how connections with other centres work rather than how to maximise densities in any one of them.
Second, we need to realign our institutions.  Simply moving planners from one Auckland Council office to another was never going to ramp housing supply up quickly in Auckland.  Changing planning rules around Auckland’s plan may have slowed the process and dimmed the prospect for significant early movement as well.

How about setting up a government agency charged with assembling or defining the areas of land throughout Auckland and adjoining regions that might be brought to market?  A development corporation might tag or even purchase, consolidate, and then on-sell land for urbanisation, or put it out for tender to develop with some clear social objectives included. 
A complementary approach would be to draw on development agreements reached between council on behalf of community and developer.  These would spell out required (and realistic) outcomes as a condition of proceeding with the development of substantial parcels of land.  This approach should give more satisfactory outcomes than relying on the long-winded consent and appeal process encouraged by the Resource Management Act which may only achieve a compromise between public and private objectives. 

The proposed approach would need public input, though, so that as the agent of the community the local council would have a clear mandate regarding what provision for community amenities and infrastructure should be provided for in a development agreement.
Third, we need to change the regulatory framework within which it so is comfortable for traditional minds to remain wedded incrementalism and yesterday’s answers.  I have discussed elsewhere an initiative that might help, the rejigging of New Zealand’s environmental and local administrative legislation. 

Fourth, rethink infrastructure supply.  It may be time to get away from monopolistic suppliers and entrenched wedded to old technologies and allow the innovative to seek out and apply more localised solutions to such matters as water supply, wastewater disposal, solid waste handling, and even power generation and distribution.  Of course, most alternative initiatives tend to be small in scale and currently relatively expensive to implement.  Costs tend to be dropping, though, and people may be prepared to pay a little more if resilience is increased and running costs are low.  One way or another the door needs opening to innovation, modernisation, and increased resilience, if for no other reason than to push current suppliers down this path. (I also wonder whether localised solutions are really more expensive than gold plating the capital works applied to large scale, monopolistic services).  
Fifth, rethink funding.  Why should future owners fund upfront the long-term infrastructure required when purchasing new homes given the value they bring to a community by playing an active role in its social and economic life as well as assuming a share of current fiscal liabilities. 

The real beneficiary of development is the party that sells land into a higher value use.  So a development levy on the profit realised from the sale of rural land into urban use, an underutilised brownfield site into intensification, or a large single-dwelling suburban site into apartments might be a more expeditious means of funding the works required to realise the enhanced potential.

Another possibility is to promote the commercial funding of infrastructure.  Privatisation of energy companies has facilitated this. Competition has been allowed into solid waste collection.   The creation of council controlled organisations for the provision of local infrastructure, however, hasn’t necessarily achieved improved funding. 

Commercial entities, whether investors or operators, can be expected to define an appropriate level of service and find efficient means to achieve it.  The long-term income streams may be an attractive proposition for bank lending (especially in deflationary times) or for the issue of high ranking bonds to raise finance.  They might also attract private and public equity.  There are plenty of examples – but we need more effective coverage of local infrastructure.  Regionalised entities for basic services can reflect the particular needs and circumstances of communities and tailor development options rather than simply extend the old system to new users.

Sixth, back off prescriptive plans by local councils and instead require that spatial plans set out long-term, broad-brush land use options and a commitment to where public money will spend money on public services and amenities.  This should help shape a city in ways that the community wants.  It should also supply sufficient certainty for providers of infrastructure and services to plot their own investment priorities and programmes subject, of course, to their capabilities and risk management.  And where they fall short, expect other suppliers to step in.

The role of risk: moving to “Why not”
Risk and how it is treated may well lie at the heart of the problem.  Rather than evaluating risk and adopting protocols which allow for it without undermining the capacity to innovate and extend, policy makers in public institutions and monopolies appear to manage it by sticking with what they know, through imitation, replication, and repetition, and by the simple expedient of saying no: “Why should we?”  This is a sure recipe for constraint – of supply and of opportunity. 

I wonder if the biggest risk, the one that explains this conservative attitude, is that in pricking the housing bubble we might just bring the bubble blowers down.  Any significant readjustment of the housing market would hit the banking sector the hardest.  The American experience shows us what the banking sector does when it gets hit.  The community, economic and the political consequences of widespread mortgage foreclosures and business failures loom large over the whole housing crisis. 
If nothing else, an approach to managing the release of additional land supply that identifies and works through multiple sites and agencies, that helps to free up and fund the infrastructure sector, and boosts the development and construction sectors would moderate any such impact.  It might even allow the banks, by moving some of the current funding from houses to infrastructure, to themselves participate in the transformation we need in the housing market.

