Private Financing of High Speed Rail in Australia

The work of John Alexander’s Committee of Inquiry into HSR and value capture to date and the announcement of the CLARA Project base on value capture have spurred me to revisit my thinking on paying for the private VFT Project for High Speed Rail (HSR) and Fast Freight rail (FFR) and housing between the west of Melbourne, Sydney, and the north of Brisbane.

My concept rests on cutting 30km of trenches for HSR next to suburban rail also in trenches into, and 30km out of the major cities, all built over with low rise apartments. This is estimated to house about 250,000 people living above the trenches in each city or 750,000 in total. If it is assumed that there would be an average of 2 people per dwelling, there would be 125,000 new inner-city apartments into and out of each city or 375,000 altogether. This may be rounded to 400,000 for extra medium and high rise dwellings above stations and for simplicity of provisional numbers.

These houses are based on the creation of ‘new’ land over trenches cut into CBDs. It would average 30kmx100m = 3 square km of inner-city land, plus 3 square km of land over trenches out of the city, or 6 square km in each city, and 18 square km in the 3 cities, plus maybe 3 square km over FFR tracks, or 21 square km of new land altogether. The financial estimates are founded on solid reality. The ‘new’ land is immensely valuable. It would be built in exchange for free rail air rights.

The total capital cost of wheel-on-rail is estimated at approximately $100b for HSR, $60b for FFR and $40b for inner-city housing, $200b in sum. The total cost of $200b divided by the number of houses, 400,000, gives a cost of $500,000 per house in each of the three inner-cities, which would pay for the whole project in the first 5 years of 10 years of construction, starting in the cities. This low price of $500,000 per inner-city dwelling for the 400,000 sold would breakeven for the total cost of the VFT HSR and FFR project, $200b, serving the major and all the new regional cities on the HSR route.

A higher market house price would yield a good profit, or by extending the project to building and selling housing around HSR stations in the regions, it would accommodate more people and make even more profit. If inner-city house were sold in the first 5 years of construction of HSR for say $800,000, there would be 400,000x$300,000= $120b more funds to build around the regional HSR stations (already paid for in the total project cost). If these houses cost $200,000 to build, including land, 600,000 houses could be sold for say, $700,000 each, a total of $420b and $300b profit or for extra costs. Some 1.2m people would be housed in the regions which would relieve Melbourne and Sydney of population growth for maybe 10 years at 600,000 each for a decade. This is not enough.

If 5m regional houses on HSR cost $200,000 to build at 100,000 pa, including land, the total cost would be $1,000b. This would house 10m of the rapidly growing population over 4-5 decades. If each house sold for just $500,000, they would contribute $2,500b in total, less cost of $1,000b, or $1,500b to build facilities for say 10 new regional cities of 1m on HSR or $150b each, for the 10m people. There is scope to sell houses for more, though less than city prices, to cover extra costs and provide an adequate profit. Funds generated in early years would roll over to fund the next years.

Liveability of the 3 major east coast cites would be preserved, if 10m of the 24m population increase lived in the regions. 67% of the Australian population now lives on the east coast, or 16m of 24m. The extra 16m would be made up of 3m living in the 3 major cities, 10m living on HSR and 3m living elsewhere on the east coast. Melbourne and Sydney would have populations of only 5m instead of the projected 8m, if HSR and FFR are built soon enough to take the main population increase.

These are seriously large numbers. They are not fanciful. They are practical, scaling approximations for an overview. A full private feasibility study is needed to firm up these or similar numbers on which to build HSR and FFR for Australia’s future liveability and prosperity. The numbers will apply as population increases, whether HSR is built or not. The question is preserve liveability or destroy it?

PJK ©19.7.16

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