Sydney-Newcastle high speed rail is a housing project

The Sydney-Newcastle HSR business case is ground-breaking in establishing that the purpose of high speed rail is for regional growth and development.  The fact that it is a weak case because of the difficult terrain and dense urban development in this corridor hides the significance of this work.  A full reassessment of the entire Brisbane-Melbourne corridor (as recommended by IA) would refute the negative public perception that high speed rail cannot be justified in Australia.

Garry provided an overview of Infrastructure Australia’s recently released evaluation of the High Speed Rail Newcastle to Sydney Business Case in our last blog. 

IA supports the project despite the weakness of the business case

Infrastructure Australia has praised HSRA for completing a comprehensive assessment within a very constrained timeframe.  So it is not surprising that it has observed some issues that are likely to have a negative impact on the BCR.  However it has also noted some benefits that were not estimated in the business case that would increase the BCR.

But no matter how you look at it, the business case for the Sydney-Newcastle leg of a Brisbane-Melbourne high speed rail does not stack up.  Infrastructure Australia says that “only under low cost and high benefit scenarios, (including land use benefits and wider economic benefits) would the benefits of Stage 1 be expected to outweigh its costs.” 

Yet Infrastructure Australia still supports HSRA proceeding to the Development Phase of the project.  This shows IA's tacit belief in the economic benefits that will flow from implementing high speed rail in Australia.

Indirect benefits of improved travel are now part of the business case

Our colleague, Phil Potterton, has looked at how the benefits of high speed rail should be estimated.  He concluded that the economic appraisal guidance for high speed rail should be enhanced by:

• adding mode and distance effects to user time savings to reflect the journey quality of HSR compared with cars or planes;

• assessing the benefit of deferred transport investments, such as highways and airports;

• assessing the productivity benefits of inter-urban business travel enabling business agglomeration and specialisation in regional cities;

• assessing the housing benefits of opening land within commutable distance of a major city;

• valuing the long term carbon abatement; and

• better alignment of the appraisal period with the economic life of HSR assets (potentially 100 years) i.e. use a lower discount rate than 4% for long-life assets.

The HSRA study includes productivity and housing benefits, showing that progress has been made on how the business case should be constructed, although more could be done.

Its all about regional growth and development

The comparison of the BCR and source of benefits between the 2013 HSR Study and the HSRA study provide interesting insight:

• In the 2013 HSR Study, the benefit-cost ratio was 2.5 for Sydney-Melbourne and 2.3 for the whole Brisbane-Melbourne network using a discount factor of 4%.  In contrast, the benefit-cost ratio in the HSRA business case (with land use and wider economic benefits) is 0.8 using a 4% discount factor. 

• In 2013, 90% of the benefits accrued to users of the HSR system, with about two-thirds being attributable to business users travelling long distances.  In the HSRA study, transport benefits account for only 19% of total benefits.  Most of the benefits were attributable to land use change and housing (58%), along with wider economic benefits contributing 23%.

The dominance of housing and productivity benefits shows the purpose of the Sydney-Newcastle line is all about regional growth and development.  More importantly, it is NOT simply a transport project when less than one-fifth of the benefits accrue to transport users or operators.

IA recommends reassessment of the business case of the full Brisbane-Melbourne HSR project

In 2013, high speed rail failed to gain government support because the business case was seen to be too marginal.  The study included a chapter that examined what “urban and regional development had happened overseas ... to anticipate how those experiences might shape urban and regional development in Australia”.  But it did not include housing or productivity benefits in the economic appraisal “due to the lack of relevant quantitative retrospective analysis of major transport infrastructure projects on regional development.”

[Aside: This was despite HS1 opening just a few years earlier which was justified predominantly by regional growth and development in Kent.  See here]

Hence, Infrastructure Australia “recommends that further work and consultation progresses on the entire East-Coast National HSR project…to ensure there is a well-developed national strategic intent.”  It is probable that the Sydney-Newcastle section of the HSR line will have the most significant housing and productivity benefits along the entire line.  But the sheer size and scope of these benefits highlight the need for a reassessment of the business case for the whole Brisbane-Sydney HSR line. 

This will go a long way to disprove the commonly-held belief that Australia is too big and its population too sparse to justify investment in high speed rail.