How to build light rail in our cities without emptying the public purse

In cities all around Australia, light rail is being considered as a solution to a range of urban problems. Perth, Newcastle, Parramatta, Bendigo, Canberra, Cairns and Hobart have all considered trying to do what many European and American cities have done – create new development around light rail.

Often, though, the high costs of these projects mean that the debate can soon become a question of whether buses might do the job just as well. But what if private financing could allow the preferred option of light rail to stay on the table?

Advocates of the cheaper bus mass transit option might ask whether there is truly any fundamental difference between steel wheels and rubber ones. My answer is that it’s not just a question of trams versus buses – it’s really an issue of rail-based versus road-based urban development. The former can attract private financing, while the latter does not.

Driving development

Most of the world’s urban development over the past 50 years has been road-based. The assumption has been that most people will drive, with the odd bus laid on to pick up those who don’t.

Yet in recent years there has been a revival of rail-based urban development, which brings reduced traffic, creates more walkable and lively places to live and work, and most of all attracts developers and financiers to enable denser, mixed-use development.

Perth’s beleaguered MAX light rail project – now mothballed in favour of a bus rapid transit service – was designed to deliver precisely these benefits. But when the bus lobby sidles in and whispers “we can do exactly the same for half the price”, they get a sympathetic ear from transport planners who are trained to get people efficiently from A to B, without thinking about whether they are also delivering good urban development.

Rubber-wheeled public transport does not create dense, mixed-use urban centres. Having examined examples around the world, I have found none that can be claimed to have resulted in more focused urbanity apart from already dense third world cities where BRT’s have been successful in attracting patronage as they get people out of traffic. In the United States, the past 20 years of dramatic growth in public transport has seen light rail grow by 190% and heavy rail by 52%, while bus transport has contracted by 3%.

It is no surprise that developers, banks and governments in developed cities have returned to light and heavy rail to help regenerate urban centres, while cities with rubber-wheeled public transport continue to be dominated by cars and urban sprawl. On current trends, Perth itself could conceivably turn into a 240 km sprawl stretching from Myalup to Lancelin, most of it made of nothing but car-dependent housing – more Mad Max than MAX.

Perth’s planners know that they must redevelop and create activity centres, but they do not control the decisions on transport. Transport planners, meanwhile, do not seem to see that their choices have impacts that go beyond simple modes of transport.

Enter the private sector

Here is my possible solution, which Infrastructure Australia has previously tried to get state governments to adopt: get the private sector involved in the planning stage, as well as the delivery and operations, of any light rail project. Light rail lends itself to private-sector involvement, but only if the development outcomes being sought are built into the whole project, rather than being an afterthought.

The model for Infrastructure Australia’s approach was the A$1 billion Gold Coast Light Rail, which runs through areas that had lots of potential for redevelopment. Thus the funding was provided by a public-private partnership, with expressions of interest sought from private bidders to design, finance, build, own, operate and develop land as a basis for funding.

Government base funds and a general set of guidelines were delivered and bids were sought. Five consortia from around the world competed on this basis and included most of the world’s main consulting groups with expertise in light rail.

However, the group of transport experts (mostly main roads engineers) set up by the Queensland Government to deliver the light rail argued that they did not have the expertise to manage the land-development part of the exercise, and successfully appealed to avoid this approach. Instead, funding was delivered through an annual transport levy across the whole Gold Coast local government area.

The private sector consortia were well prepared for the land-development option but of course went ahead without it. Keolis won the tender and delivered a first-class light rail. As soon as the route was announced, developers from around the world bought up all the best sites and are now delivering them, albeit for their own interests rather than channelling back to the project.

This is the way to do it if you have tax funds to provide the capital and the operational expenses, and if you can find the initial public funding. But most politicians today say they do not have sufficient government funds for a light rail so they need to consider the cheaper bus option. Do we have to take second best?

The rubber-wheel option is never going to deliver the regeneration that many of Australia’s cities need. We need to be brave enough to go for the better option, the rail system, and that means embracing the public-private partnership financing model.

Bringing the private sector on board

To go for a full private-sector approach you must integrate redevelopment into every stage of the project. This is how you do it. Call for expressions of interest for private companies to design, build, finance, own and operate the light rail link and, crucially, make sure this includes land-development options (rather than letting in outside developers). This would help to create funds that can be used to finance and to operate the system.

Government needs to contribute a base grant and an operational fund that could be more specifically focused along the areas where the biggest benefits are felt in the corridor itself, where land values will go up most. Private expertise will ensure that the best sites are chosen for the light rail route. These land-value increases will flow through taxes into treasury and can be set aside in a dedicated light rail fund for ongoing operations and/or for raising finance (rather than instituting a city-wide levy as the Gold Coast did).

The approach, called tax increment financing, allows infrastructure to be built where it can be shown that the taxes would not have been generated without it. A bus instead of a light rail would not generate such land-value increases, and hence the extra tax dollars would not flow. For instance, Perth’s southern rail line raised land values around stations by 42% over 5 years and could have raised 60-80% of the capital cost if tax increment financing had been used.

Across Australia we should accept that there is a real choice over steel or rubber wheeled development. We can choose MAX over Mad Max. But are we brave enough to go one step further than the Gold Coast and involve private financing?

Some might object to our public transport being in private hands, but if we manage it well, this kind of partnership with private expertise can deliver beautiful cities as well as beautiful trains.

Peter Newman does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.