Trailing places: #2 Why invest in transport where there’s no traffic?

It’s hard to justify new infrastructure in shrinking regions when there’s congestion elsewhere. So maybe we need to rethink how we calculate value

October 2022

Words by Katie Puckett

“There’s no traffic where there’s no economic growth, so we don’t build new highways or transit there. That takes existing disparities and accelerates them”

John Loughran, WSP

Merced university campus, California
The Merced campus of the University of California, which opened in 2005. The campus and a high-speed rail link to Los Angeles and San Francisco are driving growth as the central Californian town moves from an agricultural to knowledge economy. Photo Zuma Press Inc / Alamy Stock Photo

Infrastructure investment is the multibillion-dollar elephant that is always in the room during any discussion about lagging regions. Transport is a prerequisite for economic development: if businesses and people can’t get to a place, they can’t invest in it, or live or work there.

“Some of these really underperforming parts of the country are just very hard to get to,” says John Loughran, WSP’s head of transit-oriented development in the US. “I used to joke that living in the New York area, we’re in the ‘North-east quarter’. It’s halfway between Boston and Washington, one of the biggest and most affluent economic engines in the US, and you’re also connected globally because it’s served by three international airports. Then I think about how long it takes to travel from here to some project sites — West Virginia is almost impossible, or Jackson, Mississippi, in the heart of the south, takes a day, flying to Atlanta and then driving across two states.”

But there’s a chicken-and-egg problem: how do you justify big-ticket projects in areas where the population is shrinking, when there’s congestion to alleviate in growing cities? “There’s no traffic where there’s no economic growth, so we don’t build new highways or transit there,” Loughran says. “We invest to respond to current demand and address crowding problems — so that takes existing disparities and accelerates them.” This is exacerbated by a policy approach that favours building new infrastructure over maintaining existing assets, he adds, leaving older roads and rail links to crumble.

What’s missing from the calculation is the wider social value. “Take a light rail project. The farebox may not recover the operating costs, but you’re giving people in those neighbourhoods who have no means of getting to work a way to help themselves.” Loughran thinks shifting beyond a dollar formula to a social-benefit formula could make a big difference to the sums — but just taking a wider look at the economic benefits would be an improvement. “There is a dollar value too, because if people are getting access to better jobs, they’re making more money. If you take these communities that can’t get jobs because they have poor access to transit and use that as the evaluation criteria for your rail line, that starts to change the dynamics of how you invest.”

Hong Kong light rail
Hong Kong’s highly profitable mass transit system was funded using value capture, without government subsidy. Photo Boaz Rottem / Alamy Stock Photo

"You’re not taxing people more ... it’s leveraging the value of the transit amenity in property values"

Kate Ko, WSP

Getting out of the zero-sum game

There’s still the problem that using only public funding is a zero-sum game, says Kate Ko, director of WSP’s economic analysis and strategy group in Washington DC. “Somebody’s going to gain, somebody’s going to lose. If we can step outside that parameter with innovative finance and public-private partnerships, then we can start talking about how to maximize the economic and social benefits of an investment.”

Ko researches the intimate relationship between transportation and property values, in particular how governments can use “value capture” to finance transit-oriented development. She grew up in Hong Kong and is fascinated by how effectively the city has refined this mechanism since the 1960s. “I witnessed how transformational it can be, economically, socially, environmentally and for placemaking in general. They’ve perfected it to the point where value capture not only generates enough funding to operate the system, it generates profits on top of that, so the transit system is not subsidized. That kind of mechanism could be a sustainable way to build Complete Streets and reconnect communities, to create more affordable housing or to provide more green space.”

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The “value” that is captured is the rise in property prices that results from improving transit links. This is determined by taking existing tax revenues from commercial and residential property and applying a historic growth rate of, say, 2% or 3%. This amount is the projected baseline revenue for the city’s fund. Then, the additional tax that is collected due to the uplift in property values above and beyond that baseline goes into a separate fund.

“This might be used to issue bonds to finance the investment, or to be redistributed back to the city in other ways,” explains Ko. “You’re not taxing people more by raising taxes because the tax is held at an agreed-upon rate. It’s leveraging the value of the transit amenity that people are willing to pay in property values.”

In the US, a frequently expressed and legitimate concern is that the existing community will be priced out by gentrification — rising property values only benefit owners, not renters. In Hong Kong, this has been addressed by a range of affordable housing schemes that create generational wealth through ownership, rather than just subsidized rental housing. That could be a way to make sure that everyone benefits, says Ko — but only if officials and developers are held accountable for delivering what they’ve promised. Post-implementation studies are often a condition of funding in developing countries, she points out, but rarely so in advanced economies. “We need to have a plan to go back and say ‘your design suggested that this much benefit would go back to the community, or that it would generate this much environmental benefit by reducing vehicle emissions. Can we track that?’”

"It’s almost like we need to rebrand the benefits of smaller cities, to get people interested in places they may have assumed did not offer a high quality of urban living"

Peter Liebowitz, WSP
Jyväskylä in Finland
New planning approaches measure a neighbourhood’s capacity to support a 21st-century knowledge economy, rather than what is currently there. Scenario planning by WSP’s CITYROI team estimated that, with investment in transport and downtown areas, Jyväskylä in Finland could support 8,000 new jobs. Photo Inga Leksina / Alamy Stock Photo

Hong Kong is one of the most densely occupied places on Earth, with some of its most expensive real estate. Elsewhere in the world, transit-oriented development typically takes place in neighbourhoods that are already popular, where there is an undersupply of property. How would it work outside the hotspots, in declining cities where there’s no existing demand? “It is very difficult,” admits Loughran. “Strategically, you need to find that pocket where there’s something going on and build off that.”

“That’s where your institutions become critical,” says Peter Liebowitz, vice president in WSP’s US planning practice, who has worked on hundreds of economic development strategies. “The St Louis Light Rail System probably wouldn’t have been successful without a champion like Washington University, which needed better connectivity between its two anchor campuses and a direct connection to the airport. That happens in Boston too — the big institutions drive a lot of good transportation policy.”

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In a world of hybrid working, one attractive feature of regional cities is that they can offer the kind of environment that is only available to the wealthy few in more popular metropolises, he adds. “The thing that everyone says they want is a walkable community with a sense of neighbourhood and the right kind of scale with restaurants and urban amenities that make somewhere a fun place to live. It’s almost like we need to rebrand the benefits of smaller cities, to get people interested in places they may have assumed did not offer a high quality of urban living.”

Connectivity can atone for a multitude of other sins: a regional city doesn’t need to have everything if it has good transit and internet access. “You want every station to be mixed-use, but you don’t need every station to have every use,” says Loughran. “That’s the whole point of transit, right?”

Read the next part of the series: Can the green transition save declining regions?


Solving regional disparities

Within countries, the gulf between rich and poor regions has never been so wide. How can we arrest the decline of post-industrial areas, and stop major cities from sucking them dry?
Read the story


Can the green transition save declining regions?

The zero-carbon economy will create new industrial heartlands — but sustainable growth depends on many other factors, too
Read the story


Can we stimulate growth without major investment?

Decarbonization will mean doing everything differently. Policymakers and planners can use this momentum to unblock the potential of lagging regions
Read the story


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