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HSR High Speed Rail

Jul 18, 2016

Will business really pay for High Speed Rail?

A new company reckons it can build Sydney-Melbourne HSR without calling on government coffers. It says the proposal is commercially viable and isn't a Trojan horse

CLARA
This is CLARA’s version of  how value capture ostensibly works, but something doesn’t look quite right. Optical illusion or Freudian slip? From the CLARA web site

As I’ve pointed out before, I’m dubious about the promises made by the political parties to use taxpayer funds to build an East Coast high speed rail (HSR) line. But if the private sector wants to put up all the money and take on all the risk, that’s a different kettle of fish.

Now there’s a new player claiming it’ll do just that. Consolidated Land and Rail Australia (CLARA) wants to build an HSR line from Sydney to Melbourne and reckons public funding isn’t required.

CLARA has land under its legal control upon which to build its new regional cities. CLARA can truly capture the value from the land uplift and apply it to paying for the high speed rail link.

Because CLARA has the land for new cities development our business model projects a commercially viable project that should not call on taxpayer funding.

CLARA’s pre-feasibility business model has the city sites and rail infrastructure being privately funded through the use of land value capture.

Unlike other proposals for high speed rail in the past, CLARA’s infrastructure can be paid for from the city development rather than from government coffers.

The Chair of CLARA, Nick Cleary, said last week rural land bought for around $1,000 per block would be worth $150,000 as a component of a developed lot selling at prices similar to those in the outer suburbs of Sydney and Melbourne.

Sounds exciting but it’s impossible to see how CLARA’s arrived at its ambitious claims because it hasn’t provided any detail whatsoever. But on the face of it, the company has a big task on its hands. There are two key challenges it has to address.

The first is the sheer cost of building the HSR line. The Sydney-Canberra-Melbourne line was costed at a staggering $50 Billion in the 2013 AECOM study undertaken by the Gillard Government in cooperation with the Greens.

That was a broad-brush analysis; the customary pattern is more detailed investigation and design inevitably shows early costings were way too optimistic. Moreover, CLARA is touting maglev technology; suitably glamorous (500 kmh!) but higher speeds increase capital costs and the technology is still unproven commercially.

While construction would be staged (strangely, starting from Melbourne), those funds are required up-front; the revenue from selling lots however would come in over a much longer time frame.

While CLARA says it “has land under it’s legal control upon which to build its new regional cities”, the reality is it’s only got some of it. According to company chair, Nick Cleary, it’s got “almost half” under option, although these appear to be short-term agreements.

Moreover, while it’s apparently got some farm land under option for as low as $1,000 per hectare, the company’s not saying what the average option price is. Nor is it saying if it’s secured the most strategic sites or merely the easiest to get.

Now that the HSR genie is out of the bottle, no one should be surprised if landowners do what they usually do and take a hard line on what price they’re prepared to sell for.

It’s likely CLARA will need a lot of land. If it could “capture” a net average $50,000 increase in land value on each lot, it’d need to sell 1,000,000 lots to cover the est $50 Billion cost of construction. That’d take a long time and involve high financing and carrying costs. Even if it could bag $100,000 per lot, it’d still need to sell 500,000 lots.

But according to the UDIA’s 2016 State of the Land report, the average number of greenfield lots released in metropolitan Melbourne over the 2010-15 period was just 12,011 p.a. The corresponding number for Sydney was 5,914 lots p.a.

Moreover, the average price of a greenfield lot in 2015 was $211,000 in Melbourne and $440,725 in Sydney (up from $293,250 in 2010). Even assuming these prices could be replicated in CLARA’s inland cities, they don’t leave a lot of room for a high level of value capture once the costs of development are taken into account i.e. construction, developer contributions, overheads.

The second big challenge is to convince enough households to move to the likes of Shepparton, Gundagai, Yass or Goulburn despite paying prices for lots that are equal to or close to what they would pay on the fringe of the capital cities.

CLARA’s argument is that HSR would be so fast it would bring these hitherto relatively remote inland locations just as close to the centre of Sydney and Melbourne as Campbelltown or Cardinia.

But the fringe suburbs offer more than accessibility to the CBD. They also provide access, by car, to a much larger number – and a more diverse array – of metropolitan job opportunities than a place like Goulburn or Shepparton; indeed, only a small minority of fringe residents work in the CBD. Note that just 15% of Melbourne’s jobs are in the CBD and 70% are more than 5 km from the CBD.

That’s also true of social connections. New regional settlers could take a weekend trip by HSR to the Opera House or the MCG, but a trip to see mum and dad or old friends in the suburbs of Sydney or Melbourne would be a more arduous affair compared to driving from the urban fringe.

Another critical factor bearing on the attractiveness of the new regional cities is the price of HSR fares. The AECOM study found that in order to cover just the operating costs of HSR, fares would need to be comparable to existing air ticket prices. (1)

That doesn’t sound like it would encourage many discretionary leisure trips from new home buyers, much less encourage daily commuting. Unless CLARA heavily subsidises fares – or more likely can somehow convince government to do it notwithstanding air fares aren’t – all that speed looks likely to be academic from a prospective settler’s point of view.

Maybe CLARA has simple and convincing answers to these issues hidden behind its data-free public announcements. My suspicion though is that this vague and undocumented idea could only ever hope to get off the ground if governments end up taking on the lion’s share of the financial and political risk. Observers should review the ongoing California HSR saga.

In the meantime, there’s bound to be loads of government fees for external parties while ever the HSR thought-bubble remains inflated.

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  1. Note that HSR boosters, Beyond Zero Emissions, reckon AECOM understated the price of airfares!

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2 thoughts on “Will business really pay for High Speed Rail?

  1. Peter

    High(er) Speed Rail can have a role in the transport mix, but proponents of HSR need to first accept that the main game is trains versus cars, not trains competing against planes.

    It is well known that commuters have a fixed travel time budget of around 30-40 minutes each way. This puts a viable area of about 100 km or so around a city for regional daily HSR commuter services. Victoria already has services like this developed as part of its Regional Fast Rail Project – trains that are capable of 160 km/hr travel.

    Melbourne – Portsea, Melbourne-Ballarat, Melbourne – Geelong could be candidates in Victoria. Sydney – Newcastle, Sydney-Woolloongong, and Sydney-Canberra could be candidates in NSW, and in Queensland, Brisbane – Gold Coast and Brisbane-Sunshine Coast could be looked at.

    Cars are limited in speed to 100 km / hour or thereabouts. Freeway lanes are also limited in capacity to about 1200 – 2000 passengers/hour. Trains can travel much faster than this and carry more people, giving it an absolute advantage over freeways if the station spacing is set up for high-speed (stations 10-20 km apart, or a long express stretch).

  2. Amark

    Surprised they didn’t go with hyper loop over maglev!