New research from the New Zealand Infrastructure Commission, Te Waihanga shows how water and transport pricing can help us better utilise existing infrastructure and make better choices about what, where and when we build.

"We face a critical challenge around the affordability of infrastructure," says Acting CE Geoff Cooper. "New Zealand has a wall of renewals - infrastructure built since World War Two that is wearing out - at the very time that population is surging, the urgency to decarbonise is acute and cost of living is ever-present. We’re at a moment in our development when the need to secure value in the face of such challenges has arguably never been greater."

"This latest research gives some clues on where we should look. Water metering, road tolls and congestion charging are often framed as answers to funding challenges, but they do much more than that. These approaches can help reduce demand, unlocking capacity and help us make better-informed investment decisions. They can also be more equitable, providing options to avoid costs for low-income households"

The water pricing report, Valuing water: sustainable water services and the role of volumetric charging, demonstrates that charging for metered water can significantly reduce the infrastructure we need by moderating household consumption, improving leak detection, and ultimately deferring the need for expensive upgrades.

"New Zealand is one of the world’s highest per-capita water users, but in communities where there’s volumetric charging, use and leakage is lower" Cooper says

Halfway through its water meter rollout, New Plymouth District Council was already saving the equivalent of 68 Olympic swimming pools of treated water each year through leak detection and repair. While in Kāpiti, water savings through volumetric charging have allowed its council to defer construction of a proposed $30 million dam by an estimated 40 years.

The transport pricing report, Buying time: toll roads, congestion charges, and transport investment demonstrates how pricing (through ‘time of use’ charging) can reduce peak-time use, and improve the efficiency of our urban road networks, again deferring or preventing the need for expensive upgrades.

"Infrastructure networks are commonly challenged by peak loads, as many New Zealanders share common lifestyle habits" Cooper says. "Some sectors are effective in managing peak loads, while others, like water and transport, tend to build for the peak. This is an expensive way to go."

Poor water quality, high rates of leakage and motorway congestion are common stories in the media, leading to calls for more investment. Better pricing of water and urban road networks can help decrease road congestion and water leakage, reducing the need for further expensive investment.

The Buying time report also shows how road tolls can help identify the most valuable roading investments. Today, tolling is often characterised as a simple solution to fund new roads, but full cost recovery is only possible in certain circumstances. Projects need to benefit large numbers of people, keep costs down and offer meaningful service level improvements to users. For most roading projects, it is likely that tolling will recover less than 25% of the capital costs - which is a challenge to planners and design teams to think more broadly about the value proposition against competing priorities.

"In cases where toll revenues are enough to cover the cost of a new road in an affordable way, we should get cracking," Cooper says. But when tolling revenue is dwarfed by the costs, there is reason to pause. In these cases, we need to weigh up these projects against other competing priorities for investment, and look for ways to deliver them more cost-effectively."

"New Zealand currently spends more than the average OECD country on infrastructure, but frustratingly lags on measures of value. We need to get creative. When we build the right infrastructure and use it more efficiently we’re better positioned to meet the full set of infrastructure challenges before us. The right pricing for transport and water infrastructure is one intervention that can help us get there - and give us better value from what we build."

NOTES:

Water infrastructure

New Zealanders are one of the world’s highest users of water per-capita. The 40% of Kiwis who don’t have metered water likely contribute to these high consumption statistics.

Auckland, for example, has volumetric charges and per-capita water consumption similar to the UK, Ireland and Switzerland. While Wellington and Hamilton residents (unmetered) use over a third more water per resident than Auckland.

Water consumption per capita in Tauranga (metered) is 27% lower than in Hamilton (unmetered), despite their similar population density and climate. International research suggests that further reductions are possible where volumetric charging is coupled with information strategies, such as an alert when consumption exceeds the household’s typical use (suggesting a leak).

Recent Te Waihanga equity research found that 72% of New Zealanders see volumetric charging as the fairest way to pay for mains water services; and volumetric charges can be progressive and reduce costs for many low-income ratepayers.

In the case of Kāpiti Coast District Council, 75% of its ratepayers ended up paying less with water metering than they would have under the previous fixed-charge system. In Tauranga, water metering decreased the average cost of water by 40%.

Transport infrastructure

New Zealanders own more cars per capita than anyone else - surpassing even the United States. Our car ownership has grown over the last quarter century (by 25%), and so has urban traffic congestion.

Over the past three decades, average urban travels speeds have slowed due to increasing traffic congestion, despite significant motorway expansion. In the absence of demand management approaches, this trend will likely continue since kilometres driven rises proportionally with road construction. This is known as the Fundamental Law of Road Congestion.

As speeds on the urban road network continue to slow, a gap has also emerged between the cost of planned transport investments and the revenue to fund them. This gap is currently filled by Crown loans and grants, which reduces funds available for investment in other public infrastructure, like schools and hospitals.

Closing the gap will require increasing transport revenues, reducing investment demands, or a combination of the two. Both road tolls and congestion pricing can help:

- The main purpose of a toll is to raise additional revenue to help pay for investment. In addition, toll revenue analysis also sends a signal about which roads users are most likely to value, which can help to prioritise investments.

- The main purpose of congestion pricing is to improve the efficiency of an existing urban road network by taking the edge off the most severe traffic. Freeing up capacity on the existing network means that some costly upgrades can be deferred or avoided.

If toll revenues are expected to be enough to cover the cost of a new road, this signals that it may be a good investment decision - people value it enough to support its build. If revenues are not enough to cover build, this is a signal that increased investment should be weighed up against other things.

The Buying time report shows that in the current New Zealand context, tolls will tend to recover less than 25% of the cost to build new roads, and sometimes much less. This reflects our traffic volumes, cost to build roads, and the travel time savings that are possible, given we already have a mature road network with relatively few ‘missing links’ to complete. However, tolls can still be useful: partial cost recovery from tolls can enable some projects to be built earlier than they otherwise could be, as was the case for Auckland’s Northern Gateway and Tauranga’s Eastern Link.

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