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Media Botch

Jul 19, 2016

What can history tell us about land values and HSR?

The association between rail infrastructure like High Speed Rail and increases in land value is nothing new; it was there when much of Victoria's rail network was built

Melbourne's forgotten railway - the Outer Circle
Melbourne’s forgotten railway – the Outer Circle

The Age is doubtful about Consolidated Land and Rail Australia’s (CLARA) proposed Sydney-Melbourne High Speed Rail (HSR) line (High-speed rail: company’s $200 billion plan must not override public interest). The paper says the proposal relies on “land speculation” for funding and is “as much a real estate play as it is a transport initiative”.

There’s nothing new about the association between infrastructure and increasing land values; they were inextricably linked in the building of large parts of the USA’s Transcontinental and Victoria’s rail networks. It’s timely to look back at what I wrote five years ago in What can history teach us about rail?

I noted then that in his book, The Land Boomers, historian Michael Cannon says transport was so vital to Melbourne’s growth in the 1880s that the story of Victorian politics was largely the story of the building of railways:

Hundreds of miles of track, some of it quite useless, pushed out from the egocentric city to the rampant suburbs and the far countryside. Hardly a member of Parliament whose vote could be bought went without his bribe in the form of a new railway, a spur line, or advance information on governmental plans to enable him to buy choice land in advance – the value of which was enormously enhanced when the line went through. It was a dispiriting chapter in Victorian political morality.

Successive governments were infected with rail building mania. By 1884, the so-called ‘Octopus Act’ authorised the construction of 65 lines totalling 1,170 miles at an estimated cost of £44 million. It authorised two major extensions of the suburban system, one of which was a “ludicrous enterprise known as the Outer Circle Railway” (the other was the presumably more sensible connection of Flinders Street and Spencer Street stations). The Outer Circle, much of which is used today for bicycle trails, only lasted three years. It went from North Melbourne, via Brunswick and North Fitzroy to Fairfield and then on via East Kew to join the Gippsland line at Oakleigh:

The land boomers inside and outside Parliament saw it as a speculators’ paradise and invested heavily in broad acres along the route. They were caught with their signals down. No sane passenger would use the line when it took him 4 hours 20 minutes to travel from Oakleigh to the city by this route. Nor was there much intermediate traffic. For decades later, the rusting nails and abandoned stations of the Outer Circle route remained as a silent reminder of the boom years.

The maker of a recent film, The Outer Circle: Melbourne’s forgotten railway, notes that by the time Parliament authorised construction of the new line, the ostensible rationale for it had already been superseded by the Government’s purchase of the Hawthorn, Elsternwick and St Kilda railways owned by a private companey, M&HBURC. No matter, though:

The plan hatched by a number of politicians went like this: (1) Buy large amounts of land in the middle of nowhere, (2) Legislate construction of the railway through, or adjacent to, the privately-held land, (3) Sell the land for a tidy profit.

Cannon says the final cost of the great railway building spree crippled State budgets for decades. “Even today”, he says – meaning circa 1966 when the book was published – “the incubus of the railway boom of the 1880s lies heavily on the taxpayer”.

At first glance it might seem like The Age understands the lessons of history. The leader writer argues CLARA’s Sydney-Melbourne HSR plan is not in the public interest:

If a fast rail line is to be built, its planning should be driven by the public interest, and not dictated by the terms of a grand real estate play.

I think The Age fails to see there’s a big difference between the way things were done in the nineteenth century and the claims made today by CLARA. Rather than government paying for the line and bestowing windfall gains on canny landowners, CLARA’s stated intention is to create the increase in value at its own expense and risk. The company says it will buy the land along the HSR route, redevelop it, and use the proceeds to fund construction of the line, without calling on taxpayer funding. It calls that “value capture”.

I think that’s fine in theory and isn’t a problem if it pans out as proposed; terms like “speculation” muddy the waters. But the key risk, as I noted last time (see Will business really pay for High Speed Rail?), is whether or not the taxpayer will end up footing most of the bill if the company’s plan proceeds. On the basis of the information presented so far by CLARA, I’m apprehensive.

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3 thoughts on “What can history tell us about land values and HSR?

  1. Jacob HSR

    Like the 12 subs have been subject to a cost benefit analysis.

    The HSR would be useful for 150 years if straight enough. While the subs will only last 30-40 years each.

    I suppose I was right all along, if HSR is not built, the money will be wasted on other things.

  2. Tony Morton

    A lot of us are familiar with the origins of Melbourne’s rail network in land speculation. But a lot of this was in fact private-sector speculation similar to what CLARA is trying now. The Rosstown Railway is a good example: it ran east from Elsternwick to what is now Hughesdale and famously saw just one passenger train run on it (and that ostensibly just for contractual purposes). That line is long gone, as is the Outer Circle, but many of Melbourne’s still-extant lines began as private-sector schemes that were taken over by the state after going broke.
    Most of the state-built lines authorised by the ‘Octopus Acts’ of the 1880s were actually in rural Victoria and were less about the land boom than about buying rural votes. We do the same thing today with ‘roads of national importance’.

    I’m not so sanguine either about simply letting CLARA’s proposal pan out as long as it doesn’t rely on public funding. No project on this scale can ever insulate the public from ‘risk’. The proposal to create entire new cities is a major disruption to existing regional cities and is likely to consume a lot of agricultural land. While it might ultimately be beneficial, it’s not at zero cost to the public even if it’s privately funded.

    It’s one of those great economic ironies that so much of the infrastructure on which we rely today was never subject to any rational cost-benefit analysis. But even the analysis we do today is freighted with value judgements – which makes it essential for the public and independent experts to scrutinise the process and agree on the assessment criteria, modelling inputs and methodology. We have a long way to go on that score.

    1. Alan Davies

      Tony, when I say “I think that’s fine in theory and isn’t a problem if it pans out as proposed”, I’m referring to the way it would be funded. I agree the project would inevitably have all sorts of direct and indirect effects – some negative – even in the (unlikely) event it didn’t require direct government funding. One example is the likely negative impact it would have on the fortunes of existing towns that aren’t near the proposed regional stations.