Monday, November 3, 2014

Credibility on the line: time to get real about Auckland transport and land use options

Councillors are getting nervous about the planned central rail link (CRL).  So they should be.  And while planning is well down the track, it’s not too late to apply the brakes.

This post strings together some of the arguments I have raised against the CRL over the past several years[1], and adds another one –the likelihood that technology gains will further undermine it.

But first some basics. 

Moving more and moving further
Transport is a derived demand: you only get it in response to the demand to move people or goods.  And as information flows more and more freely around the world, so growing demand for travel and trade -- locally, nationally, and internationally -- drives investment in transport. 

As nations, towns, and cities prosper, we travel more and further.  We exercise greater choice in where and how we live.  We consume a greater variety of products and services at lower prices.  And the transport sector responds with ever increasing products, services, and capacity.

Of course, it’s not just a one-way street. Transport innovations facilitate new trading relationships and expand travel demands.  Innovation-driven gains in mobility have enabled the masses and not simply the rich to enjoy the benefits of access to more space, more places, and more lifestyle opportunities. 

For example, the arrival of the wide-bodied jet in the 1960s and the more recent emergence of the single aisle, light weight, twin engine long-distance jet have increased the affordability of long distance travel and supported the emergence of many more international travel destinations for many more travellers. 

Similarly, the globalisation of production has been facilitated by transformation of the freight industry into an integrated transport, storage, and fulfilment logistics sector operating seamlessly to deliver lower priced goods from producer to consumer regardless of the distance and borders between them.

Urban transport – a history of increasing personal mobility
This is not the place to detail the history of urban transport, but it’s worth noting a legacy of occasional step changes resulting from disruptive new technologies interspersed with long periods of refining existing technologies.  These two have offered people the opportunity to enjoy more space, better health, and better lifestyles through progressively improved access to housing, services, work, and recreation. 
 
Hence the displacement of horse and carriage with steam-driven and tracked vehicles in the second half of the 19th century, the replacement of steam engines with internal combustion engines late in the 19th century; the introduction of the omnibus at the beginning of the 20th; the development of mass-production techniques for automobiles in the 1930s; and their proliferation in the 1950s and beyond.

Innovations in engines, propulsion, and materials have led to continuous automobile performance improvements. Even so, concerns about congestion, threats to oil supplies, pollution, and the costs of providing more road capacity raise questions over just how much more car use we can sustain. 

Despite its own gains in distribution, comfort, and speed, mass transit remains an alternative limited by fixed routes especially in today's complex and often fragmented cities.  The problem is less acute for buses than trains, although the economics of providing routes and schedules to suit diverse needs in large cities are entrenched in both modes.

So, where does the next step change lie in urban mobility?

Driving innovation
Perhaps the rate of advance to existing technologies has reached the point that disruptive technologies are less likely.  Ongoing innovation in car operations (built most recently on revolutions in information technology) and advances in engines are likely to deliver major capacity gains from infrastructure and lower the cost and impacts of private motoring[2], lifting personal mobility and reducing the likelihood of step change.  At the same time the propensity to use cars is stabilising, if not diminishing. [3] The threat is that the fixed route options for public transport will become even less attractive.

Of course demand will be  continue to be driven up by population growth, even if individuals drive less.  Herein lies the challenge: we are not talking about the mobility of current Aucklanders, but that of perhaps a million more seeking their share of transport infrastructure. 

How do we cater for this: promote a return to the old technology of fixed route rail capacity?  More roads? Or by managing transport demand through effective land use planning?  I prefer a combination of all three, but it’s a preference based on (1) understanding the particular limits to and costs of continued obsession with rail and particularly (in Auckland) the CRL, and (2) returning to an emphasis on sensible land use as the engine of this particular train, not transport.

The limits to rail
At the risk of being repetitive [4] here are some of the reasons to reject major expenditure on the CRL (or a rail-based airport link or harbour crossing for that matter):

(1)  Demand will be limited.  A doubling or tripling of rail patronage will not go far in terms of total commuter demand given the very small base it operates off; 9,000 Aucklanders commuted by train according to the 2013 Census.  That's 2% of commuters.  Currently 10% of Aucklanders commute by public transport, 80% of those bus.
 
