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The Melbourne Suburban Rail Loop’s fragile business case shows governments need an Evaluator-General

Published by Anonymous (not verified) on Wed, 24/11/2021 - 2:46pm in

SRL

We have a broken process for evaluating costly government investments. The evolving plan for an underground railway through Melbourne’s middle suburbs reminds us that we need something better.

The Victoria government is currently in the early stages of building what would likely be Australia’s first $100-billion-plus infrastructure project – the Melbourne Suburban Rail Loop. That price tag would make it bigger than the national broadband network, but with the costs borne by just a quarter of Australia’s population.

The Loop is currently wildly popular in Melbourne, as best I can tell. It also seems to be a favorite of , who announced it as a fait accompli before it had much assessment at all.

Victorian premier Daniel Andrews loves the Loop. Why? It’s a mystery I’ve explored elsewhere on Troppo. The project seems unlikely – a mostly underground and hence expensive rail line through Melbourne’s middle suburbs, whose spread-out nature minimises their potential capture area and dilutes and rail line’s impact. To most transport experts, this doesn’t seem a very good way to improve Melbourne’s transport grid or foster the development of new urban hubs.

And if it doesn’t pay off, the resulting debt could act as a drag on the state’s economy for years.

So it really does merit someone running the ruler over it fairly dispassionately, to see if it will help or hinder the state. And that evaluation needs to look at all the social benefits as well as all the social costs. Those benefits and costs are many and various, so the only really comprehensive way to do this evaluation is to attach a common value to each of them and then compare. In other words, we need a benefit-cost assessment.

Infrastructure Victoria, sidelined

In theory, Victoria has just the body to do such an assessment: Infrastructure Victoria, created in 2015. Andrews said at the time that it would “take short-term politics out of infrastructure planning, and keep our pipeline of major projects full”. It would ensure “Victoria’s immediate and long-term infrastructure needs are identified and prioritised based on objective, transparent analysis and evidence”. It would “prioritise the projects that deliver the best results”.

Here’s the twist: once announced, the Loop quickly became government policy. And at that point, Infrastructure Victoria could no longer evaluate it.

So instead, the Loop has what the government calls a “business case”, which it has represented as proof that the Loop makes sense. This business case comes from KPMG, working for the government. It appeared in August 2021 (PDF link).

We’d have a lot more reason to trust the business case if it were done under the eye of a more disinterested assessment group. Specialist bodies like Infrastructure Victoria seem too easily sidelined, and sidelining them won’t attract political penalty: Infrastructure Victoria seems just too small to catch the public’s attention. A better alternative might be Nick Gruen’s suggested independent government-wide institution to monitor and evaluate policymaking and service delivery – the Evaluator-General.

But for the moment we have this KPMG document, from a firm with an obvious interest in delivering for its client, the government.

The Loop’s business case says yes (just)

That business case document gives us some estimates of the Loop’s key numbers. Summary: The Loop’s business case looks fragile.

KPMG argues that building the project’s north and east legs by 2053 would deliver a benefit-cost ratio of between 1.1 and 1.7. Go faster and harder, to finish by 2043, it says, and that ratio would drop to between 1.0 and 1.7. (A benefit-cost above 1 means a project has more benefits than costs, suggesting it should go ahead.)

Benefit-cost ratios for the Melbourne Suburban Rail Loop, as calculated by KPMG

Benefit-cost ratios for the Melbourne Suburban Rail Loop, as calculated by KPMG

That KPMG assessment uses a 4.0 per cent discount rate. This has been controversial: it’s much lower than what has been used previously and lower than the 7.0 per cent that  Federal Treasury and Infrastructure Australia recommend. But it seems at least arguable that previous project assessments have used too high a discount rate, an argument made by the Grattan Institute’s SRL-sceptical Marion Terrill (PDF link), among others. (Australian 30-year government bonds are current trading at 2.56 per cent.)

