I have for some time taken issue with the way the UK Department for Transport (DfT) plays down the economic benefits of land and property development that result when new transport investment makes land more accessible. While DfT recognises that housing developments may be dependent on provision of new transport services, the associated economic benefit is not included in the estimation of the benefit:cost ratio that determines the value for money of the transport investment.

The Department for Communities and Local Government (DCLG) recently published its Appraisal Guide.  This states (para 3.9):

‘….changes in land values as a result of a change in land-use for a development reflect the economic efficiency benefits of converting land into a more productive use. Land value data should be the primary means of assessing the benefits of a development. Land value data is a rich source of information because it is actual market data on individuals’/firms’ willingness to pay for a piece of land. Assuming individuals and firms are rational in their decision-making, market prices should reveal the ‘true’ private benefit of a development. This information can be used to undertake cost benefit analysis to quantify the potential welfare implications of a development.’
So there is a marked difference in the way two government departments treat land value uplift in economic appraisal, which is pretty odd. My view is that DCLG has the right idea. DfT is wedded to a theoretical framework that focuses on benefits to users of the transport system, and assumes that land use is unchanged. But this flies in the face of extensive evidence that transport investment that makes land more accessible can trigger development – London’s Docklands is a prime example of rail investment making land accessible for development. DfT should adopt an evidence-based approach, using evidence of outcomes from completed investments to inform the case for prospective investments.

The current main method of adding capacity to UK motorways is known as Smart Motorway All Lane Running. This involves allowing traffic to use the hard shoulder (previously reserved for breakdowns), with speed controls to respond to accidents and congested conditions. This approach has been applied to a section of the M25, London’s orbital motorway, increasing running lanes from 3 to 4. A monitoring report after two years of operation has been published. The main findings, compared with before the scheme was introduced: traffic flows up by as much as 17%, well above the regional trend (5%); some journey times increased by up to 8%; and only a slight improvement in reliability. Significantly, the biggest increases in traffic occurred at weekends (as much as 26%).

Assessment

The intention of investment to increase the capacity of the Strategic Road Network, of which the M25 forms an important part, is to improve connectivity between cities and reduce congestion. However, roads like the M25, that are located in densely populated areas, are also used by local users for their daily travel. Any increase in capacity offers opportunities for more or longer local trips.The resulting extra traffic restore congestion to that it had been prior the the investment in capacity. The findings of the present study are consistent with this general experience. Regrettably, there is no data on the composition of the traffic, by journey purpose or distance travelled. However, the finding of a big increase in weekend traffic is consistent with leisure users taking advantage of initially faster travel to reach more distant destinations.

The findings of this report confirm the phenomenon of ‘induced traffic’ – the traffic that results from additional road capacity – as I discussed recently in connection with the CPRE study. Such traffic adds to congestion and so reduces the time savings expected from such investment, time savings that constitute the main economic benefits presumed to justify the investment.

 

An excellent report on the impact of road investments has been commissioned by the Campaign to Protect Rural England from Lynn Sloman and colleagues. This report re-examines the outcomes of a number of Highways England road schemes, finding average increased traffic above control levels in the short run (3-7 years) of 7% and in the longer run (8-20 years) of 47%. This is clear evidence for substantial ‘induced traffic’ generated by new capacity. The CPRE study also find very limited evidence for benefits to the local economy from road investments.

These findings pose problems for the  Department for Transport’s WebTAG approach to the economic appraisal of road schemes, in which time savings to users is the dominant benefit. However, induced traffic tends to restore congestion to what it had been, lessening time savings. If induced traffic were properly taken into account, the apparent value of the investment would be substantially less. Moreover, the orthodox approach assumes unchanged land use, yet the CPRE report documents extensive land use change in four detailed case studies. Such changes have implications for local economies, not necessarily wholly advantageous if these take the form of low-wage employment in warehouses or car-dependent residential development.

Assessment

The main policy objective of the current UK national road investment programme is to boost economic growth by improving inter-urban connectivity and reducing congestion. Each scheme of the programme must offer acceptable value for money on the orthodox approach to appraisal, yet this approach overstates benefits by underestimating induced traffic and disregards changes in land use made possible by improved access. We need an evidence-based approach to investment appraisal, in which careful evaluation of completed schemes of the kind commissioned by the CPRE informs appraisal of prospective investments.

