Australian governments and some business leaders tend to think of High Speed Rail (HSR) as a ‘White Elephant’ interstate project that is too expensive and should not be built. This is not so. (Most people cannot understand why HSR has not been built long ago.) New thinking is required.
HSR is not just an interstate project. It has five main attributes that entrepreneurs looking for a quick profit would not appreciate, which benefit Australia greatly. They cannot be achieved without HSR.
Building the HSR Project now is critical to long-term recovery from the coronavirus.
The first benefit is the means of settling some 13.5m people in new cities in the regions around the three major east coast cities, rather than in them, as the population doubles over the next five decades or so. (Please see “Settlement Strategy” )
There would be six new cities of up to 3m, two on either side of the three main cities. The HSR route would be close to the coast where people are attracted to live. In time, there may even be 1m living in a new city around the Port of Eden. It would be connected to the main line HSR by a spur line to Bombala.
This would save the major cities from too rapid growth, loss of liveability, greater congestion, declining air quality, planned demolition of most single-family homes on ¼ acre blocks with big gardens (more than 1million, maybe 1.5m dwellings) and their replacement by four units of two stories with no garages and tiny gardens This unnecessary densification of Sydney and Melbourne growing from 5m to 8m or10m would be a bigger problem for illness and mental health during future virus pandemics, like London and New York.
An advantage is that if the population grows more in subsequent decades of the century towards 75m and an existing new city becomes full capacity at 3m, another new city can be built on the HSR line. There is plenty of space and no need to congest major cities further.
Driverless Electric Vehicle are less likely to reduce congestion than increase it because there will be no garages to park them. The companies owning large numbers of them will want to competitively serve customers quickly from nearby. They will be ‘parked’ in motion on freeways and high streets, and stationary on suburban streets.
New cities will have excellent public transport from the start, which will keep pace with population growth. It will serve the new ¼ acre blocks without need for driverless vehicles, within a 20 minute walk.
The second benefit is about half the cost of greenfield construction of new housing, government infrastructure and utilities in the country. The extra cost of housing population growth in the major cities would be around $3trillion to $4trillion plus demolition costs, perhaps $1b for about 1.0-1.5m houses. This would save the 13.5m people some $1trillion to $2trillion as they settle in new cities in the regions. Living expenses are also about half. These are like magnets, together with attractive lifestyle and locations near the sea, to new settlers. They would commute daily from the new cities CBDs to their nearest major city CBDs in 30-40 minutes, which cannot be done by air or road. It Is quicker than from capital city fringes. Many jobs would be created building the new cities and HSR.
Governments would save half the cost of building greenfield utilities, infrastructure, and social infrastructure for 13.5m settling in the new regional cities and not settling in the congested, poorer air quality, densified, less liveable, higher living cost, higher housing cost major cities. The savings would enable much greater R&D spending centred in the new cities on the HSR line.
The third benefit is the huge increase in productivity. Dedicated Fast Freight Rail (FFR) would be built next to HSR tracks at the same time to save cost. Both would serve all the new coastal cities, each of which will have an airport. FFR would be fast enough to connect two major cities in one shift. Freight customers value speed since they pay the high cost of road freight, which is slow. It is faster than the even slower antiquated coastal railway, which freight and passenger trains share. HSR passengers would travel from major city CBD to major city CBD in three hours or less, which cannot be done by road or air, especially as congestion to airports increases. Time saved is productivity improvement.
High tech businesses would be attracted to the new cities by their universities and by a workforce attracted by a quality lifestyle and low cost of living. Innovation would be stimulated and supported by government’s greater spending on R&D. New advanced manufacturing would grow. All this raises productivity significantly in the six new cities and in the major cities rapidly connected by HSR.
The fourth benefit is development of an Australian mega-region on the east coast to join the best performing areas in the world. There would be 13 cities connected by HSR and FFR: Adelaide, Geelong, Melbourne, Canberra, Sydney, Newcastle, Brisbane and six new cities. Together they would share ideas, innovations, people, and finance to grow much faster than if still isolated without HSR and FFR. Government cooperation, as with the National Cabinet, would accelerate collaboration and achieve even faster growth of the mega-region and further improved productivity. (Please see “An Australian Mega-region”)
The fifth benefit is building 400,000 new dwellings above new HSR tracks in trenches next to suburban rail tracks in trenches in inner suburbs to the CBDs in the three major cities. There would be, for example, four levels of dwellings built contiguously for 30km between Melbourne and Dandenong, and from the CBD to the west, and similarly in and out of Sydney and Brisbane. There would be medium-rise flats and offices above each suburban stations and shops and multi-story parking. There would be bus stations as well. At Dandenong, a HSR station, there would be high-rise flats and offices, and shops and parking. There would be gardens on the connected dwelling rooves, together with a footpath and a bicycle track from Dandenong to Melbourne CBD.