Boosting public transport demand though park and ride facilities or integrated ticketing is limited by the relatively small number of destinations served.  Public transport travel time costs are already high and multi-mode travel inevitably lifts them no matter high efficient. 

Boosting public transport demand by providing inner city dwelling capacity is largely irrelevant as inner city commuters already have a high propensity to walk, cycle or take public transport to work (only 55% use a private vehicle).  That market is tiny anyway, and likely to remain so.[5]  

Promoting high density dwelling around stations at key suburban centres to boost train patronage will meet market resistance.  And, if successful, it will lead to conflicts between local activity and park and ride facilities, adding to local congestion. 

Focusing employment on the CBD to boost the use of public transport ignores the needs of the majority of businesses (only 12% of Auckland employment is currently in the CBD).  It also ignores questions over the resilience of the CBD. its ageing, often capacity-constrained infrastructure. and the vulnerability to extreme climatic events of low lying and reclaimed land on which much of it is built[6].

Promoting higher employment densities around stations to lift the viability of rail will generate additional road congestion as much of the interaction around businesses still requires point-to-point vehicle access, the majority of commuters are likely to remain car-bound, and the more people that live in and around the CBD the more of them will need to commute outwards to employment as well as for recreational reasons -- by car.

And there is a real question mark over what those many more white collar workers in the new towers might be doing,[7] especially as high tech employment increasingly favours low rise, green working environments.

(2)  The impact on congestion will be minimal. Creating additional road capacity by diverting some commuter trips to public transport reduces the costs of private transport, encouraging greater car use until such time as unacceptable levels of delay once more set in.  Such evidence as there is for developed cities in North America, Australasia and Europe does not support the proposition that public transport reduces congestion.[8]

(3)  The Capital costs will be high – almost inevitably higher by hundreds of millions of dollars than current estimates;[9].  Even without the usual "large project blowout" the marginal costs will be very high: if the impact was to triple daily commuting patronage to, say, 30,000 people a day a capital cost of $2.4bn (both optimistic assumptions) represents $120,000 for each additional commuter.
 
(4)  Overheads will be high – fixed costs are a large component of rail overheads.  These include operating costs, maintenance, and renewals (for rolling stock in particular), interest on capital, and depreciation.  Any demands on ratepayers or road users to subsidise this are still costs, costs that are likely to reduce the attractiveness of Auckland as a place to live or invest. 

In addition, pricing public transport to recover even a constant share of higher costs from users is likely to lower demand. This, in turn, is likely to reduce income more than costs, potentially leading to a subsidy (public cost) blow out.

(5)  The business case relies on heroic assumptions about the future of work and housing.  Building a case on assumptions about a shift to high density housing on suburban stations and new towers of white collar employees around inner city stations is highly risky, with no evidence that the risks have been factored into decision making. [10]  And there seems to be little consideration given to the risks to rail resulting from technical advances taking place in the automobile industry that should increase the efficiency of roads, lower the costs and boost further the convenience of cars, and improve the performance of buses  [2],

(6)  The economics do not stack up and consequently fiscal risk is high.[11][12]  The legacy of the CRL is likely to be enduring debt and costs that potentially reduce the appeal of Auckland as a place to live without reducing the problem of congestion. And they will be so much higher if the optimistic projections on which the business case is based fail to materialise.  When costs substantially exceed benefits productivity suffer and the Auckland economy is the loser. 

There’s got to be a Better Way
The aim of this post was to contribute to the current debate over the future of the CRL.  Whether or not it goes ahead it is not going to solve Auckland’s transport problems.  Nor will an integrated transport system based on common ticketing and interchange stations with their substantial land demands and impact on local and arterial road congestion help much.

The long-term solution may best be based on a return to basics: identifying the land use pattern that is in accord with both the city’s geography and the ambitions of the council to house another million residents (an ambition that seems to have gone un-debated in the lead up to current plans).  The transport system needs to be organised to serve that. 

Planning land use to serve an outmoded transit model based on an increasingly dated transport mode justified by the view that Auckland can continue to grow as mono-centric city is a recipe for disappointment  - and not just in transport.




[1] Starting on this blog with Buses or Bust? April 2011 and Rethink the Link: Does Auckland Really Need to Pour Money into a Hole in the Ground, December 2011  To get an alternative point of view, visit transportblog.co.nz/
[7] See, for example, Whither White Collar Services? December 2011
[11] This is the sort of contingency that a Business case should address as a matter of course.