The National Infrastructure Commission (NIC) has been issuing Discussion Papers for comment. I have previously blogged about the paper on technology.

Two further NIC papers are of interest: one concerns the relation between economic growth and the demand for infrastructure, where it is assumed that these are closely correlated. In my response (Metz NIC Econ growth 28-3-17 ) I argued that, for transport, this is far from the case, with demand saturation an important phenomenon.

The other discussion paper concerned the impact of population change and demography  My response (Metz NIC population 23-1-17 ) drew attention to the importance for transport infrastructure investment of where a growing population is housed : greenfield housing leads to road investment, urban densification requires investment in public transport.

My new book, Travel Fast or Smart?, is one in a series of short books on policy and economics topics described as ‘essays on big ideas by leading writers’. My contribution is a critique of the inconsistencies of transport policy in recent decades, which I attribute to the shortcomings of conventional transport economic appraisal in identifying the benefits that arise from investment.  This book is available both in print and as an ebook from Amazon Books


Transport for London (TfL) has published an illuminating report on the topic of Land Value Capture (LVC) – the way in which transport investments could be funded from a share of the increased value of land and property that follows when access is improved as a result of the investment. This study was carried out in response to a request from the Government for detailed proposals.

The range of possible approaches to LVC is wide, and overseas experience is relevant. A conclusion is that of past projects, the Jubilee Line Extension to Docklands resulted in land value uplifts of 52% relative to controls, and the Docklands Light Railway extension to Woolwich, 23%. For eight prospective TfL projects costing around £36bn, land value uplifts could be £87bn. So plenty of value that could help fund these new investments.

The Annexes to the main report are interesting, particularly Annex 7, the literature review of the theory and practice of the relationship between transport and land value, a relationship which does not form part of the orthodox approach to cost:benefit analysis of transport investment. The orthodox approach is concerned with benefits to users, particularly time saved through faster travel. The orthodox view is that to include the uplift of the value of land made more accessible by the investment would double count benefits that accrue to users. However, the user benefits are notional, based on the outputs of transport models, whereas the land value uplifts are real and observable.

Assessment

The TfL report is important, both to identify possible ways of using LVC to fund new projects, and also to assert the relevance of land value uplift as a measure of the economic impact of transport investments. Chris Grayling, Secretary of State for Transport, in a speech on 6 December 2016, recognised the case for LVC:

I want to look at innovative ways of funding infrastructure development. Often the opening of a new road or a new railway line or station can transform the value of development land. It is right and proper that the government gets back some of the value it has created to invest in infrastructure. We have seen this happen for Crossrail through the mayoral community infrastructure levy.

My new book published on 1 September is one in a series of short books on policy and economics topics described as ‘essays on big ideas by leading writers’. My contribution is a critique of the inconsistencies of transport policy in recent decades, which I attribute to the shortcomings of conventional transport economic appraisal in identifying the benefits that arise from investment.  This book, Travel Fast or Smart?, is available both in print and as an ebook from Amazon Books.


Three studies of prospective road investments in the North of England have been published recently. These illustrate some of the questions that arise when the aim is to boost economic growth by increasing road connectivity between cities.

M60: Manchester North-West Quadrant

The NW section of the M60 orbital motorway within Manchester is one of the busiest roads in the country, on account of the mix of local and strategic traffic. Traffic congestion, local air quality and noise are considered to inhibit economic growth.

A number of road schemes are proposed to improve matters: new outer orbital roads to divert strategic traffic from the inner orbital M60, plus improvements to enhance capacity of the M60 itself. The benefits have been assessed, according to standard practice, on the basis of the value of journey time savings, which typically are quite small – up to 5-12 min for strategic long distance users and up to 3-5 min for local users. The capital costs are estimated at around £14 billion.

A public transport only scheme has also been considered but rejected since it offered no journey time savings for road users.

Northern Trans-Pennine Routes

This study addresses the most northerly major east-west road routes in England, currently underused on account of poor journey time reliability, high collision rates, high proportion of Heavy Goods Vehicles and lack of alternative routes if diversion is needed due to poor weather or road works. Parts of these routes are still single carriageway. Capital costs are estimated at about £5 billion. No quantitative estimation of benefits has yet been made.

