Valuing transport using markets

Do you agree with valuation of transport infrastructure?

Transport infrastructure can be appraised using market values that can be assessed against actual outcomes, rather than ‘black box’ modelling that is not subject to ex-post evaluation.

Mobility or accessibility
Transport infrastructure enables people to make wider choices about where they locate – accessibility – and how they travel – mobility. Traditional transport economists focus mainly on mobility benefits, that is, travel time savings. They are, correctly, concerned not to double count benefits. But they have failed to read the fine print about double counting of benefits.
The fine print is in the original paper by Mohring in 1961. Travel time savings are equal to land value impacts ONLY when the land market is “in equilibrium – that is, when all families are content to stay where they are…”

This condition holds for small road projects, for which traditional transport appraisal is well suited. The condition MAY hold for large road projects. But the condition does NOT hold for large public transport projects, such as rail. So traditional transport appraisal undercounts benefits from public transport projects, which distorts traditional appraisal in favour of roads.
Interestingly, the 2011 high speed rail Phase 2 project in Australia 18 pages on what not to do.

At the very least, transport infrastructure decisions should consider both accessibility benefits as well as mobility benefits, as discussed in More productive space and time. Treating the benefits separately would avoid any risk of double counting. This approach has been taken in New Zealand by Motu.

Ideally transport infrastructure decisions should consider both types of benefits, with appropriate care to avoid double counting. This approach was taken in Auckland City rail Link. This approach takes account of both types of decision – where to locate and how to travel.

As shown elsewhere, accessibility is valued in the land market. So the value of improved accessibility due to transport infrastructure can be estimated as the difference between values in the land market with and without the infrastructure. Click here for discussion of how to forecast joint land and transport markets or contact Strategex for more information.