In Australia, high speed rail, reduced government spending and public finance arrangements for urban infrastructure projects remain a topic for debate.
Suppose that Sydney's trains could achieve the speed of China's bullet trains and move at 280 km/h. Newcastle is 162 km from Sydney, and the current travel time between the two cities is about 2 hours 40 minutes. At the speed of a bullet train the one way commute time would decline to 35 minutes. Common sense suggests that home prices in Newcastle would soar as businesses and households would come to view the city as a new Sydney suburb, and the demand to live and work there would sharply increase. Newcastle would benefit from the population increase and all the amenities that private enterprise would build to support it.
That’s exactly what happened in China as a consequence of the country's enormous investment in bullet trains. But the question is what level of public investment the Australian and other governments want to make to relieve congestion in big cities and spur growth in second and third tier cities, especially at a time when many are questioning the role of government and pushing for reduced government debt?
Here’s China's story: Between 2006 and 2010, the Chinese central government spent billions of dollars on new bullet trains that connect second and third tier cities with the mega cities of Beijing, Shanghai and Guangzhou - but of course bullet trains don’t connect every smaller city to a mega city. Comparing bullet train 'connected' cities to similar cities that the bullet train had bypassed, researchers documented large increases in home price for newly connected cities. Based on the ridership data for two major bullet train lines, they calculated that the average city house price growth per billion passenger-kilometres is 4.2%.
High rents in the big city also nudged the subset of households and firms with the lowest willingness to pay, to consider relocating to the secondary cities. But these decentralised households can still easily travel to the major cities for unique shopping and restaurant options.
The bullet train simultaneously alleviates some of the congestion costs associated with urban growth in the bigger cities, and triggers growth of the nearby second and third tier cities. This may cause nearby lower tier cities become a ‘safety valve’ for the mega city, alleviating concern about such cities growing too big. In China, such investments strengthen centre cities as the bullet train connects to downtown subway stations in the big cities. In this sense, this investment is a low carbon strategy that lessens the need for both in-city and cross-city car trips.
There’s even more to the story for companies. The bullet train has the potential to play a similar role as the Internet, attracting back-office activity and helping firms to fragment. This means they keep their deal makers in the expensive commercial real estate in the CBD, while sending their routine activities to cheaper land at the periphery.
The rapid transport will allow for a more efficient allocation of business activity across space, helping firms to control costs. It’s a win-win; the scarce big city’s land is efficiently used, and the secondary cities experience local growth.
In Australia, high speed trains seem unlikely to accelerate any time soon, so cities like Newcastle, Canberra or other cities on the North East Corridor will not enjoy the full benefits of their geographic proximity to Sydney, Melbourne or Brisbane. High speed projects cost billions, and the individual states would be expecting the federal government to provide much of this money. Critics will note that it is easy (and quite tempting) to spend 'other people's money'. In this current time of reduced government spending, public finance arrangements for urban infrastructure projects will remain an important topic for debate.