Trans-Pennine Tunnel

This scheme involves a ‘bold concept’ – building a tunnel under the Peak District National Park to improve road connectivity between Manchester and Sheffield, with journey time saving of up to 30 min. Depending on the precise route, the length of tunnel would be 12-20 miles, longer than most road tunnels in Europe, costing £8-12 billion. No quantitative estimation of benefits has yet been made.

Assessment

The total cost of these three schemes is put at up to about £30 billion, which is twice the total investment planned under the current five year Road Investment Strategy. It is very hard to see how the economic benefits could justify such expenditure, not least because the evidence for benefits from improving the connectivity of cities around 50 miles apart in thin (see my discussion of Glasgow and Edinburgh, two well connected cities).

Moreover, standard economic analysis does not distinguish between benefits to commuters and to long distance users. As I have argued, in situations like the urban M60, where car commuters comprise 40% of morning peak traffic, it would be commuters that would take advantage of any increased capacity, leaving long distance users no better off – consistent with the maxim that you can’t build your way out of congestion.

Standard economic appraisal, based on time savings to road users, takes no account of the way transport investment makes land accessible for development and so contributes to economic growth. Such development results from investment in urban public transport, as for example at MediaCity in Greater Manchester. The rejection of public transport investment as a means of mitigating congestion on the M60 reflects this disregard of development in standard appraisal.

The construction costs estimated at this stage are not to be relied upon. Very likely ‘optimism bias’ is at work, underestimating costs and overstating benefits at an early stage, to ensure the project remains under consideration, consistent with a ‘bias to action’ on the part of promoters and their agents when there is an opportunity to spend other peoples money.

On the other hand, the estimates of fairly small time savings are consistent with the outcomes of previous road investments, raising a question about the nature and value of incremental investment in a mature road system that generally provides dual-carriageway or better connectivity to all major cities.

What is entirely missing from these studies of road investment is any consideration of how digital technologies might help meet the needs of users, technologies that can be far more cost-effective that the very expensive civil engineering technologies that have dominated thinking about the road system. This is in marked contrast to the railways where the virtues of the ‘digital railway’ are increasingly recognised.

There is too much wishful thinking about the economic benefits of investment in road infrastructure, particularly in the context of the ‘Northern Powerhouse’, the North of England seen as a region with unrealised economic potential. More rigorous analysis is needed, otherwise outcomes will be disappointing.

 

 

I have a new book published on 1 September, one in a series of short books on policy and economics topics described as ‘essays on big ideas by leading writers’. My contribution is a critique of the inconsistencies of transport policy in recent decades, which I attribute to the shortcomings of conventional transport economic appraisal in identifying the benefits that arise from investment. A column in The Spectator magazine of 26 September described my book as ‘excellent throughout’.


The Office of Rail and Road has responsibility for monitoring Highways England’s delivery of the Government’s Road Investment Strategy. This involves investment in England’s Strategic Road Network of £15bn over five years, with more to follow. The ORR has been consulting on how to carry out this task. My response to this consultation is as follows.

The economic rationale for investment in the road network is to generate benefits for users, including in particular the saving of travel time. It would therefore be appropriate for the benefits to users of Highways England’s investment programme to be evaluated as part of ORR’s monitoring process.

In general, traffic congestion on the Strategic Road Network (SRN) arises in or near populated areas, where local traffic adds to long distance traffic; remote from such areas, the traffic generally flows freely. From the perspective of orthodox transport economics, a congested road is an opportunity to invest by adding capacity. But how do road users experience the benefit?

Highways England has evaluated the outcome of ‘major schemes’ five years after opening. It finds that average time savings are small, 3 minutes at peak periods.[1] The economic case for investment depends on multiplying such small time savings by a large number of vehicles (and by monetary values of time saved). Nevertheless, it is relevant to ask how road users experience such small time savings.

While a few minutes time saving would not be material for long distance users, it could be significant to local users on short trips, in particular by allowing more opportunities and choices when changing job or moving house. Indeed, it seems likely that the main benefit of investment in additional capacity on the SRN would accrue to car commuters.[2]

It would therefore be important to understand the nature and distribution of the benefits of the investment schemes of Highways England, as experienced by different classes and locations of road users.

Transport Focus commissioned an Independent Analytical Review for a Road User Satisfaction Survey in 2015. This recommended the development of a continuous online survey of satisfaction using a representative panel of road users. Repeated surveys of a panel would allow trends in satisfaction to be monitored over time. Transport Focus is currently piloting this approach.[3]

Such a survey technique could in principle be used to track the subjective user experience of improvements to the network as a whole. Moreover, relating user experience to specific investments would allow the benefits of these to be understood, as experienced by different classes of road user.