Another parameter of the project seems more questionable, though: its overall cost. KPMG estimates that building the project’s northern and eastern legs by 2053 would cost $48.5bn to $58.7bn. With the western leg still unestimated, that puts the total project cost at (very) roughly $65bn to $85bn. That is far more than the original $50bn, underlining the relentless upward trend of rail cost estimates after their initial announcements. But most observers suspect the bill still has further to rise.

The benefit-cost ratio struggles to the 1.0 line

Several points flow from all this:

  • The lower 4.0 per cent discount rate makes all infrastructure projects in Australia look more attractive. It doesn’t change the Suburban Rail Loop’s lowly position in the merit order.
  • The report would have informed us better if it had results for both 4.0 and 7.0 per cent discount rates. But the higher rate would have cut some of the benefit-cost ratios to below the all-important 1 level.
  • If the costs are an underestimate, the benefit-cost ratio quickly drops below 1 again, suggesting the project is unviable. As transport economist Professor John Stanley told The Age’s Timna Jacks, projects with higher uncertainty about costs need to deliver higher benefit-cost ratios.
  • The business case doesn’t separate benefit-cost estimates for the northern leg and the eastern leg, which is to be built first. The obvious suspicion is that one of these has a benefit-cost ratio below 1.

Perhaps the most illustrative aspect of the business case presentation is the way it goes out of its way in certain places to avoid presenting facts that we can assume they have. The screenshot below shows what I mean.

 SRL East Precinct activity

What’s missing here? Any estimate for 2056 activity without the SRL

Economies and activity centres will grow over the course of 28 years from 2018 to 2056. So of course, what you want to see here is an estimate of 2056 activity without SRL East. And that’s just what the comparison table leaves out.

Similar gaps occur across the documentation.

Wanted: an institution with clout

This is the business case document’s real problem. It is a presentation from a hired project team rather than a disinterested assessor. It’s intended to keep the Melbourne Suburban Rail Loop viable, rather than to measure the project dispassionately. And it shows.

What we need is an outside assessor with some institutional heft. It may be that no government would now set up such a body. But if they could be convinced to create it, an Evaluator-General seems like a very good idea indeed.

Americans staying put

Published by Anonymous (not verified) on Thu, 18/11/2021 - 6:33am in

Tags 

cities, Migration

There are certain things that people say that sound so true that others repeat them credulously without feeling the need to cite evidence. Two covid-era favorites: everybody’s working from home (WFH). And people have decamped en masse for the hinterlands, thanks to WFH. Neither is really true.

I wrote about the slim WFH numbers in September. In July, which was the most recent month available then, 13.2% of the employed were teleworking, the Bureau of Labor Statistics’ favored term. In October, that had fallen to 11.6% (graph below). Their ranks were still dominated by highly credentialed professional and managerial workers. The miserably paid couriers who brought (and still bring) them food and other essentials were most certainly not working from home, though they easily fall out of some people’s conception of “everybody.”

Teleworkers 10-21

Even if “everybody” wasn’t teleworking, lots were. But there’s no support at all for the mass decampment story. Freshly released data from the Census Bureau shows just 8.4% of Americans moved between 2020 and 2021, the smallest share since the Bureau started counting in 1948. That was down almost a full percentage point from the previous pair of years, a large decline by recent historical standards. But as the graph below shows, the share has been declining steadily since 1985’s 20.2%, when high oil prices and deindustrialization drove movers south and west in search of jobs. (Unfortunately for the energy migrants, oil prices collapsed in 1986.) 

Movers

Also not surviving a confrontation with Census data: the claim that, freed from the need to go to an office, covid refugees headed for the hills (and beaches) in large numbers. They didn’t, as the next graph shows.