Assuming an average family size of three, 1.2m more people would be housed in the inner cities close to public transport to the CBDs.
Overall, the HSR Project would end housing unaffordability.
The total capital cost of the Project is about $200b (for HSR, FFR and 400,000 dwellings) to be confirmed by the feasibility study. It is a small cost compared to the around $4trillion cost of settling 13.5 m people in the major cities, plus the cost of demolition, additional government infrastructure and utilities. It is even smaller compared to the total value of the community benefits obtainable.
The HSR Project is not a traditional railway project where it is government owned and funded and the capital cost of construction and interest are recovered from fares over 40 years of operation.
Robust HSR Project
The HSR Project includes dwellings that would be sold before the project is completed and operational in 10 years. The 400,000 dwellings would be sold for an average of $500.000 each. This recovers the total capital cost of the Project of $200b before it begins operating. It means that its fares and freight rates are around half the cost of traditional rail projects from its start of operations. The HSR Project is highly viable, competitive, profitable, and robust.
The Government is unlikely to be able to fund a HSR Project of $200b, even though it is a low risk government investment in real assets, not more welfare expenditure. However, government construction would risk serious cost and deadline overruns on such a large project, which are potentially too high. The $200b is too much to add to government debt, given the coronavirus debt increase.
The cost is likely to be too large for private investment in the Project alone. Japan and China have the finance. The Japanese supplier of HSR and Japanese banks may be able to finance at least part of the Project, but it is more difficult now as recession is biting, and a depression is threatening. It is probably inappropriate for Australia to join the Chinese Belt and Road Initiative. Other HSR suppliers do not have the finance and are not as proficient or stable. The Japanese are the safest, most experienced, and most proficient. Australia should negotiate with Japan a 50-year agreement to supply the HSR system and trainsets, up-date equipment, and up-grade it for new innovations as the Japanese develop them over time.
Japan is feeling the decline in population already and may be amenable to some parts for HSR trainsets being manufactured in Australia. (Please see “Manufacturing 4.0”)
Undoubtedly, the Federal Government could arrange for a private Australian consortium to construct the HSR Project. The Government would need to guarantee the finance to assure the lenders, including the Japanese Government, banks, and HSR supplier. The consortium could be composed of large Australian companies, companies experienced in large scale project management (such as BHP), construction companies, development companies, airlines, Australian manufacturing companies of parts for the Japanese trainsets and the Japanese HSR supplier.
The Government guarantee would not increase its debt liability on the government balance sheet. It would appear as a footnote contingent liability. The Project is highly profitable and robust, so the risk of it becoming a government liability is small. Tax revenue would be large and interest rates low.
The consortium would need government involvement to provide the necessary licences and fast tracking approval processes. It would ensure that the project delivers all the community benefits sought. The Australian Government would negotiate and liaise with the Japanese Government.
The EU has authorised its members governments to guarantee large business loans during the coronavirus. The Australian Government would not be setting a world precedent by guaranteeing HSR loans. The Australian superfunds would find the HSR Project an attractive Australian Government guaranteed, large scale, long-term lending opportunity and would finance it.
It is clear that the HSR Project is essential to Australian economic recovery from the coronavirus and long-term ongoing prosperity. It provides many extra benefits that far outweigh its cost.
The capital cost is recovered before it becomes operational, releasing a huge productivity bonus that underwrites the international competitiveness of users, downstream manufacturers, and exporters. HSR is the critical central connecting link for the mega-region which would lift Australian prosperity. Australia would grow at or above the fast average pre-GFC rate of 3.5% pa, well above the slow average post-GFC rate of 2.2% pa. This would ensure more rapid repayment of large, accumulated, actual government balance sheet debts, which in turn would make Australia better equipped to withstand the next crisis and able to afford more defence expenditure for national security.