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Congestion pricing and the housing market

Costing the world more than $1 trillion in lost productivity and the average New Zealander 150 hours every year, traffic congestion is a worsening problem impacting businesses, infrastructure, and housing markets across the world.

“We waste huge amounts of time in traffic,” says Dr. Eric Crampton, chief economist at public policy think-tank The New Zealand Initiative.

“Not only is traffic congestion a cause of irritation and stress, but it is an impediment to urban growth, makes expansion more difficult and the development of multimodal cities harder.”

Where Government forecasts show the country’s total kilometres travelled by vehicle could increase by as much as 66 percent come 2040, suitable policy action to reduce overcrowding on our roads seems all but necessary.

In its research article entitled ‘The price is right: The road to a better transport system’, The New Zealand Initiative proposes the strategic use of road user charges, which it says would have benefits for personal wellbeing, the environment, and enable the private and public sectors to make efficient, informed decisions around urban development and infrastructure.

What is congestion pricing?

Tasked with introducing an effective solution for overcrowding on New Zealand’s roads, the concept of congestion pricing is quite simply, charging road users a fee for travelling certain routes at peak times while encouraging the use of different routes, alternate travel times and modes of transport.

To date, there are approved congestion pricing schemes operating in nine regions across seven countries, while advanced discussions to introduce the concept in a further 10 countries, including New Zealand are ongoing.

“Traditionally, people think about living in the suburbs and commuting to work, and as New Zealand’s main centres grow outwards and new neighbourhoods develop, building new roads and supporting infrastructure to meet evolving demand becomes more difficult,” Dr. Crampton explains.

“Increasing output in this area simply pushes the problem sideways, strengthening the case for more informed and sustainable traffic management policy.”

First trialled in Singapore in 1975 with motorists that purchased paper tickets to enter the CBD, the Area Licensing Scheme (ALS), as it was known, was considered a great success, reducing traffic volume by 44 percent.

The initiative has since encouraged hybrid schemes from London to Dubai, Stockholm to Milan – all of which have reported reduced traffic congestion and an average reduction in time spent in transit of 35 percent.

How could congestion pricing work in New Zealand?

In the report, Dr. Patrick Carvalho explains that variable pricing is already a part of daily life – from electricity bills to hotel rates and says the same logic should apply to road user charges.

“Improvements in geolocation technology offer us a simple pathway to begin the process, in New Zealand the technology used to collect electronic road user charges on diesel vehicles could easily be converted to charge for time and location,” says Dr. Crampton.

However, Dr. Crampton explains that while technology is on our side, the most challenging aspect of implementation is to manage public support.

Demonstrated in countries like the United Kingdom, when congestion pricing schemes were put in place as a revenue mechanism, they failed to receive public support.

“Public suspicion centres around taxes viewed as a ‘money-grab’, to alleviate concerns money collected net may be given back to the people rather than used to fund additional infrastructure,” Dr. Crampton says.

“Previously there has been strong support for congestion pricing from the Labour and National parties, the New Zealand Transport Authority (NZTA), and the Productivity Commission, which is excellent as we believe bipartisan consensus is necessary to allay public misgivings,” he adds.

While it is not considered a solution for New Zealand’s infrastructure deficits, a congestion scheme could tell us something important about new roads, Dr. Crampton says.

“Take Wellington’s Mt Victoria tunnel for instance – where expansion has been debated for years.

“Introducing a variable charge to travel through the tunnel could tell us if it makes sense to expand, this would give vital information about the real value commuters place on getting from-A-to-B at peak times.

“If people are willing to pay high rates it could be considered a credible sign they are willing to pay for expansion.”

Starting with an infrastructure bond that may be funded by road user charges, Dr. Crampton says this concept provides a market-based assessment of whether expansion is cost-effective.

If it makes sense it will get to the next stage where investors can get on board, making the process more transparent.

This he says, would be transformational for urban planning, reducing New Zealand’s serious infrastructure bottleneck.

What impact does this have on housing preferences?

For residential property, congestion pricing and the data it yields could offer a faster track for development including new roading in subdivisions and the creation of satellite cities as well as expansion away from traditional urban areas.

Where planned infrastructure upgrades and amenities attract residents, new neighbourhoods will emerge, offering New Zealanders more affordable housing opportunities and greater incentive to utilise public transport networks.

Similarly, real-time data can offer more information about high-value locations where property purchasers may be willing to pay more for proximity, thus dictating a home’s specifications.

For businesses and employment, a congestion pricing scheme has the potential to encourage the movement of offices and industry away from main centres and out to less built-up areas and regional New Zealand, where rents may be more affordable – a factor becoming all the more important in the current economic climate.

While economically and personally beneficial for Kiwis, Dr. Crampton understands that New Zealand and its Government is focussed on managing the COVID-19 pandemic.

Similarly focussed on pandemic response, The New Zealand Initiative has not yet concluded its series of reports on congestion charging with policy recommendations for implementation.

However, it says New Zealand is well-placed to benefit from the introduction of a congestion pricing scheme, which would have far-reaching benefits for some of our most productive sectors, and the potential to streamline housing initiatives and infrastructure development which are key talking points as we move towards the 2020 general election.

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