Movers by metro status

Yes, people have been moving out of cities for decades, but the net out-migration of 0.5% of the national population was smaller than the two previous years, and over a quarter less than the 1986–1999 average. (Reminder: these numbers count only in- and out-migration, not changes in population levels, which are also affected by births and deaths.) As the trendline shows, urban out-migration has been in a slowing trend since this data series began. Suburbs gained migrants, but at a rate slightly lower than the previous eight years. Metro areas—the combination of suburban areas and the “principal” cities associated with them— have seen steady, if declining, in-migration for all of the last 35 years. And nonmetro areas, supposedly the recipients of all those terrified urban refugees, lost migrants between 2020 and 2021—more, in fact, than any year since 2014.* That trendline ambles very lazily downward, though it’s hard to distinguish from the axis, because it’s so close to 0.

A larger question here, pandemic aside, is what happened to American mobility? Pulling up stakes and moving a long distance in search of fresh opportunity used to be a foundational national myth. Like many others, it needs to be retired.

* The Census Bureau reminds us that nonmetropolian areas are not the same as “rural” areas, since there are many rural-feeling regions that are nonetheless technically part of metro areas. Census has a point, but on the other hand, there are social differences between thinly populated areas that are close to major conurbations and those that aren’t. For example, parts of Westchester County, just north of New York City, may look rural, but it’s amenity-plentiful rich people’s country, and a short train ride away from the big city.

 

A 13-city scan of homelessness planning

Published by Anonymous (not verified) on Thu, 21/10/2021 - 12:11am in

I’ve just written a 13-city scan of homelessness planning across Canada.

A summary of the report is available here: https://nickfalvo.ca/innovation-in-homelessness-system-planning-a-scan-of-13-canadian-cities/

A 13-city scan of homelessness planning

Published by Anonymous (not verified) on Thu, 21/10/2021 - 12:11am in

I’ve just written a 13-city scan of homelessness planning across Canada.

A summary of the report is available here: https://nickfalvo.ca/innovation-in-homelessness-system-planning-a-scan-of-13-canadian-cities/

Liberal party’s housing platform

Published by Anonymous (not verified) on Wed, 01/09/2021 - 10:25pm in

With a federal election taking place in Canada in fewer than three weeks, I’ve written a 950-word overview of the Liberal Party’s housing platform.

It’s available here: https://nickfalvo.ca/ten-things-to-know-about-the-liberal-partys-housing-platform/

Liberal party’s housing platform

Published by Anonymous (not verified) on Wed, 01/09/2021 - 10:25pm in

With a federal election taking place in Canada in fewer than three weeks, I’ve written a 950-word overview of the Liberal Party’s housing platform.

It’s available here: https://nickfalvo.ca/ten-things-to-know-about-the-liberal-partys-housing-platform/

The strange origins of Melbourne’s $100bn Suburban Rail Loop

Published by Anonymous (not verified) on Sun, 15/08/2021 - 2:01pm in

Tags 

cities, Transport

Melbourne Suburban Rail Link preliminary route

Melbourne Suburban Rail Link preliminary route

I spent some time last year planning a piece for a commercial media client about the Melbourne Suburban Rail Loop, a planned underground rail tunnel through Melbourne’s eastern suburbs and then out, partly above-ground, to the west. I had to drop the piece when my client’s funding drained away under the pressure of COVID. At the time, my digging had produced a few pieces of the story, most of them not sufficiently confirmed to warrant publication. If you’re one of the people who wasted time talking to me about it … sorry. Your sole reward is this Troppo post.

Anyway, now three journalists from The Age, led by the dogged Timna Jacks, have published a long and detailed story about the project’s strange origins that outstrips what I would likely have produced. This 3000-word article jibes with what I was told, while revealing far more detail than I could gather. It must have taken a long time to write, and my assessment is that it’s very well sourced. It’s good to see The Age pursuing this sort of journalism under editor Gay Alcorn. I really recommend you read it, not just as a story of Melbourne but as an account of modern governance.