Another approach, also using a volunteer representative panel, would involve monitoring individual travel patterns, based on mobile phone GPS location. This would provide an objective measure of changed travel patterns as the result of investment, and would allow identification of which users benefit, both as regards location, journey purpose and socio-economic characteristics.

Average travel time has been measured for the past 40 years by means of the National Travel Survey. It is noteworthy that average travel time has remained unchanged at about an hour a day, despite many £billions of investment in the road network. This indicates that there are no time savings to users in the long run. There is a therefore a question about the nature of long run benefits, which are mainly to be seen as changes in land use and land value, as land is made more accessible for development that can contribute to economic growth. Travel time savings are therefore short run and their duration needs to be monitored.

Summary

Given the very large expenditures planned for the SRN, it is important to understand the nature and distribution of the benefits of investment. There is an opportunity for the ORR to improve value for money by taking an analytical approach – tracking the experience of road users as this is improved by investment in the road network. Both subjective and objective change should be monitored, to understand the nature and distribution of the benefits of investment.

 

 

 

 

 

 

 

 

 

[1] http://assets.highways.gov.uk/our-road-network/pope/major-schemes/POPE___meta_2011___main_report___final.pdf

[2] http://peakcar.org/valuing-travel-time-savings-problems-with-the-paradigm/

[3]http://www.transportfocus.org.uk/research-publications/research/strategic-roads-user-survey/#_ftn1

 

 

 

I have a new book published on 1 September, one in a series of short books on policy and economics topics described as ‘essays on big ideas by leading writers’. My contribution is a critique of the inconsistencies of transport policy in recent decades, which I attribute to the shortcomings of conventional transport economic appraisal in identifying the benefits that arise from investment.


The major proposal to stimulate the economies of the cities comprising the Northern Powerhouse is to improve east-west transport connectivity, both rail and road. However, the evidence for the benefits of investment in inter-urban transport is less persuasive than for investment in intra-urban services.

Glasgow and Edinburgh are two cities with good transport links: as little as 48 minutes by rail, with over 200 trains a day in each direction. The economy of Glasgow has changed markedly over the years: whilst manufacturing has declined, there has been significant  growth of service industries, in particular financial and business services. Glasgow is now one of Europe’s sixteen largest financial centres, based on a new International Financial Services District, where operating costs are claimed to be 40% lower than in London.

Of the 20 named businesses located in this District, only one is a company headquarters. The others are back offices or subsidiaries, just two of which report to HQs in Edinburgh, the long established centre of financial services in Scotland. The large majority of these Glasgow operations report to London, other English cities or to overseas head offices, for which north-south and international connectivities are more important than east-west.

Assessment

The good transport connectivity between Glasgow and Edinburgh does not appear to have been an important factor in the development of the financial services sector in Glasgow.

 

 

I have a new book published on 1 September, one in a series of short books on policy and economics topics described as ‘essays on big ideas by leading writers’. My contribution is a critique of the inconsistencies of transport policy in recent decades, which I attribute to the shortcomings of conventional transport economic appraisal in identifying the benefits that arise from investment. Readers of this web-magazine will recognise many of the arguments, now brought together in a single volume at a modest price.

On a recent visit to Sweden, I learned of the Swedish approach to planning a new High Speed rail network linking Stockholm, Gothenburg and Malmo, led by the National Negotiation on Housing and Infrastructure. The approach is to initiate a negotiation on co-financing focused on the benefits and in which municipalities, regions, towns and cities and the business sector can all participate and influence the result. The aim is to get the greatest possible benefit for the funds invested by all parties, both housing and labour market.

The outcome will be agreements that identify who finances the infrastructure in the major cities and who finances the new high-speed railways, where the highspeed railway lines will be mapped out and where homes will be built. Evidently, the more that localities are willing to contribute, the more benefit they can hope to gain from the route of the railway.

Assessment

The Swedish approach seems a lot more attractive than the UK approach to HS2, which involved top-down route planning for a nationally financed railway, with subsequent adjustments to respond to representations from cities, in particular for city-centre stations rather than the original lower cost out-of-town locations. The Swedish approach also focuses on real economic benefits, rather than notional travel time savings whose relationship to reality is obscure.