There are several serious negative forms of core conventional wisdom about High Speed Rail (HSR) for Australia, supported by those who oppose it, that are out of date and need reconsideration.
Australia’s population is said to be too small for HSR. Patronage is said to be below what is necessary to justify construction of HSR between Sydney and Melbourne. This was the view expressed against the original private enterprise VFT feasibility study in 1991, 25 years ago. However, the passenger projections for Sydney to Melbourne in the Labor Government’s HSR Study in 2013 for the base year actual of 2011 were 20% higher than the VFT’s passenger projection for that year. They were 30% higher for the last common year of 2016. The figures in the 2013 Report were accepted as viable. The VFT figures were an underestimation. It is probable that the 2013 projections are below those the airline industry used to justify building the second airport in Sydney, if the figures were split out from the aggregates.
The patronage between Sydney and Melbourne is the fourth busiest air route in the world. Australian air travel hits beyond its weight internationally. Australia’s high propensity to travel justifies cheaper, more convenient and more competitive means of mass travel CBD to CBD by HSR.
This is reinforced by projections of population increase by 24m to 48m in total in the next 4-5 decades. Doubling of the population is credible when the actual tripling in the last 6 decades from 8m to 24m is considered. Future interstate patronage is not an issue.
More of an issue is the question of how to prevent Australia’s precious liveability from plunging with exponential increase in road congestion in capital cities on the east coast? The projected population increase of 4m in Melbourne, 4m in Sydney and 2m in Brisbane, a total of 10m, could be accommodated in housing in new regional cities for 1m on HSR between the big cities. Commuters by HSR, unlike by air and road, from regional cites within 2-300km of major cities would travel to their CBDs in less than an hour. No doubt the growth of daily HSR commuter patronage of 10m regional residents plus occasional interstate travel would in time far exceed the intermittent interstate HSR patronage of the lower than projected, stabilised population of 10m or so in Melbourne, Sydney and Brisbane. Both would grow as propensity to travel increases with prosperity. Liveability would be preserved while population doubled. HSR patronage would more than double.
The capital cost of HSR is said to be too high and beyond Australia. For a government project built down to a cost rather than a private enterprise project built up to customer value this may be valid. However, it ignores the population redistribution issue. It also ignores the Fast Freight Rail (FFR) that the VFT2 project would build alongside the HSR tracks to serve the 10m living on the route, as well as the 10m in the major cities. It would cut the cost and delivery time of interstate freight in half. It would increase productivity, competition and international competitiveness.
The VFT2 total capital cost would be higher, but it would be completely recovered in the first 5 years of the 10 years of construction time by selling 400,000 inner-city dwellings built above the tracks sunk in trenches into and out of Melbourne, Sydney and Brisbane. Private enterprise value capture would pay for the total capital cost of the private project that created the value. With capital already recovered, HSR fares would not need to recover that same cost and could be lower, creating higher volume without affecting the operating profit margin. Pre-purchase of low cost land around regional stations on the commercial HSR route to be adopted and capture of the value created would finance building much of the housing and new cities for 10m people over the next decades.
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Return on investment (ROI) is said to be so low on HSR from overseas experience that it is not a viable, financeable project, so it has to be funded by government, but government cannot afford it.
Interstate HSR between capital cities would be competitive and profitable. HSR commuter fares to CBDs would be profitable to the private consortium, taking into account government fare subsidies in the form of a small extra land tax (government value capture transfer) in the major cities as a contribution for protecting their ongoing liveability. FFR would be very profitable. Together HSR and FFR would have a very high profit margin on sales. When taken with a very low net investment, the ROI would be impressively high and would justify private investment in HSR for Australia.
Airlines are opposed to HSR. It is said that they can adequately serve customers on the east coast without the great additional capital cost of HSR. Their views influenced the 2013 HSR Report. The route chosen explicitly avoided any connection to major east coast airports. This would inconvenience regional HSR passengers in their access to air. The route is down to cost and sub-optimal for customers. It has poorly served spurs to Canberra and the Gold Coast, two serious growth areas with HSR. The proposed route into Melbourne is from the inland north instead of from the more valuable and customer friendly east where more regional people are likely want to live near the sea. Construction according to the Report would be staged over 35 years delaying completion and competition until too late when most of the population increase would have already happened in the cities. No FFR was contemplated. No value capture was envisaged to encourage the project. Entry and exit from cities was by expensive tunnels which bypass value creation and value capture on the surface. The net investment would remain high and the profit margin low, hence the endorsement of low ROI expectations. It was assumed that population would double in the cities and there would be no significant population redistribution to the regions. There would be relatively little commuting. Air would service most travellers until HSR was completed eventually. The damage to liveability was not acknowledged. The possibility of the great benefits from rectifying the gross Australian interstate freight distortions was overlooked. Airline participation in the HSR project and their management of many more passengers created by HSR was not canvassed.
In summary, the prospect is good for a private consortium building HSR and FFR in Australia with government cooperation that would ensure a continued standard of liveability, create much value and increase productivity greatly. A project of this size would stimulate jobs and growth now when it is needed. It would be larger, more profitable and more stable than BHP It is a remarkably good investment in the national interest to advance Australia.
PJK©23.8.16
