Executive Summary
The purpose of this research is to develop a tool to assess the economic costs in urban development decisions in Australia by comparing inner-city redevelopment and conventional fringe development. The associated costs taken into consideration for the assessment include infrastructure provision, transportation costs, greenhouse gas emissions, and inactivity-related health costs and are estimated for a development of 1,000 dwellings. The proposed approach can be used to assess these costs in any development or in any infrastructure decision that would lead to different development patterns.
Costs associated with infrastructure provision were mainly drawn from a study titled Future Perth that was commissioned by the Western Australian Planning Commission. The report surveyed 22 studies from the United States, Canada, and Australia on infrastructure costs associated with inner, middle, and outer city developments. For the purpose of this report, the consumer price index and labour price index were consulted to inflate the 1999 prices contained within Future Perth to 2007 Prices. The resulting cost of up-front infrastructure provision for an inner city and fringe development in 2007 prices were $50.5 million and $136.0 million respectively.
Transportation costs were drawn from a previous study by Newman and Kenworthy (1992) that reported annual costs associated with private vehicle depreciation and operating costs, annual road infrastructure costs, transit costs, time costs, and externalities. The annual costs were inflated to 2007 prices and then capitalized over a 50-year period. The present value of annually recurring transportation costs for an inner city and fringe development were valued at $256.8 million and $507.1 million respectively.
Unlike infrastructure and transportation costs, assessing the economic costs of transport greenhouse emissions associated with urban infill and fringe developments has not yet been done. The source of the data used was a study by Chandra (2006) that attempted to model daily per capita greenhouse emissions as a function of various urban form parameters in the cities of Melbourne, Sydney, and Perth. For the purpose of this assessment, the data was modelled for the following three combined parameters: distance to CBD, activity intensity, and transit accessibility. In this model, activity intensity came out as insignificant – a likely result of density being a proxy for developing closer to a CBD. The data was run again after removing activity intensity from the model. The resulting equation was y = .073x -.25z + 4.35, where ‘y’ is the daily per capita greenhouse emissions in kg CO2-e, ‘x’ is the distance to the CBD and ‘z’ is the transit accessibility measured as a percentage of the area characterized by a transit servicing of greater than 15 minutes as well as evening and weekend services. The model explains 73.4% of the variance in greenhouse emissions. Finally, factoring in a social cost of $170 per tonne CO2-e for a development of 1000 dwellings resulted in a capitalized cost of $17.39 million and $36.70 million respectively for inner city and fringe developments over a 50-year period.
The inactivity-related health component of the report was similar to the greenhouse gases component in that it is a newly related subject to the economic impacts of urban form, possibly to an even greater extent than greenhouse. A methodology for calculating the health-related savings potential of developing active travel neighbourhoods was devised and subsequently a capitalized value of $4.2 million was calculated over 50years. The health component was calculated as a savings potential, not an incurred cost, because inactivity-related health costs are not exclusively caused by urban form. The relationship between active modes of travel and urban form is very complex and multidimensional, leaving many experts on the subject still speculating about the underlying causal factors. This component of the assessment is concluded by the illumination of a number of other considerations still needing attention, especially the productivity improvements at work associated with people who live more actively in their daily lives rather than sitting in a car.
Consolidating the costs attaches a price on inner city redevelopment of approximately $309 million and $653 million for fringe development. These estimates include the up-front costs of infrastructure provision and the capitalization of recurring transport, greenhouse gas, and activity-related health costs. What the separate component costs suggest is that greenhouse gas and health costs are unlikely to catalyze urban reform on an economic basis because of their relatively small economic appraisal. They do, however, reflect important issues facing policy makers that must be met for many reasons. If achieved through urban development then they will only constitute a minor economic benefit but there will be a very substantial economic benefit from the transport and infrastructure cost savings. Thus greenhouse and health benefits comprise a companion rationale for developing in areas of higher density, transit accessibility, and mixed-use which have a strong economic base.
A simple model was derived from these assessments that can be used to predict costs associated with any urban development in Australian cities. The model reduces to a simple relationship between urban development costs and distance to the CBD which is a surrogate for the character of urban development: y = 5.68x + 306.56 where y is the cost of development in millions of dollars and x is the distance to CBD.