Poor bang for the buck

I’ve long been sceptical about the Melbourne Suburban Rail Loop. That’s not just because the Loop doesn’t match any of the work done on Melbourne’s transport needs over the past 30 years, but also simply because it seems to offer poor bang for the buck.

Often when I do a detailed investigation of a project, some of my initial scepticism subsides as I see new aspects of the problem it’s trying to solve.

In this case, my scepticism long ago turned to amazement that Victorian premier Daniel Andrews had tied himself to such an oddly-conceived project. More than once I sat back and wondered to myself: just what was he thinking?

The obvious problem: tunnelling under Melbourne’s spread-out middle suburbs to create just 15 stations gives us an unreasonably small population catchment, at enormous expense. One planning consultant, Alan Davies, has described the proposal as “preposterous” and “cynical”.

But I was told off the record by three separate sources that Andrews “just loves it”. People who talked seemed mostly convinced that his enthusiasm, more than anything else, has driven the Melbourne Suburban Rail Loop.

Poor governance

Here’s something even odder: the initial outline of the Melbourne Suburban Rail Loop was designed not in Victoria’s Transport Department, but in a government housing authority, Development Victoria. The tiny project team was led by a bright young former ALP staffer, Tom Considine, and a veteran ALP-connected business figure, James MacKenzie. This is why I described it above as “oddly-conceived”.

Among the oddities reported by The Age:

  • Most Cabinet ministers were “kept in the dark” about the project until its announcement.
  • The director-general of the Major Transport Infrastructure Authority had to sign a non-disclosure agreement that required him to conceal the project from his boss, Department of Economic Development, Jobs, Transport and Resources secretary Richard Bolt.
  • Bolt and the head of transport, Gillian Miles, both left soon after the announcement of the Loop.
  • The first mention of the project in Development Victoria board correspondence was the morning of the announcement.
  • Consultants suggested a lengthy planning and consultation process for a 2026 start; Premier Dan Andrews decreed construction would start in 2022 instead.

The Melbourne Suburban Rail Loop seems intended, like several schemes before it, to promote “precincts” or clusters of expertise at some distance from Melbourne’s CBD. That’s a potentially worthy aim. Our knowledge of how to create such precincts is thin, however, and government precinct-creation successes are rare. None of those uncertainties deterred Considine and MacKenzie.

A huge price tag

Nor were Considine and MacKenzie deterred by cost. The initial price tag at the announcement was “up to $50 billion”. In truth, though, the commonest figure I heard in association with the project was “more than $100 billion”. Since academics studying the area tend to find that rail projects suffer greater cost blowouts than any other project type, this is not surprising. Project promoters intentionally underestimate the costs to muster the support of politicians.

In a 2014 book, Bent Flyvbjerg – one of the world’s best-known infrastructure project management experts – quotes a former San Francisco mayor, Willie Brown, on how this process usually goes:

“In the world of civic projects, the first budget is really just a down payment. If people knew the real cost from the start, nothing would ever be approved. The idea is to get going. Start digging a hole and make it so big there’s no alternative to coming up with the money to fill it in.”

“The cost blowout on that thing will be monumental,” said one person I spoke to. To my knowledge, Daniel Andrews no longer cites the $50 billion cost figure.

In other words, this is now potentially a $100 billion-plus project. Even if the cost somehow remains controlled, it will be the biggest infrastructure project in Australian history.

Short on city-building expertise

Remarkably, despite that huge price, the Melbourne Suburban Rail Loop has been conceived without real city-building expertise.

Melbourne is doggedly monocentric. Its suburban precincts are far less developed than those of, say, Sydney. There’s a reasonable case – though not a fully-formed one – that this needs to change as Melbourne’s population grows beyond five million. So the Rail Loop might be worth considering if the project team could call on a deep pool of transport, urban and financial expertise and get strong benefit-cost estimates.

But none of that seems to have happened before the announcement, and it’s not clear that it has happened yet – or that it ever will.

