Wednesday, 21 December 2005

Investing in rail failure

The Government has come up with a way to invest $540-600 million dollars in something with a current book value of $81 million, after which the book value of the investment will be worth... $81 million. That's $1800 spent for every household in Auckland, with a net return on investment of just zero. Brilliant.

If the decision to 'invest' in Auckland's moribund rail non-system doesn't show how governments wipe out the value of taxpayers' hard-earned money, then you're just not ready to learn the lessson. LibertyScott has answers to all the counter-arguments you're trying to dream up. Go and argue with him about all the social and environmental benefits. "They are just too infinitesimal to measure," he says.

[UPDATE: Not just $1800 per household, but as DPF has worked out, with "just under 9,000 passengers a day which is 0.6% of Aucklanders, if they spend $600 million that will be a spend of $67,000 per passenger. Hmmmmm." Why don't they just give that money to train-travellers so they can buy themselves a car?]

Linked Article: Auckland rail money gone - like that!


  1. That's an average of 9,000 passengers per day. A better figure to consider would be the average patronage at peak times. But to take the invested amount and divide it by 9,000 to come up with a per-passenger cost, and compare with the cost of a car, is a complete apples and oranges comparison. You'd need to at least increase the estimate of the patronage to the actual number of unique regular passengers, compare it with the cost of the car and the cost of maintaining the roads, and the extra costs of providing transport to disabled people whose only option you have just removed, and the costs associated with switching freight off trains.

    Regardless of the book value, is a maintained railway system really worth just as little as an unmaintained one to the overall budget and/or economy? Assuming that the maintenance is required to avoid the system falling into disuse - for a start, less people on the roads at rush hour means less money needed for highway upgrades, which adds value to the rail system.

    That article mentions that patronage has increased 32% in one year; if anything like that kind of growth continues (as you'd expect it to, with no end in sight to the increase in demand vs supply of oil), then the value of it would increase accordingly with that, too.

    Besides, there is other peripheral value, too. For instance, you can remind capitalist slaves of its availability when they waste time at work complaining about their rising fuel costs - comparing with rail ticket prices, they will then think about how much they are effectively paying for the "freedom and comfort of the private vehicle", probably start to get a headache and instead go back to working. Productivity increases!

  2. The cost of the car is paid for by the motorist - most of the time that is a fixed cost, as most motorists want a car not just for commuting, but for freedom outside work hours. The marginal cost of maintaining roads is low on a per vehicle km basis, and besides around 40% of the petrol tax that goes on roads pays for it already - plus 50% of road maintenance is a fixed cost - it isn't wear and tear from vehicles.

    Disabled people have cars too, and many use taxis, some of which are subsidised, but they offer door to door transport, unlike trains.

    The book value of the Auckland rail network is more than the market value - which is based on the revenue you make, over costs, for owning it. That would be well less than $81 million. You wont notice the reduction in traffic so it wont delay increased roading capacity, as it is a drop in the bucket.

    On top of that, much of the increased patronage of rail is at the expense of competing bus services - given that the operations of the passenger rail services are 80% subsidised, you don't increase the value of something if you make a loss in carrying more people.

    By contrast you could give people back their money, charge the rail system at a price that covers costs (charge roads at peak times the very same) and see if people are really prepared to pay for what the central planners want for them?

  3. In his seminal 1996 paper "the Mythical Conception of Rail in Los Angeles" Jonathan Richmond asked why a rail system was built when all expert opinion was against it? He identified a group of myths and delusions which drove a purely political decision. These same myths and delusions have been argued by the pro-rail folk on this and other blogs. They include for example, the old word city myth, the tourism myth, the progressive image myth, and so on.
    Here is a simple challenge. All the pro-rail folk assume Auckland's population will double i.e. reach say 2.2 million by 2050.
    Given that the population of NZ is likely to increase by only 0.5 million or so before going into decline this is unlikely.
    Also, what is this thing called Auckland? It includes Wellsford just a few kms south of me in Kaiwaka and extends down to Clevedon. Most growth is taking place in Rodney and further south. My hunch (based on demographics, immigration stats, and oversease experience) is that metropolitan Auckland (as opposed to the region) is about to go into population decline. The big American cities are no longer growth centres. The growth is now taking place in Micropolises of about 30,000 to 50,000 people. South Auckland may resist the trend but South Aucklanders do not tend to commute to jobs in central Auckland. Deomographics is driving a massive migration to the countryside all over the world. ARC's beloved Smart Growth, which drives up house prices and increases congestion, drives people out and discourages immigration. Our Auckland planners are destroying Auckland in order to save it.
    Auckland is already a very low density City and like Honolulu is oriented to the coast rather than downtown. Worse, we have two huge harbours in the middle of the transport catchment which have zero population.
    Rail is about frequency. The Auckland numbers can never deliver the frequency to make rail really attractive or economic. I have cut the numbers on an Auckland Airport link and you get a train about every forty five minutes. Bad news if you just miss it.
    There is not a single transport economist, urban economist or traffic engineer who supports investment in rail. Rail provides zero service for our commercial vehicles. Roads do.
    Auckland rail is driven by mythical concepts.
    It will not deliver.

  4. This is all true Owen, so why do you support a $1.1 billion motorway north of Wellington, which all analysis indicates users would not be willing to pay for through tolls and which has a benefit/cost ratio of 0.5? There are bad roads too, and the only way this could be built is by central government using taxes collected from non-users to pay for it - which is just as bad!


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