Targets prudent on Auckland train project

Recently, bemoaned the fact that Auckland CBD was running out of office space.

The pro-transit and compact city advocacy group is concerned because central government is insisting that certain rail usage and CBD employment targets be met before it co-funds the $2.9 billion City Rail Project.

These targets include the doubling of rail patronage to 20 million trips a year, and lifting the number of people employed in the CBD by 25 per cent (or 22,000 jobs) if the city wants the project to start in 2020.

The problem is that while the first target might just be achievable (there were 11.4 million rail passenger trips for the year ending June 2014, up from 10 million in the previous year), the second is more doubtful. (and Auckland Council) seem to be suggesting the employment target is unreachable without the City Rail Link. After all, who would want to construct an office building if you can't fill it with productive workers?

It is a persuasive argument, but it doesn't quite stack up when you look at the complexities of transit investments and the track record of transit projects.

The most obvious issue is that office supply isn't solely determined by transport links, but by factors such as the state of the economy, land prices, and red tape.

Only a few years ago, Auckland was in fact drowning in a glut of office space as a number of projects that were started in the mid-2000s came on stream just at the time the global financial crisis hit. In this context it is understandable that developers are cautious, especially as the finance company tier of lending has since been wiped out. 

Councils also control the supply of office space to some degree through their consenting and building inspection functions. Cutting the amount for red tape and time it takes to go through the process would increase the appeal of large urban projects for developers.

Unfortunately, the council seems to be heading in the opposite direction with its design rule book, which specifies the criteria that a development must meet in order for them to get a building permit.

Apart from the fact that it adds yet another costly permitting hurdle in an already convoluted process, what role does Auckland Council have in determining the nature of private goods? If the equivalent were applied to the individual level, it would amount to an official saying you must buy a BMW instead of a more cost-effective Toyota because of aesthetic considerations.

While this may sound like sophistry, it matters because council is picking which businesses it wants in the CBD by effectively setting rents as higher development costs will be passed onto tenants. That is fine for major companies, but people starting businesses (who increase the job supply) end up being squeezed out of the CDB.

This was seen in Seoul, where efforts to boost population density in the CBD failed because people flowed out of the expensive inner city to where jobs and affordable property were plentiful (a band 20km to 40km from the centre).

Comparing Auckland to an Asian megacity is perhaps a little unfair, but the policy parallels are clear for major transit investments designed to increase access to the centre.

There is also no consistent evidence to show that if you invest heavily in a transit network, people will use it.

The light rail system in Portland Oregon failed to meet all of passenger usage projections contained in the business case, and three out of four passengers who used the service had previously been bus passengers.

That is not to say that Auckland could not benefit from the City Rail Link, only that there are significant unknowns attached to a project that carries a $2.9 billion price tag.

In the face of these risks, it is more than prudent for central government to insist the council meet these preconditions, otherwise it may find itself funding a white elephant. To increase transport use to meet these targets, the council would have to work out first how to boost demand for transit, such as by increasing amenity.

It is well established that rail projects of this nature can almost never almost survive without ongoing subsidies, but this is traded off against high transit usage rates and the benefits thereof.

What is entirely unacceptable is to have high upfront costs, ongoing subsidies and low patronage.

Yet this is exactly what we risk if we accept the argument that the transit usage targets are too tight (Auckland Council recently voted to lower the 2017 target from 17.8 million trips to 15 million) and the start date too far off.

This is clearly contradictory, and relies far too heavily on "trust us, it'll work" for a massive undertaking that will be funded by taxpayers and Auckland residents. In light of this, central government should be lauded for sticking to the targets, not vilified.

- Jason Krupp is a research fellow at the New Zealand Initiative