What Victoria has right now is a scheme to bring the smallest possible number of people to what are so far relatively small middle-suburban precincts, using what seems a disproportionate amount of time and money, and without independent confirmation of the scheme’s merits. The project is not part of any integrated transport plan; as Jack’s fellow reporters Chip Le Grand and Paul Sakkal have reported elsewhere, the state has none. The government’s infrastructure assessment body, Infrastructure Victoria, appears to have been sidelined from any review of the project. There’s been no federal funding application yet that would trigger an Infrastructure Australia review. “It looks ridiculous, really,” one person familiar with the proposal told me.

It’s ridiculous not just on classical cost-benefit grounds, but also as a city-shaping initiative. If you really wanted to build up suburban business and knowledge precincts, you’d concentrate on delivering transport to them from the surrounding ten kilometres, using trams and buses and roads and cycleways. Instead, the government wants to build a huge underground railway which will have perhaps 15 stations along its 90-kilometre length, touching on two or three promising clusters of activity – notably Monash University – but also serving less knowledge-rich suburbs like Cheltenham, Heidelberg and Fawkner.

(As a world-scale project, the Melbourne Suburban Rail Loop has caught the attention of overseas commentators such as Reece Martin. In the video below, he does an impressive job of explaining its failings from the other side of the world.)

Hard numbers

Now, somewhere in Melbourne, a team of people is trying to turn this idea into what the premier calls an “investment case”. It will probably require a huge amount of state government money, well above what passengers will pay to use it.

If you had $100 billion to develop Melbourne’s promising suburban precincts, you could actually do quite a lot. But the Melbourne Suburban Rail Loop won’t do much of it. And it will mean borrowing a truly huge amount of money. For comparison, Victoria’s annual gross state product is around $470 billion.

Now that COVID-19 has blown a hole in the state’s finances, the whole mess looks less likely to be completed. COVID actually gives Andrews the perfect opportunity to call it off. But he shows no signs of doing so. That task seems more likely to fall to a  successor.

Churches Are Becoming Players in Making Cities More Affordable

Published by Anonymous (not verified) on Mon, 07/06/2021 - 11:45pm in

“Jesus said love God with all your heart, and love your neighbor as yourself,” says Bishop George Matthews. “The way I show my love is to help them. I fulfill my mission by being a servant.”

Bishop Matthews, head of East Oakland, California’s Genesis Worship Center, has long appreciated the idea of home as instrumental to his spiritual mission. He mortgaged his own home twice to afford his congregation’s current home on Ritchie Street, a complex that included a parking lot, sanctuary and classroom, all to support his congregant’s various ministries and community efforts. But beginning this summer, home will take on a different meaning at Genesis when the first residents of a new 12-unit apartment complex recently constructed on site move in. 

Matthews’s successful effort to build affordable housing on church grounds is an early example of a wave of similar projects breaking ground at faith-based institutions across the country. These efforts are being aided by a growing number of supportive institutions, which serve to guide churches through the complex process of creating affordable housing. In Genesis’s case, the $2.5 million complex, a joint project with developers New Way Homes and Envision Housing, not only provides the church with another way of serving the community, but helps support the ministry during a trying time for urban churches. 

“My motivation wasn’t just my love for the community, it was also me realizing that if all my members moved out of Oakland, I won’t be there and have a ministry anymore,” says Matthews. “I tried my best to use the sanctuary and classroom for 17 years, but my small congregation of 250 only comes through on weekends.” 

apartmentInside one of the new apartments at Genesis Worship Center. Photo courtesy Genesis Worship Center

Bay Area cities like Oakland, and cities across the nation, have been gripped with an affordable housing crisis for years, exacerbated by the nation’s inability to build affordable units where they’re needed most. Half of Oakland’s renters are cost-burdened, meaning more than 30 percent of their incomes go to housing costs, and California will need an estimated 3.5 million additional homes by 2025 to meet the need for affordable units. (In 2019, the state started construction on just 110,218 new units). 

