Discussion paper

Appraising transport strategies that induce land use changes

12 Jun 2013

This paper develops formulations for estimating the economic welfare impacts of transport strategies that change land use. The formulations seek to use outputs of transport modelling typically used for transport appraisal.

At present conventional cost-benefit appraisal (CBA) techniques focus only on the short-run impacts of transport schemes — changes in the generalised cost of travel — taking it as given how people live, work and play. Recent work to estimate ‘wider economic benefits’ of transport strategies augment the benefit estimates of conventional CBAs, but they still do not resolve the remarkably narrow extent of transport CBAs. By ignoring how transport strategies may alter regional populations, economic activity and employment, and land use patterns (which is all called ‘land use’ for brevity), it is possible that some major projects may be much better, and others much worse, than the currently estimated benefit-cost ratios would indicate.

Economic theory, and ex post evaluations of transport schemes, suggest that it is common for major transport schemes to have relatively major changes in land use. This means the long-run impacts of transport schemes is not reduced costs of travel per se, but changed location and activity patterns of households and firms. All else equal the longer term direct benefits of such schemes must be greater than the direct benefits estimated as most people must be better off following the lifestyle and/or work change — else they would not have changed. Against this, however, are negative congestion externalities from the additional induced travel (because of the absence of efficient pricing) that in some instances could not only negate the land use change benefits, but could make the project detrimental overall to society.

This paper develops new appraisal formulations to apply to the typical sorts of outputs of transport models to estimate the total net-benefits of transport schemes that induce land use change. The paper provides a microeconomic intuition to the approach, demonstrating that the additional benefits relate to changes in the context with which people express their preferences. The paper concludes with some insights learned from an application of one of the formulations to an Auckland transport scheme that land use modelling was undertaken for.

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