The economic case for investing in urban rail transit: A recipe for success

By Darren Wisher | May 24, 2019

The delivery of environmental benefits, productivity gains, agglomeration economics, more efficient patterns of land use, and improved investor perceptions; all have a role to play when seeking to justify public expenditure on urban rail transit.

Here are some of my suggestions for how to assemble a powerful economic case for investment in urban rail that will align with the requirements of most national Treasury departments globally.

I see parallels with making a top cocktail, with four essential steps:

The base: economic and environmental valuation of mode shifting

Traditional models for capturing the economic value of rail transit investment have focused on the benefits that are derived from a switched mode of travel. Quicker commutes and less congested highways create more productive time for workers, which can be easily monetized. Curbs on the growth of car-based journeys in urban areas also leads to reduced emissions and fewer accidents, both of which can be assigned a financial value.

No economic case can proceed without these base benefits being fully quantified and monetized.

The modifier: agglomeration economics

Scale is important when it comes to the competitiveness of urban areas. Urban rail transit can facilitate the growth and cohesion of previously unconnected hubs and communities, creating bigger economic areas, leading to a number of agglomeration benefits.

Numerous studies have shown a positive relationship between the size and connectedness of an urban area and the growth and competitiveness of the area’s business base.

This is because bigger urban areas create larger labor pools and associated housing opportunities, attract specialist labor, create bigger catchment markets, and stimulate higher levels of innovation and competition. Bigger is better when building the competitiveness of cities and city regions, and rail transit has a major role to play.

The color: valuing more efficient land use

Transit nodes fundamentally shape land use patterns. They can and will lead to a concentration of commercial and housing development activity on sites adjacent to station nodes where market conditions are right. This development activity is both more efficient and more sustainable compared to alternative locations, and is often net additional to the city. High density transit-oriented development can make brownfield sites viable, can be brought forward with relatively little other infrastructure investment (compared to alternatives) and should be a central part of the climate change adaptation agenda of any major city. All of these land use effects are a major benefit of urban rail transit and need to be fully captured in an economic case.

The garnish: maintaining a competitive edge

In a world of footloose capital and investment, urban areas face intense competition with one another. This competition exists within nations and across nations, and is not limited to financial capital. Talented individuals also have choice where they reside and build their careers, and will vote with their feet. Modern and efficient public transportation infrastructure is a key component in building the brand of a city. It is a sign of a progressive city or region.

Studies have shown that foreign direct investment (FDI) trends, mobility of talented labor, and the ability of cities to attract major international events and conferences are all positively connected to investment in urban rail transit.

Making the economic case

All of the above need to feature in a persuasive economic case. Don’t rely on any one aspect in isolation, as it will typically leave you short when presenting cost- benefit ratios to Treasury departments.

Colleagues and I are using this multi-dimensional approach to help our clients deliver positive change in various world cities. I have been supporting the growth of the Gautrain light rail network in Johannesburg via economic cost-benefit analysis. My colleagues have done the same in respect of developing major rapid transit systems and new stations in Toronto, new light rail in Calgary, and Crossrail in London.

Please get in touch with us to discuss how we can help on the economics of your urban rail scheme.

Darren Wisher is a Global Director within the Hatch Urban Solutions team. He specializes in quantifying and maximizing the economic and social benefits of large-scale commercial and infrastructure investments. He resides in the UK but works globally. Other Hatch staff who you should connect with on the business case for urban rail and station area development are Patrick Gulliver, Jon Bunney, Michael Sutherland and Alexander Quinn. You will find them all on Linkedin.