While Bishop Matthews is the first to admit his 12 units are just a drop in a very large bucket, it’s also true that churches are uniquely positioned to help solve the affordable housing crisis. Their land is owned and controlled by them outright, often located in the middle of residential areas, free of investor concerns, and can be used to advance a core part of their faith and mission statement. 

“Core to most or all faith traditions is an understanding of human dignity and that each person is a unique reflection of the divine,” says Reverend Sophia DeWitt, program director at East Bay Housing Organizations (EBHO). “Human dignity as an individual is making sure that everyone has a dignified place to shelter.”

A 2020 report by Berkeley’s Terner Center for Housing Innovation found roughly 38,800 acres of developable land in California owned by religious institutions, a combined plot the size of the city of Stockton, with 45 percent located in the state’s highest resource area (neighborhoods with lower poverty rates and greater economic and educational amenities) and 256 acres located near public transit.

Faith-based communities have traditionally played a role “at the forefront of providing affordable housing to their congregants,” says Non-Profit Housing Association of Northern California Policy Director Pedro Galvao. He points to Mercy Housing, a religious-based nonprofit housing developer. For churches with shrinking congregations and excess property, affordable housing serves not only their mission, but also themselves. 

bishop“My motivation wasn’t just my love for the community, it was also me realizing that if all my members moved out of Oakland, I won’t be there and have a ministry anymore,” says Bishop Matthews. Photo courtesy Genesis Worship Center

“We’ve seen a lot of population shifts in the Bay Area, and many communities that used to have large congregations have lost them,” says Galvao. “Lots of churches are land-rich and cash-poor, but also interested in sticking around and serving their communities. That’s the primary reason why so many congregations are attracted to this concept. It’s a win-win on multiple fronts.” 

Bishop Matthews was able to make the development click, in part, due to his own managerial expertise. Years of being a top administrator at Hewlett-Packard gave him the organizational skills to raise funds — especially via the United Church of Christ Church Building & Loan Fund — connect with a builder and see the project through in just over two years. 

“I used my marketing degree and everything I had from corporate America to run the church, and matched it with my love for God and people,” he says. “Put that together, and I’m a product of that today.”

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Because not every faith leader has a background in business management, a constellation of programs have taken shape to help other church leaders do what Matthews did, teaching them the ins and outs of development timelines, construction and housing regulations. The Bay Area chapter of the Local Initiatives Support Corporation (LISC), a nonprofit Community Development Financial Institution, runs a program that is investing $1 million to train religious leaders, connect them to developers and provide small grants to get them started. (Genesis received $10,000 in support). Right now, the first cohort of church groups involved in the Bay Area program has roughly 300 units of housing in the pipeline, in various stages of design and construction, and the second cohort will be selected in July. 

Other LISC chapters run similar programs in other cities, including San Antonio, which partnered with the city to help local churches build. More local California groups attempting to turn churches into developers include Making Housing and Community Happen (Pasadena), LA Voice (Los Angeles), and Yes, In God’s Backyard (San Diego). And a bill that’s repeatedly been introduced and defeated in the state legislature, SB899, would give faith institutions the ability to build 100 percent affordable housing on their land “by right,” meaning they could skip the often onerous zoning approval process.

As the contractors put the final touches on Genesis’s 12-unit complex, Bishop Matthews is as excited about what the units look like — “they’re extremely nice, dishwasher, laundry, everything is in unit, it’ll look like those apartments people are paying $2,500 a month for” — as he is for what they mean for the incoming residents. It’s also a gratifying experience building a new home — Matthews lost his own home in the 2008 housing crisis, which had a devastating impact on his family. Now, his oldest son, who will help him oversee the church housing project, will be working by his side. 

The post Churches Are Becoming Players in Making Cities More Affordable appeared first on Reasons to be Cheerful.